Since the advent of Microsoft Online Services commercial offering, which started with Business Productivity Online Services (BPOS) back in 2008, one of the benefits marketed by the software giant was an improvement in the way customers could pay for the service. It was a move away from the traditional annual pricing used by Microsoft’s volume licensing program Software Assurance and toward a more “flexible” monthly pricing, which would allow customers to adjust the amount they pay based on user count over the licensing agreement term, which is typically 36 months.
At that time, the only improvement came in the way of monthly pricing, which allowed customers to add new users in the middle of an agreement, pay only for the number of months remaining until the anniversary of that agreement, and then pay the annual amount for subsequent years. Interestingly, Microsoft did not provide an option to reduce the number of users in the middle of an agreement, which meant, in the worst-case scenario, customers would have to pay a full 12 months for those users licensed on day one, even if those licenses were not needed again at any point before the next anniversary.
Provisioning Services to Fit Your Business
With the launch of Office 365, and as part of what it called its “updated Enterprise Agreement,” Microsoft included a series of improvements to ease the process of incorporating new users, in the form of the License Reservation Process, which allowed provisioning of services in the Office 365 Portal to be billed retroactively for the number of months of service at the next anniversary. The product terms also designated Office 365 services as “reduction eligible,” which laid out a formal process for customers to reduce the number of users at the anniversary, but still only at each anniversary. Though this reservation process is convenient for IT departments, it has faced adoption challenges because it can conflict with established sourcing processes for large corporations.
While the Microsoft productivity services catalog has seen many other changes and additions in the eight years since the launch of Office 365, there have been no improvements to the Enterprise Agreement (EA) program that would allow customers to pay only for what they use in key scenarios, such as the following:
- Customers with a significant increase or reduction of the number of users due to their industry’s seasonality (i.e., retail, insurance or education).
- Customers running projects with a significant number of users for a period of time less than 12 months (i.e., elections, sporting events, catastrophe management, etc.).
- Customers that require paying for the services only for a short period of time while a technical migration is performed or during a merger or acquisition.
Microsoft launched the Cloud Service Provider program (CSP) in 2014 to enable the reseller community to sell Microsoft’s Online Services to the masses. CSP is currently the only available licensing program that provides the capability of increasing and reducing the number of Office 365 / Microsoft 365 users on a monthly basis. Unfortunately, CSP is oriented to small and medium-sized businesses and its pricing is negotiated by Microsoft’s reseller community, which means customers are restricted in their ability to negotiate pricing and cannot negotiate commercial terms. Moreover, it presents administrative complications associated with having more than one licensing agreement to cover an enterprise’s license estate.
Enterprises Need Flexible Pricing
These program restrictions can be costly for customers, who can end up paying between 20 and 40 percent more for the same workloads by maintaining the current EA model rather than being able to reduce the number of users on a monthly basis. You can surely expect Microsoft to push back on requests to address this overpayment alleging that their back-end systems for the EA program are not capable of addressing these scenarios. This reminds me of an old Venezuelan saying that translates roughly as “In the blacksmith’s house, they use wooden knives.”
As of now, there are no signs on the horizon for the Enterprise Agreement program to provide such flexibility, even though it has already been available for CSP customers for five years. If Microsoft is to continue evolving toward a more consumer-oriented business model, as it says it is, it must better “bridge” operations and pricing to provide the flexibility enterprise customers need. In the meantime, ISG can help enterprise customers align cost and value realization so they make the right decisions for their business. Check out ISG Insights to learn more about recent news and announcements from Microsoft. And contact us to find out how we can help you.
