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June 27, 2024

Dealing with Microsoft: Professional Negotiator's Tips

SAMexpert Podcast

In this episode, Daryl Ullman, SAMexpert's Chief Negotiation Officer with 25+ years of experience, delves into Microsoft negotiations, focusing on Enterprise Agreements (EAs), Microsoft Azure Commitment Agreements (MACCs), and Unified Support contracts.

  • The changing landscape of Microsoft agreements, with MCAs set to gain importance over EAs soon.

  • The importance of approaching EA negotiations strategically and timely.

  • The ideal timeline for initiating internal preparations and engaging with Microsoft for negotiations.

  • The impact of Copilot on EA negotiations and approaches to negotiating its inclusion.

  • Microsoft's "not-on-time" clause threat and how to deal with it in negotiations.

  • The concept of BATNA (Best Alternative to Negotiated Agreement) and its role in negotiations.

  • The benefits of combining EA, MACC, and Unified Support negotiations into one comprehensive process.

  • Strategies for dealing with declining discounts in EA renewals.

  • Common mistakes to avoid in Microsoft negotiations.

45.81 MB

Good afternoon, our European listeners, and if we've got anybody from North America, then good morning to everyone. I will dive deep into Microsoft Negotiations Q&A. Hopefully, I will be able to share some knowledge with everyone today and leave you with valuable insider information.

My name is Daryl Ullman; I'm a professional tech negotiator. I've been around tech negotiations for over 20-25 years. And my passion is Microsoft negotiations. I'm a partner at SAMexpert, a leading consultancy in cost optimisation, Microsoft licensing optimisation and risk management.

I lead the negotiation team on behalf of our customers, and I negotiate day in and day out. I negotiate EA contracts, Azure MACC agreements, unified support, audit, mitigation, and everything in between. I've put together several key topics that I come up against regularly and some questions that I've been forwarded by the members of our community and those who have registered for this call.

EA negotiations are, they've been around for, it almost feels like forever these days. At least 20 years, if not longer. I've had the pleasure, or maybe not, of being around when EAs were launched at the beginning of the 2000s. Time flies, and a lot has changed.

EAs were Microsoft's centre of the world back in the day. Now, that's also changed drastically. EAs are important; they are still one of the most significant expenditures in any enterprise's IT budget, but this situation is changing. Maybe it's already changed. I would say that MACC–Microsoft Azure Commitment agreements are more important to Microsoft than an EA because they are becoming more significant than an EA, and that's where we all know that Microsoft is shifting their business.

There's much more emphasis on MACC agreements and the size of the MACC agreements. For large enterprises, they are much larger than their standard EA. And that means a lot. That is one of the reasons why, when I look at an EA, I understand that the emphasis and the importance of an EA from Microsoft's perspective has moved.

Microsoft considers an EA almost a commodity. They want to at least let you feel it's a commodity and a one-size-fits-all agreement. That is something that I try to impress on organisations because if you have that feeling, or Microsoft has impressed it on you, that understanding that an EA is just another agreement, just a commodity, and ultimately, your MACC agreement is much more critical. They want you to feel there are bigger fish in the pond than the EA, so you feel you can't negotiate.

And that is intentional. I'm saying all this to put you in the proper negotiation framework when entering one of these enterprise agreements because they're still substantial. They are still a large chunk of any IT business and can be negotiated and mitigated.

There's a lot to do about immediate cost avoidance. There's a lot to do about future cost mitigation and cost control. It's all about the financial setup, financial understanding, the mindset of the negotiator, and also understanding Microsoft's priorities and how you can still focus or refocus Microsoft's attention back on the negotiations, even though they want to take you away from that.

Your first question was: What's the ideal time to start negotiations?

There are two stages to negotiations. One is, let's call it your internal kickoff. When do you kick off preparations for the negotiations internally? And the second is when you officially kick off with Microsoft. Internally, I would say six months at a minimum, especially if you're a large enterprise organisation. You still need to go through the standard process of understanding what you have on your back end and in your data centres, which could be on-prem. It's still essential, but not as important as it used to be. It's still important because there's a lot of money in the back end, on the server side.

And what have you installed on Azure? For example, Windows Server and SQL Server. It's still a considerable expense, hundreds of thousands, sometimes in the millions, for Windows and SQL, especially if you are utilising Azure Hybrid Benefits or taking advantage of some loopholes Azure Hybrid Benefits has when registering those licenses on Azure. So you want to just take a look at that. Get your Software Asset Manager to run the reports and get the basic underlying information.

Things get even more interesting around your Microsoft 365 profiles and personas, and that's where I believe you need to focus most of your attention. A lot of work should be done there. Yet, what we're seeing is that many people are still overlooking that or feel that it's, oh, it's the same. Let's just continue with what we have. A lot of that initial mitigation, cost avoidance, and long-term cost framework comes from reviewing your 365 personas.

Potentially, we all know Microsoft is going to push you to 365 E5 if you're not there already. A lot of organisations are on E5. If you're not, you're still on E3, and hopefully, you've got a mix of personas. You've got some F3s, F1s, maybe E1s. You've got different types of personas within your organisation. Perhaps you've got external consultants, blue-collar workers, the whole variation that makes up the 365 profile.

Hopefully, you have reviewed and know what your personas look like, understand what they require, and take an in-depth view of the usage history. The Microsoft 365 portal provides you with all that information. If you don't know how to do it, contact your LSP or one of your partners. There are tools out there. It's pretty straightforward just to download or to view those reports, and you can get a good understanding of what has happened over the last, let's say, 12 months of usage.

Look at the trends. Look who's using what, and scrutinise the usage of the software. You'll often find that the organisation might have been convinced in the last negotiation to renew E5 or move to E5 for all users. Still, in practice, if you're not using Microsoft security components for E5, you'll ultimately find that you can downgrade a large number of users to E3 or maybe to other profiles, and there's a lot of money there. Don't take everything for granted, what was and what will be.

So you start around six months prior; you start your internal review. You need to engage with Microsoft, especially if you're a large enterprise, at least three months in advance, at minimum. There is a pretty aggressive negotiation that's going to take place. And you need to be prepared for that negotiation. Microsoft will push back aggressively on discounting, especially if it's E3 and you're not upgrading to E5.

And if you're on E5, they will aggressively push down the discounts. That's just the practice today. We're seeing that on an ongoing basis. It's nothing new. That trend has been apparent over the last three to four years now. Microsoft feels very confident in the place that they are with 365. Ultimately, if you haven't put into place an alternative, and even if you have, we all know that it's very low-hanging fruit from a Microsoft perspective because it's tough to move off 365. Microsoft knows that, and they will push on that very aggressively.

It's not a good tactic to put a so-called alternative on the table, only if it's a good alternative to 365. What Microsoft finds a bit intimidating is security components. So, if you have potential security components that could be alternatives to your 365 E5 security, that's absolutely something you need to look at. So Microsoft, six, three months in advance. Internally, six months in advance.

Another question. Microsoft has a standard non-on-time clause that they are providing to end customers. They say that if you don't renew on time, if you miss your renewal date, discounts will be void, and there will be a 3 per cent uplift or 3 per cent penalty on pricing.

I've been asked if that is a valid threat or if it is just some account rep trying to be smart about providing some kind of leverage to renew on time. The short answer is that it is a Microsoft policy. I can't say exactly when it came out, maybe 12 months ago, more or less, but yes, it's a standard Microsoft policy these days where Microsoft is aggressively pushing for on-time renewal. To be truthful, I haven't seen them implementing this uplift of 3%, but it's definitely on the table. And it isn't very comforting.

I recommend stretching out the negotiations around this so it is not a hard deadline and not leverage that Microsoft can use. It happens for multiple reasons. I like to send out 30 days before the official renewal date that, due to whatever circumstances, I try to put part of the responsibility on Microsoft, "We can foresee that the renewal is not going to take place on time." And as negotiations are going on in good faith, we expect Microsoft to continue the discussions and waive any type of hardball tactic, for example, that 3% uplift. Usually, that does the trick. That's my recommendation. Put it out there, put it on the table, don't avoid it, and then, it loses much of its effect.

What's your BATNA? For those of you who are not acquainted with the acronym BATNA, that's the Best Alternative to a Negotiated Agreement. You need to have alternatives. If you walk into a negotiation and you don't have alternatives, you're captive in whatever is thrown out at you.

A BATNA provides you with the confidence to negotiate, your confidence that you have an option and an alternative, and that confidence comes through when you talk. It comes through in your tone of voice, in your posture, in your emails, and when you have internal discussions with your stakeholders.

It is vital. You need to have the best alternative. I'm not talking about your best alternative to an entire Microsoft agreement. We need to be realistic. You don't have a 100% alternative. But you might have an alternative potentially around Copilot. You might have an alternative around Power BI, CRM, and various security components. And I can go on and on. Every organisation has its unique alternatives for specific products. You need to figure out for yourself what your best alternative is.

Something that will put pressure on Microsoft and provide you with the additional leverage you are looking for in this tough negotiation. Don't forget your BATNA. It's really important to have a BATNA.

Do you have a game plan? You are in a high-stakes negotiation. Usually, it's in the tens of millions, depending on the size of your organisation, millions or tens of millions of euros/dollars. You need to be prepared. Don't underestimate yourself or Microsoft, saying, "Oh, I've done this before. I've done two, three, five negotiations with Microsoft. I'm just going to wing it." So, no, Microsoft doesn't wing it. Microsoft comes prepared. They might try to posture that this is a commodity, but they do a lot of back-end internal preparation for the renewal. You need to do the same.

You need to come up with a well-structured game plan. Back in the day, it was widespread to say to Microsoft, "I'm not going to renew Software Assurance." And then, "Oh, I'm not going to renew Windows." Organisations have gotten used to this type of negotiation. That's why one of the most significant parts of that was Microsoft's move to full subscription SaaS licenses to escape that discussion. You need to have a really good game plan because there are no quick wins or tricks you can play in this type of negotiation.

You need to be focused on what unique value proposition you bring to the table, and you need to identify it. This whole game plan is the differentiator between excellent negotiators and mediocre negotiators. And there are no tricks here. It's about preparation. So, you need to sit down with yourself and with your team.

It's not a one-person process. It is a team effort. I can't emphasise this more. High-stakes negotiations, a lot of money on the table, and a large chunk of your IT budget will be put out there. Risks are associated with it; you need a well-trained or established team: finance, legal, procurement, and IT. Everybody needs to come together, and you need to agree on a game plan. And that game plan will be specific and unique to your organisation.

Another question. What are the top five mistakes to avoid negotiating with Microsoft? I don't know if I've got five, maybe more, maybe less, but let me try and address this.

The first mistake that comes to mind is letting Microsoft lead the negotiation. Microsoft hates the customer leading. They are used to leading the process. They like defining how the negotiation is going to evolve. They have an agenda, and that agenda is part of their scorecard. I don't know how many of you have ever been in sales, but every large organisation has a well-defined scorecard for their account reps and their account teams. Microsoft, of course, is no different.

They've been doing it for many years. And the agenda for the negotiations is set by that scorecard. For example, today, it is no secret that the top of the list of Microsoft's scorecards is, of course, Copilot AI. Second to that is 365 E5 plus add-ons. And there are a lot of add-ons. E5 might seem like the holy grail. It's not. There are additional add-ons that Microsoft is aggressively or strategically pushing. Then on top of that, of course, you have an agenda to reduce discounts. Microsoft has a rigorous policy on discounts. They want to minimise those high-level discounts that have been out there for years. Large organisations have been enjoying discounts north of 20%, even higher, depending on the size of your organisation. For those of you who are coming from substantial organisations, I'm sure that you've seen higher than 30%. Microsoft is aggressively downplaying those discounts, so that's also high on the scorecard.

If you let Microsoft lead from the beginning, they'll provide the first proposal. They will "define" your needs. I won't say you've lost the game, but you are not in a good position. So, leading is one on my list.

Getting a late start is high on my priority list of mistakes. You need to start ahead of time. I said three months, not less than that. The reason is that, as we all know, Microsoft is using that on-time renewal threat as leverage. Many organisations see that as a threat, and it works if you don't mitigate it and are intimidated. And anyway, nobody likes to negotiate with the axe above their neck. So you don't want to be there. You want to have enough time to get internal approvals from the stakeholders. Your stakeholders might be very senior and have connections to Microsoft. So they might want to have a round of negotiations. You might have a very lengthy procurement process. You might need to go out on a tender if you're a governmental organisation, and so on. So you need to make sure that you start on time so you don't feel pressured to give in to anything you're not planning to do due to a lack of time. Keep that in mind.

Something else that comes to mind is a misunderstanding about dealing locally with your Microsoft rep. If you are in Europe, let's take France as an example; it is fresh from my mind. And you're dealing with Microsoft France; you have this automatically misled interpretation that you are dealing with somebody from the French culture, somebody similar to you in your beliefs, in your understanding of the language, of negotiations, and everything that comes with cultural nuances.

I just want to say something that might sound a bit surprising, but no, you're not dealing with somebody with a French culture. You're dealing with American culture. Microsoft is an American corporation, very much an American corporate hardcore, and they have an American culture, an American business culture and attitude.

Globally, that is the culture that is defined in the negotiation process. So you might have certain subtleties when you directly negotiate with someone, but you need to understand that in the back end, it's the American culture. American culture completely differs from France, Belgium, Germany, the UK, and all other cultures.

You just need to be aware that there is a cultural difference and that cultural differences can sometimes make or break a negotiation. It's so dramatic that if you do not understand who you're dealing with, you potentially are going to make huge mistakes, even misinterpret emails, misinterpret subtleties in a discussion, especially if you have maybe a representative from the global Microsoft group or you might have somebody French, a negotiation happening in France. There might be somebody from Ireland on that call. There might be somebody from Germany, and ultimately, they need to get approval from high up in Microsoft Corporate in Seattle. So we've got four different cultures. Wow, things are getting a bit complex. Sometimes, it's tough to manage.

So, consider the underlying culture and the driving force behind the negotiations, then go to the basics. Return to the American culture, which will make your life much easier because it can get pretty complex. Try to understand the subtleties in the language, how things are presented, and the attitude. That will give you an advantage because you know who you are dealing with.

Another mistake is bringing in your LSP as an advisor. Now, I am a bit biased. Of course, I'm an independent external consultant. LSPs are not always my personal friends. I know most LSPs and have a very good relationship, but LSPs make money off Microsoft.

It's fair game. It's business. However, LSPs have a very complex relationship with Microsoft. Very complex. That goes back 20-30 years with some of the larger LSPs. They live off Microsoft, and there's a complex web of relationships, rebates, concessions, and business relationships in the back end.

So I'm not saying they will provide you with misleading or wrong information, but it's not in their interest. That's the truth. So you just need to be aware of that. Just keep it in the back of your mind. Ask difficult questions. Ask them to provide information. Ask them to share knowledge. Send them out because they're getting paid. But don't take everything they say as a fact of life.

And be careful what you tell them because, potentially, hypothetically, I'm not saying this is your LSP. Still, hypothetically, they might be talking in the background to Microsoft and providing a backdoor to your organisation. There are ways to utilise that. A nice tactic I use sometimes is if I understand that the LSP has an open door or maybe a good relationship with someone at Microsoft, I will feed them misleading information. It is negotiation, high-stakes negotiation. There are no simple tactics to put on the table. You need to have a game plan.

Just to summarise that last potential mistake, work with your LSP, but be prudent with what information you provide, feed, and deliver and what kind of feedback they provide.

There are several crucial, critical errors to try and avoid. Each piece of this puzzle I'm trying to unravel here will drive a better success rate in your negotiations.

Another question. I'm negotiating a Unified Support and MACC Agreement. Should I combine all three, MACC, Unified, and EA, into one comprehensive negotiation?

Short answer: Yes, definitely bring all three components into one. Microsoft will not like it. They will try and slice and dice. They like having a very complex puzzle. They like the pieces to be separate and not to come together for a simple reason. They don't want you to leverage one agreement for the other agreement. They don't want you to consolidate discussions around your overall spending.

So you need to be smart about it. Smart means you need to understand your total spending with Microsoft. It is your EA plus your Unified plus your Azure/MACC agreement. And you might have other agreements. You might be a hosting provider; you might have an SPLA agreement. You might be an ISV and have an ISV royalty agreement. You need to understand and negotiate as one. You must put all your spending on the table to inflate the deal size. So you need to build up; you need to be a giant, just like Microsoft is a giant in their domain. Understand the importance of your financial relationship with Microsoft.

And then part of that game plan, you need to, now, if you are going to negotiate all three contracts, and even if each one of those contracts has a different start and end date, I will try and negotiate, renew them all together, bring them to one renewal date. Not easy. You need to be a big organisation to get Microsoft to the negotiation table and maximise those three agreements into one.

Even if you're not a very large organisation and feel that you can't co-terminate and then co-renew, at least understand your total value to Microsoft and try to play with those variants. It will provide you with leverage.

I'm sure you're all aware that the Unified Support contract is based on your Microsoft EA and your Microsoft Azure and other components spent. Your price for Unified is a total of your Microsoft spend in different buckets, which will impact your Unified Support. When you're negotiating your EA, and when you're negotiating your MACC agreement, and one of my future Q&As is going to be about MACCs and Unified and other exciting subjects because it's a different approach, you need to be aware that the higher your EA renewal is going to be, the higher your Unified support is going to be. And that doesn't mean you'll receive more value from Unified Support. It just means you didn't negotiate an excellent agreement on your EA. You're going to pay again for it under your Unified Support. You didn't negotiate a great outcome for your MACC renewal. You'll pay for that again a second time under your Unified Support. Everything is interconnected.

Unified Support contracts should and must be negotiated. Microsoft will come with a vanilla offering. You can't negotiate. These are standard terms and conditions. That is not always the case. The more information and knowledge you have of what can and cannot be negotiated, the more confidence you will have in the negotiations with Microsoft. So to summarise that, yes, there is an advantage. Yes, try to bring all three contracts into one under one framework. And as Microsoft negotiates as one company, I highly suggest that you negotiate as well, as one company, for all the various components of your Microsoft spend.

I've got two remaining questions that I want to discuss. What can I do about declining discounts? We saw a lot of declining discounts when Microsoft introduced aggressively 365 E5; the reason is that the initial cost of migration from E3 to E5, the first-year cost, was tremendously high due to the price difference, as we all know. Microsoft positioned it and structured it as follows: "Okay, let's start with a very high discount for the first year, and then things don't look too bad. It looks like there will be a small increase in your E3 spending. But as we go, as the years go by, we're going to decrease that discount, of course, up your price. And when you exit the agreement, three to five years later, your discount levels will not be what you started with." Maybe you started with, let's say, 30%, and you're going to end up with 15%.

Funny enough, what a big surprise! Your starting point for your renewal will be 15%, not 30%, for your first year and not the average of the three years. It's going to be the last year of your agreement. And that's no surprise. Microsoft structured it that way. They are a long-term strategic thinker regarding negotiations and positioning themselves for the long run.

You often inherit those agreements because whoever negotiated it knew they wouldn't be in the same position three or five years later, and for them, it was a big win. And then you inherit it, and now you have to figure out what you will do with it. How are you going to mitigate that?

It is negotiable. I've seen numerous organisations that just didn't recognise that declining discount just out of inexperience, just looked at the last year of the agreement, or looked at the total of the three-year or five-year agreement, and didn't understand the nuance or didn't find the copies of the actual terms and conditions of the previous agreement. It got lost. That's just life in big organisations. Somebody inherits something that they need to deal with.

You need to understand the history, deep dive into the data, and gather that information. As part of your negotiation game plan, you need to know how you're exiting the agreement, your current agreement, and your exit plan for your next agreement. Don't repeat the same mistakes. Try to mitigate that. And if Microsoft is providing you with a five-year contract, for example, make sure it's not a declining discount. Again, it might be in your interest because you won't be there. From an organisational perspective, I don't recommend declining discounts.

You can play around with that. You can have structured payment terms, declining payments, or growth payments. It's not the same as declining discounts. You might get the same result. However, it is a different exit strategy. So keep that in mind as you go forward.

And the last question is about EAs and MCA agreements. Should I move to an MCA agreement? MCA agreements are Microsoft's new, shiny, latest, and up-to-date contractual vehicle. That's what Microsoft is saying; we've heard this for years. Now, it's starting to happen. Microsoft is in the initial stages of migrating organisations from EAs to MCAs. MCAs are the alternative to an EA agreement, with a big difference. And I'm not going to get into that; we can have another session on that.

What's the big difference? EAs have multiple levels, A, B, C, and D, which are still valuable. The EA is negotiable for organisations of the right size. MCAs, out of the box, don't have levels. It's a one-price-fits-all.

On top of that, yes, there's still negotiation, but out of the starting gate, you've lost that level game. So you might be a small organisation at level A. There might be a tiny difference. However, this will significantly impact large organisations at levels C and D. It's Microsoft's way to increase prices without increasing prices. Keep that in mind.

There are huge differences. Don't jump into an MCA without understanding the long-term and short-term consequences.

Daryl, you just talked about replacing EA with MCAE. What do you think about what Microsoft promised recently through the partner channels that they will execute that complete migration of every client to MCAE in two years? Judging by the fact that they mainly offer Azure through MCAE right now, do you think it's reasonable that they can complete this in two years?

Based on experience and the size of and the number of enterprise organisations under an EA agreement, I would say no, it's not feasible. Some contracts are still planned to run, and they are being renewed now under EAs, which will run for three to five years. Large organisations that have seen a lot of benefit from their EA will be very reluctant to move off the EA onto an MCAE. I think it will be a very challenging process for Microsoft, and I can't foresee it happening.

Where is Copilot in all these negotiations? I was part of an exciting conversation yesterday where American enterprises shared how much it affected their budgets. And instead of a regular 10 to 15% increase on the EAs, they're now seeing 20-25 at best. And the most considerable effect on that increase, they said, is Copilot. What do we do in that case?

Copilot is Microsoft's holy grail. It's number one on their list, scorecards for all teams today. And I'll say straight out, Copilot is challenging to negotiate. Microsoft is very tough on discounting on Copilot. I'm not saying you can't discount Copilot, but it's not at the same level as your EA.

So if you're used to 20% or 25%, or whatever discount on your EA or higher, that will not be the case on Copilot. Copilot is going to have a differentiated discount. Much lower. That discount will only be apparent if you have a significant commitment. What's a large commitment today? It's going to change. A considerable commitment today, for example, is an organisation with 100,000 users committing to 10,000 Copilot licenses. So, let's say 10% of the estate. That is a huge commitment. Microsoft is willing to negotiate on that.

You should also be really, I would say, prudent, cautious about that, as you need to understand what the value of Copilot is to your organisation, how long it is going to take to roll out, and ultimately, you're paying a premium, a very high premium, that will drive 20-25% cost increases for your IT budget. As you get deeper into Copilot, there will be additional variations of it, and it will be part of the next E package sometime in the future. Again, it's not inside information, just experience and my, I'll almost call it, gut feeling. It will be part of the E7, E9, or whatever package that will come out.

Walk into an enterprise agreement with Copilot with your eyes open, and maximise that negotiation leverage to gain discounts not only on Copilot but also drive discounts on your overall EA stack. So, it can also mitigate any potential price increases you see in your EA. There are leverage points with Copilot. Tread carefully.

Thank you very much to all who joined today and took the time. I appreciate it. And I'll see you at one of my future audio events.

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