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March 12, 2024

Microsoft Negotiations in 2024

SAMexpert Podcast

Alexander Golev explores in-depth negotiation strategies for optimising Microsoft software deals in this podcast episode. He delves into tactics, the crucial role of data-driven preparation, and techniques for maximising bargaining power. He also analyses evolving vendor strategies and the importance of internal alignment for successful outcomes.

23.56 MB
Episode Transcript

The Rising Challenge of Software & Cloud Costs

Hello, friends, and welcome. I'd like to talk about the software and cloud costs that may be bleeding your budget dry. And they are. It's hardly breaking news. The costs have been climbing year on year, and it will never stop. And I suspect in your organisation, as in every mature organisation, there are procurement heroes to deal with this.

The problem of 2024, however, is that negotiations have gotten tougher. The stakes have gotten higher. The discounts have gotten slimmer. With the cloud, what started as a simple lift and shift turned into end-to-end data centre migration and the development of new line-of-business bloodline applications that are not only natively developed for the cloud but also tightly integrated into specific cloud features and environments.

As a result, procurement is finding itself at the forefront of a new era of negotiations—an era that requires cutting-edge knowledge, data-driven decision-making, a completely new set of tools, and improved old-school negotiation skills taken to a completely new level. And this didn't happen overnight.

As a result, procurement is finding itself at the forefront of a new era of negotiations—an era that requires cutting-edge knowledge that needs to be data-driven, a completely new set of tools, and improved old-school negotiation skills taken to a completely new level. And this didn't happen overnight.

The Evolution of Vendor Power

The trend began in about 2021 when major software vendors realised they had enough power and more confidence, some offering little or no valuable alternative to their software and services. And they decided to weaponise it further.

On the other hand, we need to recognise that we are in this "interesting" and even sad situation where procurement and supporting experts have gotten used to relying on pure negotiation in recent years, overlooking the value of thorough preparation and data-driven leverage.

I wouldn't probably go as far as to say we have become complacent, but you get the idea. In addition, the introduction of new technologies, such as Copilot or Teams, means negotiation experts may be entering into talks with vendors like Microsoft, lacking the required technical knowledge and up-to-date, top-notch negotiation skills. There is a skill gap between the vendor and the customer. It's not entirely new. We saw something like it roughly ten years ago with the introduction of services like Office 365 and Software-as-a-Service in general.

Negotiating with Microsoft: A New Landscape

Today, I want to avoid discussing extremes like Broadcom's recent acquisition of VMware. Instead, let's talk about one vendor our team at SAMexpert knows best—one with such a strong offering, presence, and integration into everyday operations, both in the cloud and on-premises, that it's almost become like water or electricity. It's Microsoft.

Negotiating with Microsoft in 2024 is entirely different from what it was in 2014 and even 2020. Microsoft continuously improves its sales tactics and trains its sales teams. There are now so many battle-proven tools in that toolbelt: stage discounts, simultaneous negotiating at multiple levels within your organisation, much-improved and more mature value presentation, and more.

Microsoft's negotiation plans are often data-driven since you are probably in their cloud, Azure, or somehow connected to it with technologies like Azure Stack, Azure Arc, or Microsoft 365. It's your data that drives their negotiation. They may even know more than you do about what's going on with your consumption of their products and services.

The Impact of Copilot for Microsoft 365

Microsoft also continuously improves its position by introducing new cutting-edge products. The best example is Copilot for Microsoft 365, which many experts, including us, call "the new Excel". And there are consequences. One of them is that Microsoft positions more and more products at fixed prices. M365 Copilot is an excellent example. Such an approach is highly unusual for Microsoft. If you know how Enterprise Agreements work, for example, there are predefined programmatic discounts depending on the size of your organisation. Those volume discounts just do not apply to Copilot.

And although negotiating a discount on Copilot is not impossible—we've done a few—please don't overstretch your expectations. Unless your organisation is humongous and influential, you'll probably end up with a single-digit discount. You'll be lucky if you get a two-digit discount.

Challenges and Considerations

Even on traditional products and services offered in traditional ways, negotiated discounts are still decreasing. Of course, your particular situation will depend on multiple factors, such as your organisation's size, your co-marketing initiatives with Microsoft, your industry, the quality of your team, and your preparedness, but everyone is seeing a palpable decrease.

If, for example, your regular discount was 20-25% previously, consider yourself a negotiation superhero if you manage to achieve the same figures this year. Plus, most of the time, Microsoft will do this as your initial discount, which will then decrease year-on-year. So when you approach your next renewal, you will be in a weaker position, and Microsoft will be in a stronger one.

So, I guess I have painted a very dim picture by now, but what is the lesson? The lesson here is simple: You can no longer approach a negotiation unprepared. You can't just wing it solely based on your charisma, connections, and even your multi-year experience of agreement renewals. So, how do you prepare?

Let me give you some practical advice.

The Return of Optimisation

Point number one, which I personally strongly believe in, is that optimisation has returned. In recent years, and I'm talking about almost ten years, many large organisations, especially enterprises, have lost their focus on optimisation because negotiation was easy.

When discounts flowed freely, it was easy just to negotiate – often, though—I must give it to them—relying on tactical preparation and looking ahead. But with decreasing discounts and more aggressive negotiations recently, it's entirely up to you to decide whether you can continue ignoring data-driven optimisation and preparation or if it's time to bring it back if you want to squeeze every possible opportunity.

Why Optimise Before Negotiation?

There are at least two reasons for resurrecting optimisation. The first one is it offers a chance to clean up your house. Unless you have a fantastic Software Asset Management (SAM) and FinOps team, there are always unused products, technologies, and cloud resources. As a result, there are also compliance discrepancies. In organisations where SAM and FinOps are not mature, a thorough, genuinely data-driven optimisation can uncover 40 to 50 per cent of the next term's potential savings or more.

The second reason is that this is an opportunity to learn about your estate. Forgive me for repeating the banality; knowledge is power. This piece of conventional wisdom is especially true in negotiations. Microsoft will come prepared. Their team will have enough data to closely monitor signals from your site and telltale signs about your knowledge of your own estate.

The Importance of Strategic Planning

But even if you decide to ignore the optimisation stage, thorough strategic planning is vital. And I'm talking firstly now about technology planning. Answer the questions:

  • What technologies do you want to deploy?

  • What Microsoft 365 packages will you need and why?

  • What are your personas?

  • What are the alternatives – the alternatives to, say, Microsoft E5?

And even that is not the most critical part. The true key to success is to be properly and professionally prepared for the negotiation itself.

Foundation of a Robust Negotiation Plan

You need a plan that includes:

  • MDO—your most desirable outcome. What is your ideal picture? Where do you want to be? What discounts do you want to get? What products do you want to get? When? How? On what terms?

  • LDO: In addition to that, consider your least desirable outcome. What if the negotiation doesn't go your way?

  • BATNA stands for Best Alternative to a Negotiated Agreement. Here, we're not suggesting moving away entirely from an Enterprise Agreement. But for example, if you're negotiating a discount on Microsoft 365 E5, the biggest all-inclusive (though not genuinely all-inclusive) package, your BATNA may be staying on Microsoft 365 E3 and taking alternative security products.

Roles, Responsibilities, and Legal Involvement

Your plan must establish very well-defined roles and responsibilities for the negotiation. When you build a team, roles and responsibilities must be explicitly assigned to each team member, stakeholder, and seniority level.

We also advise engaging your legal department from the very start. We're not saying bring them into the negotiation room—that's usually not the best advice—but they must be prepared, understand what you're discussing, and know the agreements. You may need them later. You might.

Stakeholder Alignment and Agility

And I'll repeat myself: prepare your stakeholders, especially senior ones, especially at the board level. Get all the escalation points from the bottom up to the board level on the same page and have them agree with the plan. Nobody can afford an uninformed decision-maker at the top level, undermining the effort of the entire negotiation team. And that happens.

Last but not least, your plan needs to be agile, with room for manoeuvre, and ready for whatever happens.

Your Playbook

Considering all this, this stage's deliverable must be a detailed negotiation plan, a negotiation playbook that captures every detail and establishes the process, the framework, and the deliverables.

And when I talk about details, you should include things like:

  • Communication protocols,

  • Vendor interaction strategies and tactics,

  • An explicit escalation process (both on your side and on the Microsoft side).

Countering Microsoft's Negotiation Strategies

The plan should also include readiness for modern-day tactics in Microsoft negotiations. So, let's discuss a few, starting with what you should expect from Microsoft.

Common Microsoft Strategies

And the top three are as follows:

  1. Suite Discounts: Instead of discussing specific individual product discounts like Copilot, Microsoft may shift conversations to the discount on the entire Microsoft 365 suite, leading it away from particular products and to a higher level, which may be more challenging to discuss. As a result, you may not achieve your desired outcomes for specific products. Yes, the bundle discount may make the suite more appealing, but it shifts the focus away from your goals.

  2. Declining Discounts (Staged Discounts): Microsoft offers discounts that decrease year-on-year. This approach provides a two-fold benefit for them. Firstly, it gives you a quick sense of satisfaction with a potentially higher-than-requested initial discount. However, this discount then decreases over the agreement's term, providing Microsoft with a much better starting position for the next negotiation. Renegotiating for a higher discount becomes challenging, leaving you in a weaker position.

  3. Tiered Pricing: This age-old sales tactic links quantity to better pricing. It's essential to balance the lure of a better discount with committing to a more significant volume against your actual needs. This tactic plays on psychology: making larger commitments seem appealing but has a hidden trap. Overcommitting may lead to approaching the next renewal with a "dead weight" of potentially unnecessary services and software.

    Professional Tip: Exercise restraint. It's always better to under-commit, even if a discount looks promising.

Strategies to Maximise Your Negotiating Power

So that's about Microsoft's tactics, but what can you do? What may you consider? Let me give you a few points here as well.

Leverage Your Organisation's Size and Brand

Firstly, recognise the influence of your organisation's size. And not only size, let's also talk about the brand. Size and brand play a crucial role in negotiations. The bigger and more well-known your organisation is, the better leverage you have. It seems simple, but we sometimes witness even influential companies being afraid to negotiate aggressively with Microsoft and being intimidated by them. If you are large, you have greater bargaining power. Leverage it.

Marketing Initiatives for Additional Discounts

Returning to the brand, this works well with the next point. Microsoft may be willing to provide you with additional discounts for marketing initiatives. Suppose you agree to provide them with public relations opportunities, such as allowing them to reference your name and use your organisation as an example business case. In that case, you have more substantial grounds for negotiating.

Regardless of your size, always ask for a discount if you're open to marketing initiatives. And the more influential your brand is, the better discount you may ask for.

Remember the Human Element

Our tip number three is: remember that you negotiate with people. Yes, you deal with Microsoft, but you negotiate with people. So, utilise the motivation of your Microsoft account manager. Recognising that your Microsoft account executives have specific targets and strong incentives to offer new and exciting cloud products and software is crucial. Copilot is a good example. Achieving their targets affects their performance and their position within Microsoft.

How do you know what drives them? You can either do some recon, consult professional negotiators, or have an unofficial, open conversation with your Microsoft account executive.

Negotiating Partner Incentives

And last but not least, especially for new products, you can negotiate partner incentives. These are scenarios where Microsoft pays a Microsoft partner to help you implement a specific product. It is not equal to getting a discount on the agreement itself, but it may help you reduce implementation costs and ensure a smoother process with a partner with expertise in that specific product.

The Importance of Adaptability and Preparation

Suppose you have this plan. Suppose you did everything we just discussed and ticked all these boxes. Your negotiation starts.

Be Agile and Avoid Hasty Decisions

The first point I want to emphasise again is being ready to adapt. Whatever happens, be agile and flexible. In our experience, agility is essential. You must be able to adapt to changing circumstances and moving goalposts. Some challenges requiring adaptation may come from unexpected places, including your internal stakeholders.

The other point is to refrain from spontaneous decisions. Always take your time if there's a new offer or input, especially during an on-site, face-to-face negotiation. Always wait to come back with an answer. Do the homework, think, brainstorm, and consult with your team in the comfort of your own environment. By the way, this is a famous technique used by Japanese negotiation teams, and we find that it works regardless of your culture.

Internal Collaboration and Communication

Internal collaboration is the bloodline of every negotiation. Microsoft will try to negotiate on every seniority level, starting from your technical contacts—the people their technical account managers talk to—and going all the way up to your chairman. Every such contact must be under rigorous control and visibility. Establish clear lines of communication, monitor them, and react accordingly.

Ensure every level plays precisely by the same rules regarding communication and avoiding spontaneous decisions. Be careful, however, to keep it simple, especially in highly politicised organisations. Overdoing and overcomplicating the internal reporting process drains energy from the team and risks undermining the entire process.

Strategic Informal Conversations

With all these checks and balances in place, don't shy away from informal conversations with Microsoft. Informal conversations add a valuable dimension to the negotiation process as long as you don't leak vital information.

Continuous Improvement is Key

The bottom line is that we must constantly evolve to continue achieving stellar negotiation outcomes. The days of casual negotiations are over. The question is, are you ready to step up your game, or are you prepared to start paying more for less? That's the choice.

I hope you learned something valuable. Thanks very much again for being here.