Effective Microsoft MACC Negotiations in 2025

Microsoft is tightening discounts in response to its AI investments.

Microsoft is entering 2025 (Fiscal H2) with significant investments in AI (Copilot) and lower-than-anticipated sales performance in this segment. As a result, Microsoft is putting increased pressure on sales teams to compensate by reducing discounts and growing margins, resulting in a more rigid stance during negotiations. Organisations renewing their Azure contracts, especially those that previously secured aggressive discounts, are likely to encounter a decline in discount levels for the same commitment amounts.

To address these challenges effectively, your organisation should consider several alternatives, including:

• Repatriating workloads to on-premises solutions where feasible,

• Exploring competitor alternatives,

• Implementing aggressive cost optimisation strategies, which can further yield approximately 30% annual savings.

At a minimum, we recommend developing a cloud exit strategy internally or with the help of a consulting partner. A credible threat that the current situation is one decision away from changing ensures that your negotiation counterpart on the other side of the table does not become too comfortable with the belief that Azure is firmly entrenched in your organization.

The Challenge of Contract Renewals

Renewing substantial Azure contracts demands careful preparation on your part to maintain negotiating leverage and optimise IT budgets. Key steps include:

1. Accurate Consumption Estimation: Understand current and future Azure consumption to avoid over- or under-commitment.

2. Look at Additional Consumption Opportunities: Decide if you can and want to add additional services to your Azure deal, such as buying MACC-eligible services from third parties via the Azure Marketplace, to boost your Azure consumption.

3. Detailed Contract Analysis: You should fully comprehend the finer points of your Azure deal, including costs for migrations, support, training, and price adjustments in multi-year agreements.

As enterprise Azure contracts grow, organisations often find that previous discount levels diminish if consumption remains constant. Reclaiming favourable pricing requires precisely targeted negotiation strategies, focusing on realistic consumption forecasts and leveraging all available concessions.

Recommended Azure Negotiation Strategy

Cost optimisation alone can save up to 30% annually.

Pre-Negotiation Cost Optimisation

Cost optimisation is a critical component of managing Azure expenses effectively. Before entering any negotiation, organisations should prioritise implementing cost optimisation strategies, as this alone can yield annual savings of up to 30%. These strategies include:

1. Identifying and Removing Idle Resources: Identify unused resources, such as storage disks or public IPs, and delete them to avoid unnecessary charges.

2. Utilising a Savings Plan: Commit to a consistent level of compute usage over one or three years. Such an approach offers flexibility across regions and VM sizes while reducing costs. Pro Tip: Reservations and Savings Plans can be mixed. First, reserve what you know will continue running for a while, and then purchase a Savings Plan for your more dynamic workloads. Reservations come first and do not stack with Savings Plans—don’t fall into the trap of buying both at once.

3. Commitment Plans: If you consume hundreds of gigabytes per day in Azure Monitor or Azure Sentinel, consider purchasing a commitment tier for these services. It works like a reservation but is much easier to adjust and opt out of.

   Pro Tip: You can combine commitment plans with pre-purchase plans. However, we recommend you start with an experimental purchase and validate if the rebates are getting correctly applied. Depending on the contract, your billing currency and other factors not yet known to us, we have seen cases where buying an Azure Sentinel pre-purchase plan has led to higher costs instead of lower costs for a customer of ours.

4. Capitalising on Spot Instances: To access significant discounts, use Azure Spot Instances for workloads that can tolerate interruptions, such as batch processing or testing.

5. Modernising: In recent years, new versions of App Service Plans, especially Virtual Machines, have been released. If you are running older versions, upgrade your older Premium App Service Plans to the current V3 and Virtual Machines to Dv5, Ev5, and Bv2. You will get much better CPU, storage, and network performance at a lower cost. You can even reserve Premium V3 App Service Plans for an additional rebate.

6. Right-Sizing and Right-Tiering of Resources: Regularly review and adjust resource sizes to match workload requirements. Downsizing oversized virtual machines or storage accounts can lead to substantial savings, but only after evaluating if the benefits of the managed service outweigh its constraints (like the coupling of license type, vCPU count and storage size on Azure SQL Managed Instances).

7. Choosing the Right Services: Evaluate Azure services to ensure they align with business needs and cost-efficiency considerations. Opt for managed services or newer offerings that may provide better value.

8. Optimising Storage: To optimise storage costs, move infrequently accessed data to lower-cost tiers, such as Azure Blob Storage’s Cool or Archive tiers, and implement lifecycle management policies.

9. Consider Azure Dedicated Host: Instead of running 48 Windows Server VMs with two vCPUs each and having to buy 48 * 8 = 384 licenses in total, consider using an Azure Dedicated Host with 96 vCPUs and fully licensing it with 96 Windows Server licenses. Remember to reserve it.

10. Monitoring the Cost and Act on Unintentional Spikes: Regularly monitor usage data to detect unexpected cost increases. Use tools like the Azure FinOps Toolkit to identify significant changes in cost for resources and take corrective actions promptly.

11. Implementing Start/Stop or Deallocate Schedules for Non-Production Resources: Schedule non-production resources, such as development and testing environments, to automatically stop during non-business hours, minimising costs incurred from idle resources.

Organisations can strengthen their negotiating leverage by:

1. Realistic Consumption Forecasting: Aligning consumption estimates with optimisation efforts helps avoid wasted prepayments and unmet commitments. Pro Tip: Help your Microsoft Account Executive score a win. Microsoft is trying to boost AI and Azure Marketplace sales this fiscal year. If you want to build AI capabilities, offer to use the Azure offering. Also, consider which third-party IT service contracts could be moved to the Azure Marketplace, boosting your consumption and increasing your MACC drawdown rate.

2. Strategic Use of MACC Amendments: These amendments prevent unused prepayments while supporting flexible consumption terms.

3. Pursuing Comprehensive Discounts: Organisations should seek all available discounts, including Azure Consumption Discounts (ACD), Azure Credit Offers (ACO), and service-specific discounts.

4. Requesting Additional Incentives: Ask Microsoft for support to counter price increases, enhance Unified Enterprise Support, manage renewals, and fund migrations. Pro Tip: Your Microsoft Account Executive will have an easier time giving you $1.10 for a dollar than selling you a dollar for $0.95. Ask how Microsoft can co-invest in your IT in addition to the rebates you are negotiating for.

5. Leveraging Competitors as your BATNAs: Highlighting alternatives such as AWS and Google Cloud Platform (GCP) can strengthen your negotiating position.

6. Understanding Smaller Commitment Shifts: Microsoft redirects smaller commitments in the $1M to $5M range to Cloud Solution Provider (CSP) agreements, enabling access to discounts, services, and support tailored for smaller organisations.

Accurate Azure Consumption Estimation

Before entering negotiations, your organisation must develop a precise understanding of its current and future Azure consumption. Accurate estimations are fundamental to successful negotiation outcomes. Overcommitting leads to wasted budgets, while undercommitting weakens negotiating leverage. Tailoring consumption forecasts to accurately reflect actual needs ensures more favourable agreements.

Azure Consumption Forecasting

Forecasting Azure usage over a three- to five-year period presents significant challenges. Presales estimates from Microsoft or third-party cloud architects may be biased, either overestimating consumption to encourage higher commitments or underestimating it to compete with alternative providers like AWS and GCP. To ensure accurate forecasting, organisations must:

• Critically analyse underlying assumptions to ensure alignment with expected workloads.

• Account for factors such as complex migrations, evolving requirements, and the organisation's cloud maturity.

Structure of the Agreement and Contractual Term Highlights

Microsoft Azure Consumption Commitment (MACC) agreements offer flexibility and predictability in managing Azure expenditure. Key components include:

1. Commitment Levels: Organisations commit to a specific Azure consumption level over a set term, typically three to five years.

2. Standard and Extended Terms: While the standard MACC term is three years, organisations can negotiate extensions, such as 3+1 or 3+1+1 year agreements.

3. Discount Structures: Discounts are tiered based on commitment size, with higher consumption levels yielding greater savings.

4. Consumption Flexibility: MACC agreements may include:

   1. Allowances for reallocating spending across Azure services.

   2. Rollover provisions, which allow unspent commitment amounts to be carried forward to the next year. These provisions offer valuable flexibility in managing unforeseen changes in consumption.

5. Performance Reviews: Regular checkpoints are established to assess usage and provide opportunities for realignment.

6. Non-Financial Benefits: Agreements may include access to support services, training resources, and technical advisory sessions.

Mitigating Under-Consumption at the End of the Agreement Term

Unused Azure commitments require careful management to prevent financial losses. Key considerations include:

• Unused Commitments: Any unused commitment amounts at the end of the term will be billed as prepayments, with a 12-month grace period to utilise them.

• Discounts on Shortfalls: Azure Consumption Discounts (ACDs) do not apply to shortfalls unless a new MACC agreement with updated ACD terms is negotiated.

• Utilising Reservations: Purchasing "full upfront" Azure reservations can be an effective strategy to mitigate the risk of unused prepayments.

• Marketplace Limitations: It's essential to note that Azure Marketplace purchases cannot be applied to shortfall invoices.

Unused Azure commitments can become a financial black hole.

Controlling Azure Price Increases

Azure pricing can fluctuate monthly, influenced by global alignment with the USD price list. Organisations can mitigate the impact of price increases by:

• Including price protection clauses in agreements.

• Ensuring negotiated discounts apply to fixed price benchmarks.

• Regularly reviewing pricing updates with Microsoft.

Using Azure Marketplace to Contribute to MACC Consumption

Azure Marketplace purchases can contribute to an organisation's MACC consumption. This includes qualifying purchases of third-party software and services.

Effective Strategies for MACC Negotiations

1. Know Your Baseline: Analyse current and projected Azure usage.

2. Understand Microsoft’s Position: Leverage insights into Microsoft’s strategic goals.

3. Leverage Alternatives: Highlight willingness to explore AWS and GCP.

4. Focus on Flexibility: Negotiate reallocations and extensions for unused commitments.

5. Include Tiered Discounts: Unlock greater savings with tiered discounts.

6. Extended Consumption Periods: Request extensions for unspent commitments.

7. Service and Consulting Funding: Secure funding for migration projects.

8. Non-Financial Benefits: Seek enhanced support, training, and access to technical expertise.

9. Monitor Post-Negotiation: Track usage and review alignment with goals.

Azure Deal Acronyms and Glossary: