Today, we are hearing more and more calls to break up Big Tech by U.S. Congress, European Union (EU) regulators and increasingly frustrated citizens who are watching the number of data and privacy breaches grow. It’s not clear that private Big Tech companies are doing all that is necessary to protect consumer data.
Apple, Alphabet and Facebook are all involved in several active cases in the E.U., which center on predatory or other non-competitive market practices. These cases serve as serious distractions for each company’s leadership and open a rare window of opportunity for other Big Tech competitors to maneuver and fortify their gains and market positions.
One Big Tech operator that has avoided much of the current regulatory scrutiny is Microsoft. Over the past decade, Microsoft’s business has completely transformed from a provider of finished software and software maintenance to a multi-cloud “as a service” platform.
What Do as-a-Service Licensing Models Mean for Buyers?
With Microsoft 365, Dynamics 365 and Azure making up the Microsoft portfolio of cloud offerings, the company has effectively retired its traditional software licensing business. That traditional business model was dependent on the development and packaging of version upgrades and client consumption of those upgrades along with a maintenance offering.
Today’s Microsoft business model is built on a steady stream of subscription revenues that customers must pay monthly to run workloads from Microsoft datacenters. Software, which was once a perpetual asset to an enterprise, is now the modern-day equivalent of a Microsoft “dial tone.” In other words, without an active monthly subscription, customers get no service.
While this might not sound like such a bad thing – given that software, hardware, datacenters and other operating expenses are replaced with a simple hosting agreement – enterprises face a narrowing of choices, which significantly raises their exposure to risk.
Microsoft 365 is far and away the largest cloud property in Microsoft’s “as a service” portfolio and – while Dynamics 365 and Azure compete with other market alternatives such as Salesforce, SAP, Oracle, AWS, Google and IBM – there is virtually nothing to counter Microsoft 365’s market dominance.
Negotiating with Big Tech
Once customers are up and running with Microsoft 365 and have re-established their productivity workloads as a third-party service, they get a real taste of what it means to do business with Microsoft. We are seeing untenable renewal offers with increases as high as 20 percent for the preservation of retained services unless customers are willing to increase their workload footprint by displacing existing provider solutions for security, compliance and management in favor of Microsoft alternatives.
Moreover, customers are being charged incremental costs well beyond typical budget increases, which means they often must accept payment terms that provide temporary relief in the first year only to have that relief recovered and paid for in the contract in later years. Microsoft is not even allowing customers to change payment terms to spread the three-year TCV over the term; this means deals end on very high price points.
These Microsoft behaviors are now being seen for what they truly are: a strong arm-twisting of customers to advance its business objectives into new markets. Hence, we return to the topic of data breaches and the consumer and citizen challenges to Big Tech.
An article in The Wall Street Journal, in which the acquisition of an artificial intelligence (AI) company by Microsoft is discussed, clearly points out that Microsoft is actively working to coalesce as much market share as possible. One might deduce its motivation is to move as fast as it can while its competitors are distracted with investigations and inquiries.
The marketplace needs either a viable competitor to Microsoft 365 or a government review into whether Microsoft customers are being treated fairly. This type of behavior is not without precedent. In July of 1994, Microsoft was party to a United States Department of Justice Consent Decree that prohibited it from using a monopoly market position with Windows Desktop Operating System to leverage customers into acquiring other Microsoft products. Here we are 25 years later and, while that was a generation ago, there seems to be an unmistakable parallel in its practice of using Microsoft 365 today as it used Windows Desktop Operating System in the past.
What should enterprises working with Microsoft do?
A qualified advisor can help you build a proof of concept that invites Google to demonstrate how its productivity tools, Google Workspace, might be a viable alternative to Microsoft 365. In recent months, Microsoft has dramatically increased the costs of including frontline workers as Microsoft 365 tenants. These workers rarely need desktop software and are suitable candidates to leverage browser-based solutions, which Google has perfected over time. Perhaps activities like this could serve as the warning shot Microsoft needs to hear from clients it has been taking for granted.
About the author
Louis Pellegrino
Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.
During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.
