Summary
Have Enterprise Agreement Renewals Lost CFOs' Attention?
It may appear that Enterprise Agreement (EA) renewals have taken a backseat in recent years, with attention shifting towards more exciting areas like Microsoft Azure Consumption Commitment (MACC) contracts. This perception, however, is not entirely accurate. While Microsoft's strategic push towards cloud offerings has undoubtedly influenced priorities, EA renewals remain a significant concern for organisations, particularly those with large on-premises deployments.
We have to give it to Microsoft; they have done a great job (for themselves) by successfully redirecting the focus to Azure and MACC contracts, which often represent higher monetary values than traditional EAs. As a result, many organisations relegated EA renewals to lower-level management, incorrectly assuming they could be handled without significant oversight.
However, this delegation has often resulted in individuals lacking the necessary training, knowledge, and experience in managing complex EA renewals. Consequently, organisations are experiencing rising costs as these renewals are not handled optimally. CFOs are now realising the need to re-engage with EA renewals and ensure they receive the attention they deserve.
Why Do Enterprise Agreement Costs Always Rise?
A common question during EA renewals is why costs increase almost inevitably. Every three to five years, your organisation may face significantly higher quotes than your previous EA, leading to budget concerns and difficult conversations with Microsoft.
Several factors contribute to that, the most obvious of which is a simple price increase. Microsoft price lists increase substantially over the term of three to five years. The previous three years saw significant uplifts for the most popular products and services. Organisations typically negotiate EA contracts every three to five years, so those who haven't renegotiated recently may be unaware of these price hikes.
Furthermore, if your organisation has shifted its focus and priorities during the contract term, it often results in a less comprehensive understanding of the current Microsoft licensing landscape.
There are other reasons:
New product introductions: Microsoft regularly introduces new products and services, like Copilot. Microsoft sales representatives will likely try to convince your C-level executives to adopt these, partly driven by the higher reward for flagship product sales. As a result, the overall bill will inevitably need to increase.
Exchange rate fluctuations: Changes in exchange rates can impact the cost of EAs, especially for multinational organisations.
Decreased discounts: Microsoft has been reducing discounts on EAs, making it more challenging to secure favourable pricing.
The CFO often has a pre-planned budget, but everyone is shocked when the renewal quote arrives. The actual cost increase is not the usual 5%, 8%, or 10%; it averages around 30% or even higher.
The challenge extends beyond EAs, as overall Microsoft spending increases significantly. Azure costs are growing exponentially, and many organisations struggle with cost optimisation. Unified Support, linked to EA spending and Azure expenditure, grows together with them.
Azure is a unique area of concern. There is a risky disparity in spending authority due to the differences between procuring and paying for licences versus the Cloud. When a CIO requires approval for purchase orders exceeding $10,000, an Azure architect can engage aspects of Azure and commit to half a million dollars per year without needing approvals or accountability.
Azure is sold as a pay-as-you-go commitment, and organisations are yet to learn how to deal with this new reality. It has optimisation facilities like Saving Plans and Reservations. However, it's still just a pot of money outside of control with traditional procurement and CFO tools geared towards purchasing goods and services. Then there's Azure Marketplace, a great tool but an additional headache for CFOs as it makes spending control even harder.
Never underestimate the magnitude of what Microsoft has accomplished in the market from a business perspective. Unfortunately, many organisations are years behind in recognising and addressing these changes.
FinOps Is Not Cost Optimisation
While many organisations have embraced FinOps practices to manage their cloud spending, you must understand that FinOps is not synonymous with cost optimisation. This distinction is crucial because it ultimately relates to your Enterprise Agreement renewal, your strategy, and how you prepare for it.
One of the biggest misconceptions is that if you have established a FinOps organisation, you also have a cost optimisation process. Most likely, you don't. Even companies with strong FinOps practices often lack incentives for cost optimisation. One significant issue tied to MACC agreements is that many organisations overcommit. When you overcommit, you have no motivation to optimise costs. Instead, the tendency is to spend more and more to try and meet the commitment, leading to significant wastage.
Billions of dollars are being spent, flowing in Microsoft's direction without any corresponding value being returned. However, the fault is not with Microsoft. The real issue lies with the end customers, who have lost touch with and control over how to manage their spending.
Leveraging Azure
When preparing for your Enterprise Agreement renewal, it's essential to consider your overall Microsoft spending, including Azure. Don't view the EA in isolation. Even if your Microsoft Azure Commitment (MACC) is not up for renewal, a comprehensive understanding of your total expenditure with Microsoft is crucial. Let Microsoft see the overall value you bring to the table.
Other tools you can use to leverage Azure:
Future Azure consumption: Highlight upcoming projects and planned increases in Azure usage.
Migration plans: Demonstrate your commitment to migrating workloads to Azure.
Third-party alternatives: Present viable alternatives to Azure or security products within your EA. Explore options from AWS, GCP, or other cloud providers.
Prepare sound alternatives
Organisations often face challenges when they delay their preparation for contract renewals. Even after 20 years of negotiating Enterprise Agreements (EAs), many tend to move too slowly and begin preparations too late. Additionally, they often fail to develop alternatives.
A key negotiation concept is BATNA, which stands for "Best Alternative to a Negotiated Agreement." Entering into any negotiation without a solid BATNA puts you at a disadvantage. When negotiating EAs, particularly with a company like Microsoft, viable alternatives do exist. Without a substantial alternative, you have generally lost the negotiation, even if you secure a minor discount.
Be Firm and Assertive
In approaching EA renewal negotiations with Microsoft, you need to adopt a firm and assertive stance. Many organisations, even large ones, fall into the trap of believing they have limited leverage. This belief can foster a defeatist attitude and a willingness to accept unfavourable terms.
Even with rising costs and diminishing discounts, securing a good deal is possible. Maintain a strong negotiating position and don't hesitate to push back on Microsoft's proposals.
Key elements of a strong negotiation strategy:
Thorough preparation: Understand your current licensing position, identify areas for optimisation, and develop a clear negotiation strategy.
BATNA development: Establish a Best Alternative to a Negotiated Agreement (BATNA) to strengthen your position. Explore alternative solutions or vendors.
Confidence and assertiveness: Don't be afraid to push back on Microsoft's proposals and advocate for your organisation's needs.
Microsoft is a business, and they are motivated to secure the best possible deal for themselves. By being firm and assertive, you demonstrate that you are a serious negotiator and are willing to walk away if necessary. This can significantly improve your chances of securing a favourable EA renewal.
Smaller organisations often have an advantage, as they tend to be more agile, aggressive, and willing to explore alternatives. Larger organisations can also achieve successful outcomes by adopting a proactive and assertive negotiation approach. Ultimately, your attitude and preparation will significantly impact your EA renewal negotiations.
What Is Considered a Good Discount?
Discounts vary significantly depending on several factors, including:
Organisation size: Larger organisations have more leverage in negotiations and may be able to secure better discounts.
Product mix: The specific products and services included in your EA can influence Microsoft's discount.
Negotiation skills: Your ability to effectively negotiate with Microsoft will play a significant role in securing a favourable discount.
Market conditions: The overall market conditions and Microsoft's current priorities also impact their discounts.
Discounts have dropped by over 50% in recent years. For example, an organisation with 3,000 users that previously received a 12-20% discount on Level B of the price list should now expect to receive half of that discount—if they are lucky.
This reduction largely affects organisations that already adopted the E5 plan. Those who genuinely utilise the E5 security components have found themselves in an even tougher spot. Microsoft is strategically leveraging its position in the market with Office and Microsoft 365, which includes everything under that umbrella. As a result, we are seeing a reduction in on-premise editions, rollouts, and features, as the focus is clearly shifting to the cloud.
Microsoft has effectively created a situation where organisations feel almost captive to their offerings. The alternatives in the market are diminishing, and when options are limited, suppliers have little incentive to offer compelling discounts unless there's a strong business case or a significant alternative presented.
Leveraging Microsoft's Push to AI and Copilot
Microsoft continues positioning AI and Copilot as strategic products, which transpires in their non-stop, seemingly hectic rebranding and repackaging. On the licensing side, they recently added Pay-As-You-Go options for Copilot.
However, the reception of Copilot has been lukewarm. Initial enthusiasm seen in 2024 has faded. Success stories are rare, primarily from implementation companies, not end clients.
Organisations are increasingly focused on finding ways to secure discounts on Copilot, which has proven challenging.
Microsoft was so confident in the product's value in 2023-2024 that discounts were minimal compared to the overall Enterprise Agreement (EA), even for large organisations. Copilot was marketed to C-level executives using basic features, such as running it in Teams and providing meeting summaries.
Many organisations adopted it but generally purchased a limited number of licenses to experiment with the tool. However, the anticipated benefits haven't materialised. Feedback from clients around the globe is consistent: Copilot has not delivered on its promises. Microsoft now faces more challenges selling Copilot than before, as its adoption has not grown as expected.
The pressing question for CFOs and CIOs is how to leverage Microsoft's push for AI without wasting money.
Be cautious. Microsoft had been encouraging organisations to commit to higher volumes of Copilot by offering discounts—both on Copilot licenses and your EA. Although these incentives were not explicitly stated, they have been part of negotiations. As we approach 2025, be wary of including Copilot in your discussions unless you have a compelling business case.
If you don't see the value in Copilot and don't have a solid project ready to launch immediately after signing your EA, don't introduce it in the negotiations. Microsoft can leverage your interest in Copilot to push for additional commitments, and if you decide to remove Copilot from the table during negotiations, you risk losing all negotiating leverage. On the other hand, If you purchase Copilot without a clear plan for its usage, you may end up with unnecessary licenses, leading to complications in future negotiations.
Approach the topic of Copilot—and AI in general—with caution. While AI is developing and evolving, the promises made for enterprise organisations remain to be realised.
Leveraging "Scorecard" Products
Before your EA renewal, investigate Microsoft's most current internal priorities and leverage them to your advantage.
Find out what the "scorecard" products are—those that are most important to Microsoft's sales metrics and can, therefore, be used as leverage in negotiations. Microsoft sales representatives do not receive equal compensation for every product. For some products, sales representatives may not receive any compensation at all, and focusing on them is a waste of effort. Additionally, find out if the compensation is awarded at the point of sale or only once you start consuming the product.
While the specific scorecard products can change over time, some key areas to focus on in 2025 include:
Security and compliance: Products related to security and compliance, such as E5 Security and E5 Compliance, are high on Microsoft's priority list.
Dynamics 365: Dynamics 365 remains a key focus for Microsoft, and increasing your investment in this area can provide valuable leverage.
Copilot: As discussed earlier, Copilot is a strategic product for Microsoft, and demonstrating a clear need and implementation plan for Copilot can strengthen your negotiating position.
It's not simply about adding these products to your EA. Gain even more leverage by strategically optimising your existing usage of scorecard products. For example, if you have groups of users who are not fully utilising certain components of E5 Security or Dynamics 365, create alternative solutions for those users and use this as a bargaining chip in your negotiations.
Things can get interesting if you currently have scorecard products in your EA but aren't utilising them effectively across the organisation. You may have groups of users using specific components while others are not, whether in Power BI, specific compliance products, or involving different types of users—such as internal versus external consultants.
If you can build an alternative solution for a particular group of users based on their usage trends and establish a fallback position, that can be quite challenging for Microsoft sales representatives. Sometimes, moving backwards can be just as powerful as moving forward. Taking a step back can be difficult, but it is always worth checking to see if that option is feasible.
Don't forget the importance of basic negotiation strategy, particularly regarding posture. You can create a viable alternative without having to retreat. Be strategic. Microsoft is a formidable competitor. If you don't elevate your approach in 2025, your costs will likely rise.
Can Unified Support Be Leveraged?
While it's common to leverage overall Microsoft spending to influence Unified Support negotiations, using a Unified Support contract as leverage in your EA negotiations is nearly impossible.
Microsoft sales teams often ignore Unified Support, sometimes deliberately, but it's a crucial element to consider during EA renewals. Unified Support costs have risen significantly in recent years, often doubling or even tripling.
This aspect of negotiations often gets overlooked in organisations because it's not as significant as an EA, so it doesn't receive the same level of attention. However, when you see your support costs with Microsoft rising from, say, $1 million a year to $3 million a year, you have to ask yourself:
Do you truly require the level of support offered by Unified Support?
Are there alternative support options available, either through Microsoft or third-party providers?
Have you aggressively negotiated with Microsoft on Unified Support pricing?
Most organisations don't ask these, and Unified Support negotiation is often brushed aside.
Bring In New Blood
In-house negotiators often lack the incentive. They simply don't have that compelling drive to negotiate aggressively anymore; they're exhausted.
Sometimes, you need a coach, a mentor, or someone who feels obligated to push you because they are compensated for it. That extra drive can make a real difference.
Consider bringing in external help for your EA negotiations. Field experts can serve as your additional leverage. Their input can significantly enhance your negotiating position.
Will you be pushed from EA to MCA-E and CSP?
Microsoft announced in November 2024 that it will cease renewing certain EAs starting January 1, 2025, which is already happening. This more aggressive approach to migrate organisations off the Enterprise Agreement primarily affects those with 500 to 2,400 users, pushing them towards Cloud Solution Provider (CSP) agreements or Microsoft Customer Agreement - Enterprise (MCA-E).
Microsoft did not specify which exact types of agreements or customer segments would be affected, only mentioning "cloud agreements". The problem is that every Enterprise Agreement can these days be considered a cloud agreement. The only limitation mentioned was that the new policy applies only to direct markets. This announcement is significant for those in countries like the United States—a traditional direct market for Microsoft.
Some organisations will no longer have the option to renew their existing EAs. Instead, they will be forced to adopt a new agreement type, with significant implications for their licensing costs, flexibility and, potentially, compliance.
As an alternative to EA, Microsoft will provide you with either an MCA-E or a CSP agreement. Don't trust the promise of a "digital evolution of EA". These are entirely different agreements:
No volume discounts are defined in the price list. The pricing is the same for all organisations, and you will have to renegotiate any discounts you previously received automatically in an Enterprise Agreement based on your organisation's size.
Transferring the Azure tenant from EA to MCA could be tricky. Consider how this transition will be implemented and plan it, as it's a significant challenge. Azure under an Enterprise Agreement (EA) and Azure under an MCA are different, even though the backend systems are the same. In many cases, you cannot simply switch a tenant from an EA to an MCA. We have been monitoring this situation and recently started noticing that it is slightly improving; however, chances are that your transition may still be difficult.
The lack of a Software Assurance renewal facility in CSP and MCA-E almost guarantees increased costs while switching to subscription licenses. An initial discount may be offered to ease the transition, but don't expect it to last. The next renewal will be at the full price.
Licensing rules vary significantly, which can also increase costs. The transition from EA may impact your on-premises environments, Azure Hybrid Use Benefit (AHUB), Azure Stack HCI, and more.
You need to be fully aware of what the change of agreements entails. Several adjustments will be necessary. Costs are expected to rise. It's advisable to budget for an average increase of 20%. However, planning for a 30% increase may be more realistic. Additionally, there will be migration costs.
You might be able to negotiate a discount, but imagine finding yourself in a "take it or leave it" situation unprepared. When it's time for renewal, you email Microsoft, stating your intention to renew your Enterprise Agreement (EA), and then you receive a response. Ninety, sixty, or even thirty days before the renewal, you learn that you're on the list of those who cannot renew their agreement anymore.
You may have been gearing up to negotiate your EA, only to suddenly find yourself in a completely different landscape where the licensing rules have changed. You try to use old terms and leverage, but they inform you that those strategies no longer apply under the new framework.
Large organisations still hold significant negotiation leverage, whereas smaller organisations will encounter tougher challenges in 2025. It could be the most challenging year yet for small organisations working with Microsoft.
If you have nearly 2,500 users, consider moving to a higher tier, Level B; it may be worth exploring. However, smaller organisations are facing diminishing options.
The first step for small companies is to educate themselves. You can and should seek expert guidance, but it's crucial to understand the basics on your own. Seek out information about the differences, read, watch informative channels, and learn—even if it's just high-level information. Transitioning is not going to be a painless process.
Additionally, never hesitate to present your case to Microsoft. They may back down if it's clear that the transition is highly disadvantageous to you. They may offer help. They may offer incentives, but it's absolutely crucial to assess your situation and the remaining leverage at the next renewal before you agree to the transition. Again, it all comes down to finding the right leverage and contacts and preparing to negotiate assertively.
What If You Feel Like You Have No Leverage?
Many organisations believe they have limited leverage in EA negotiations, especially if they are already heavily invested in the Microsoft ecosystem and have adopted products like E5. However, this perception is often inaccurate.
Even if you feel "locked in" with Microsoft, there are always opportunities to leverage your position and negotiate better terms. Consider the following:
Broaden your perspective: Don't focus solely on your EA. Look at your overall Microsoft spending, including Azure, Dynamics 365, and other services.
Identify potential areas of leverage: This could include future projects, relationships with Microsoft executives, or the use of third-party alternatives.
Utilise your reseller: Your reseller can act as a valuable back channel to Microsoft and provide insights into potential negotiation strategies.
Explore competitor offerings: Even if you're heavily invested in Microsoft, study and try competitor offerings and use them as leverage in your negotiations.
What Is the BATNA for Those Who Are Already Locked In?
Even if your organisation is deeply entrenched in the Microsoft ecosystem, you still have options when negotiating your EA renewal. Developing a strong Best Alternative to a Negotiated Agreement (BATNA) is crucial for securing favourable terms.
Consider these potential BATNAs:
Leverage key projects: If you have important projects planned with Microsoft, they may be willing to offer concessions to secure your continued partnership.
Utilise executive relationships: If your organisation has strong relationships with Microsoft executives, leverage these connections to influence negotiations.
Engage your reseller: Your reseller can provide valuable insights and act as a back channel to Microsoft.
Explore competitor offerings: Investigate alternative solutions from competitors like AWS, GCP, or other cloud providers for specific workloads or services.
Expanding your perspective beyond the immediate EA negotiation can reveal valuable leverage points. Microsoft is not your only option, even if you are heavily invested in their ecosystem.
A Company of 2,000 Employees: CSP or MCA-E?
New companies with around 2,000 employees will most likely be directed towards a CSP initially. This can vary depending on whether it's a direct or indirect market, as there are still many indirect markets. Ultimately, you will likely end up with a CSP agreement, which offers less flexibility and fewer opportunities for negotiation. However, the positioning of this new company with 2,000 employees is crucial.
Identifying the right account team based on your market is essential. Different regions have different practices. For instance, negotiations in Norway could yield different outcomes than negotiations in Turkey. Similarly, results can vary between Finland and France, especially within the European market.
This variability extends to different regions in the US, too. The account team you engage with and your location within the US will impact your negotiations significantly. Therefore, connecting with the right person at Microsoft for your specific situation is essential. Success depends on geography and the sector that the 2,000 users belong to.
Consider these factors:
Azure incorporation: Are you planning to incorporate Azure?
Cloud usage: Are you a substantial cloud user? For example, are you spending 40 to 50 million dollars annually on Azure or AWS?
Licensing needs: Do you need E5, E3, or Copilot licenses?
You might still be able to enrol in an EA, but a CSP is also a valid option. While CSP agreements have less room for negotiation and are channel-driven, they aren't a bad choice.
Do You Use Azure Hybrid Use Benefit Properly?
Azure Hybrid Use Benefit (AHUB) allows organisations to use their on-premises Windows Server and SQL Server licenses with Software Assurance and similar subscription licenses to significantly reduce the cost of running virtual machines in Azure. However, many organisations are not taking full advantage of this benefit.
There are two extremes:
Organisations not using AHUB at all: They may be unaware of its benefits or do not understand how to apply it effectively.
Organisations misusing AHUB: They may overestimate their on-premises license coverage or apply the benefit incorrectly, potentially leading to non-compliance issues.
Organisations need to understand AHUB thoroughly and ensure they are using it correctly. Before renewing any licenses or providing Microsoft with Bill of Material numbers, examine your Azure virtual machine consumption and assess which licenses you can apply to Azure to reduce costs.
Don't cancel existing licenses unnecessarily. Transferring Windows Server Standard licenses with Software Assurance to Azure can result in significant discounts on the licensing portion of your Azure bill. Windows Server Datacenter licences are even more advantageous as they may be used simultaneously on-premises and on the Azure virtual machines.
While Microsoft is not currently actively pursuing audits in the enterprise sector, they have access to all your Azure Hybrid Benefit data and can easily identify discrepancies. Ensure that your organisation is compliant and using AHUB correctly to avoid potential penalties.
Our Advice for 2025
Ensure that your budget for Microsoft in 2025 is accurate. Don't underestimate rising costs.
Prepare your executive management team for what lies ahead.
Elevate your approach to upcoming negotiations. The terms you negotiated three or five years ago, especially with a five-year agreement, are not applicable now.
Plan ahead and think outside the box. Return to the fundamentals of preparation and strategy.
Consider your alternatives. There are always options to bring to the table.
Use the form below or book a call if you need independent, unbiased, no-nonsense advice on negotiating with Microsoft.