Negotiating Microsoft Agreements Q&A 001

Alexander: Hi, everybody. So, I'm taking a backseat today. I'm going to moderate this session, and Daryl, my colleague and partner in SAMexpert, will own it today because Microsoft Agreement negotiations are entirely in his area of expertise because he's been doing this since...

Daryl: 1998.

ALexander: Yeah, long, long time ago. Before that, he sold those contracts when he worked for Microsoft.

Daryl: We're going to kick off. Alex, do you want to bring up the first question?

Alexander: Microsoft is actively pushing us towards E5. Many clients aren't the same. How can we get the most out of it? Shall we do this? Do you have any negotiation tips? The main question is, if Microsoft asks us, why don't you switch to E5? Can we ask for something in return? And how?

Daryl: As you said, it's a very common question, and Microsoft, as we know, are pushing most clients or everybody to upgrade them from E3 to E5. When renewals are coming up for organisations, even, not even renewals, just part of the annual True-up process, Microsoft is conducting discussions around moving organisations midterm from E3 to E5. And it's very simple, why. They get compensated.

There's higher compensation for the sales reps on E5 than on E3. E3 compensation has dropped. And you must always ask yourself when somebody's pushing a product, why are they pushing it so aggressively? It's all about compensation. So yes. If you've been pushed to E5, you need to ask yourself, first of all, one central question.

Do you need it? Before you get into the negotiation side – what can you get in return – do you need E5? Not because Microsoft is saying it's the best and greatest, and we've got this incredible offer now that's not going to repeat itself. Offers always repeat themselves. Believe me. You can come in six months or 12 months. That great offer will still be on the table.

The reason to move is if you need those additional capabilities, usually around security. First, look into your requirements. Evaluate if you will use those components, those additional components you're receiving, and what you can remove from your IT infrastructure from a security perspective. Look at what third-party products those E5 components are going to substitute. What is the benefit? Again, security-wise, cost-wise, maintenance, implementation, everything needs to be looked at. And only then take a decision, is it good for your organisation or not? If the answer is, "yes, it's good for my organisation", that's fine. Enter negotiations.

But you want to get something in return. And usually what you want to get in return is, of course, higher discounts. You can get a higher discount on E5. It's not rocket science. The way that you should position it is, well, there are multiple ways.

One would be, well, I don't need E5 now. I'm only going to be needing it in 12 months. How will you compensate for 12 months of paying but not receiving value? In a discount. There are various ways to compensate.

Maybe your rollout will be very slow, so look at your rollout over the next two or three years. You might be rolling out E5 components per segment, per department, or maybe per subsidiary. Multiple reasons why not. Maybe, it's a global company. Use that as leverage to get a discount to compensate for the time you have the shelfware. That's another reason. Maybe you need support because you're changing a specific product you have in use, and you don't have a skillset.

So ask Microsoft for architecture support, professional services, or monetary compensation to bring in a third-party partner. That's also a so-called discount or compensation. So look at everything. Put it on the table, spread it out, and then start asking Microsoft for benefits.

So that is my best practice around E3 to E5. Don't be pushed to E5, only if you need it. The best offers that Microsoft put on the table will come back next year because that sales rep still wants higher compensation for E5. So no pressure end of the year, no pressure end of the fiscal year. Your calendar year. Take it easy. Sit tight, but have a look at it.

One more point. E5 doesn't suit the entire organisation. You need to look at alternatives. Usually, if you go into E5, you're going for security. Consider taking components of E5 if you don't need the whole package or maybe looking at personas. Maybe you have personas that only need the F3, which also has specific security components that come in E5. So you can differentiate and play around with various personas and packages—also an excellent way to negotiate. You might not need that, but you can position it as a negotiation leverage.

In my opinion, I always believe in personas and multiple bundles. So you can also use that as part of your leverage and discussion. So don't just run into E5 or migrate from E3 to E5. Look at everything, and then you're in an excellent position to negotiate.

Alexander: Thanks, Daryl. While you were talking, I was thinking. You said, "switch to E5 only if you need it." From a pure negotiation perspective, would you still advise not to disclose that you need it? Because that would certainly undermine your discounting position, wouldn't it?

Daryl: Yes, that's a perfect point. My recommendation is always to start a renewal with E3. So if you have E3, start the negotiation with E3. Push hard for an E3 proposal, cause if you start with E5, you won't be able to step back to an E3 proposal. They won't provide you with that benefit. So always start with a lower option and slowly move up. I'd even start with E3, add in one component two components, and then it lets Microsoft make it worthwhile for you to take E5.

Alexander: I tried linking my EA negotiation with our Azure MACC, and the results were not what I thought. Why? I'm afraid you will have to explain to the audience what MACC means and how it works.

Daryl: A MACC is an agreement in which you're committing upfront for mainly pay-as-you-go services. So what Microsoft is happy to provide large organisations with is the following. If you can't commit to reserved instances and want that full flexibility of pay-as-you-go, then please commit upfront, and we'll provide you with a substantial discount for that three-year commitment. It's a three-year commitment. And MACCs are very commonplace in large organisations. I call the MACC an Azure agreement. You can see it as an Azure agreement for three years, similar to an EA just on Azure consumption.

You're committing annually to meet a particular consumption level from a monetary perspective. So if you're committing a million dollars, you committed a million dollars. You've thrown away money if you don't reach a million dollars. That's the whole concept behind a MACC.

You would think, "if I've got an EA here for a million dollars a year and IAzure requirements for another million dollars a year, I can negotiate them together, and maybe if I'm committing 1,100,000 or 1,200,000 on my Azure estate, Microsoft will give me another 2, 3, 4, 5% on my EA".

No, Microsoft is very reluctant to join or combine a negotiation with the two agreements. They like to look at it almost as two different companies. Oh, this is your Azure commitment. We can't help you with your EA even if you increase your Azure commitment. And it's the same on the EA. If you're willing to move from E3 to E5, we can't compensate you on Azure.

It's a different compensation model, discounting model. We have tried to a certain extent of success. I'm not saying it's a hundred per cent because there are always variations. To a certain extent, we've tried to combine negotiations by bringing in EASs and Azure. It's tough. It is tough. You need to be smart about your positioning. And I'll say that you have to be assertive because the first answer you'll receive is no, it cannot be done. And you'll hear that again and again and again. You need to have a fallback position for Azure. To build up some leverage and maybe even a fallback position for your E5 to E3.

So you need to be smart about it. You can't just say, I want this, and I want this. And Microsoft knows that you're already committed to E3 or E5. You committed to your EA. Sorry guys. It is all subscriptions. You can't walk away. You are a long-term obligated customer of ours. You can't walk away from an EA.

On Azure, if you've already pre-committed your workloads and Microsoft knows about it, why are they going to compensate you on the backend of the EA for it? Even on Azure MACCs. They won't be happy to compensate you if you've already pre-committed. You need to plan on, first of all, what information you want to provide Microsoft.

Don't forget that there are alternatives. Don't enter into a negotiation without an alternative. You have to have GCP. You have to have AWS, Alibaba or something else on the table. So it's very, very tough to combine the two and negotiate them together. You need to have alternatives for both. And you need to be big enough. And the deal needs to be, let's call it, lucrative enough, so the end result is that the sales rep is going to get highly compensated. Most of the compensation will be on Azure and not on the EA because compensation is different.

Alexander: We have a question from the audience. Why is it called Pay-As-You-Go, which is supposed to be based on your consumption if a commitment is required?

Daryl: Pay as you go is the higher tier of payment. I call it a payment tier. When you're committing to pay as you go, it's a contradiction. The EA is a commitment. So when you're going into pay-as-you-go, you've got the flexibility to move your workloads wherever you want to do, wherever you want. And you have that technical flexibility. You are paying a premium price for that. And organisations, up until, I'll say, a few months ago, haven't been very conscious about costs.

The only way for them to keep that flexibility and reduce cost is because of the difference between reserved instances and pay-as-you-go. What's it, Alex, 72%, 70%? It's massive. But like the reserved instance option confined you to a particular workload, so to say, Pay-as-you-go gives you flexibility. So Microsoft has been very smart about saying, oh, you want that flexibility. And you don't want to pay that premium price, and you want a discount of anywhere between 10 and, I want to be careful what I say here because it depends on workloads. It can go up to around 30% plus minus, maybe more, depending on the size. You can tell them that I said that, but it will not help you because you need the proper leverage to get those high discounts.

But Microsoft is going to require a commitment. Microsoft loves commitments. Because then, first of all, they've got predictability and the account rep – it's all about the account rep – the account rep knows what's coming in every year. He is meeting his quota. It always goes back to what your account rep is compensated on. If you understand that, you can turn the entire negotiation around, and then you have the leverage. Great question.

Daryl: There's another question. What if Microsoft doesn't want to show us an actual ERP discount for E3 and E5? It says that we have to decide at the ERP level which variant we want, and only after will they apply to the business desk for a discount. ERP is estimated retail pricing, the standard price list.

The way that it works for everybody is that Microsoft has multiple price lists. They just announced that they're making changes to their regional price lists. They have prices in various countries in euros, pounds, dollars, or US dollars.

There are four pricing tiers if you're looking at an EA. I'm taking a simple Enterprise Agreement. Level A, B, C, and D. Each is a tier. Between each tier, there's a distinct difference in pricing, anywhere between 3 to 5% between each tier. So if you're starting at Level A and you can go to Level D, there's like 18, 20% difference, plus, minus, depending on the price of that specific product.

Microsoft is obligated to provide you with formal ERP prices. Microsoft, I'm not talking about the channel. The channel can do various stuff if they want to play dirty. But Microsoft is Microsoft. I've never seen them provide an ERP price that is not the list price. There are companies out there that will uplift the list price by 10-15 % and then give you a discount on that. And then they'll say, well, we gave you this huge discount, aren't you happy? Where actually, it's not a discount.

Microsoft has never done that. I've never seen that. And if you've seen it, I would love to hear about it. But I've negotiated hundreds of contracts, and I've never been in a situation where that's been the case.

So they always start up with ERP. So you know what your baseline is. Again, level A, B, C, or D depends on the size of your organisation. There are tiers: 500 to 2,500, 2,500 to 7,000, and then 15,000. And then you negotiate a discount. And I'll say that again. You could always negotiate a discount even though discounts aren't as high as they used to be. It's still negotiable. So hope that answers your question.

Alexander: You mentioned that Microsoft likes separating Azure negotiations from the EA negotiations. Different teams, different negotiators, and different Microsoft employees compensated for them. And then we also have Unified Support. And in my experience, and in your experience too, now we work together, the Unified Support team is an entirely different team.

They don't depend on EA. The EA team doesn't depend on them. They have their own sales targets. And to be honest, when I first encountered them, it was about five years ago. I felt like they had no clue what they were doing. How do we leverage the Unified Support contract to get a better deal with EAs? Is it possible, even?

Daryl: I'm going to say that very simply. You can leverage it, but it will be the other way around. The benefits for your Unified Support won't come through the EA. It might go the other way. So there are ways to play around with it.

First of all, you need to remember, as Alex said, it's two separate, let's call it, groups within Microsoft: your commercial group that is providing your Enterprise Agreement with your Azure consumption commitment. It's not compensated for Unified Support. They couldn't give a [censored] for if you sign or don't sign or what you take.

The Unified Support team couldn't give a [censored] what you do on your Enterprise Agreement. Still, your Unified Support cost is linked to your Enterprise Agreement and Azure spending because it's built on a percentage of your actual commercial obligations. So the more you pay for an EA, the more you pay for Azure, and you're going to be paying in the backend a higher price for Unified.

The best practice is, first of all, yes, they need to be separated. They are negotiated separately. Microsoft won't link them. The good news is that you can negotiate better pricing on Unified. There are ways to reduce costs substantially. It's dramatically overlooked by organisations. But we've been very successful in the last 12 months using some cool tactics around how to reduce Unified Support by reducing it by hundreds of thousands of dollars on contracts by an average of 15 to 20%.

And, if you're looking at alternatives and you're looking at changing the tiering of percentages that you're paying on your EA and your Azure consumption for your Unified Support contract, that can also be modified. Pricing on professional services that also go into your Unified Support contract, the bigger picture, can also be discussed. So a lot to be done on the Unified, but very difficult to link the two together. Alex, by the way, did we publish that Unified Support white paper on our website yet? Is it there?

Alexander: There's a very long article on our website, SAMexpert.com, in the articles section, which is dedicated to Unified and Premier support. Premier Support is gone, but we keep it to explain the differences to those switching.

And Daryl rewrote that article about a month ago completely. He added lots of other sections. It's a pretty extensive article, One of the most visited articles on the website. Read that - excellent article.

Alexander: How to approach the issue that M365 licenses are per user? Technically, if one user has two accounts, he needs two licenses. Why do I need two licenses for one user?

We get this question a lot. No Enterprise Agreement commitments are based on user accounts in AD.

You may have security considerations around those accounts. But there's one thing I need to tell you. I used to work in a company that was half system integrator and half Software Asset Management. And I know how things work from the other side.

If somebody has two accounts, there must be a reason for it. Some reasons are impossible to circumvent. And then, in that case, you end up with two accounts. You can do nothing about it. But typically, if somebody needs multiple accounts for admin reasons for accessing specific applications, why do you assign a license to each of them? Assign it to one account.

So we need to understand more of a context here, but what I'm trying to say here is don't begin with the thought that every user record, every user account needs a license. It's not like that. There's a risk if you use a pretty popular feature in the Microsoft Office 365 admin portal auto assignment of licenses, you create a new account, and it immediately gets a license.

It's tunable. You can fine-tune it. Then yes, you still have a risk that the license may be assigned to the wrong accounts. Still, every organisation has a reason to have several users with multiple Active Directory accounts. It's fine. It comes down to policies. Your commitment to Microsoft on an Enterprise Agreement is to license all Qualified Users, not Active Directory accounts. Start by reviewing your policies, and that's it. It's not a non-compliant situation.

Daryl: Just reading in the corner of my eye, another question came up. A company of around 5,500 licenses, E3 (+ others), is it a big player for Microsoft in Europe?

Yes, it is. It's a very nice size company in Europe. It's mid-size and, from a leverage perspective, what you can negotiate. I'm sure that you can negotiate with the right people at Microsoft. It always comes down to negotiating with the right people. You can position yourself as a strategic negotiator and get substantial discounts and other benefits.

So, "Yes" to your question.

If you were in the US, I would answer differently.

So, thank you very much, Alex. Thank you all very much for your participation and the questions. I love this interaction. I love hearing from everybody. We've got another half a dozen questions, at least, that we didn't manage to address today.

We'll come back to close off all those questions that we didn't manage to answer today that we received before this call. Again, thank you, everybody, for taking your time.

Alex, it's always a pleasure being on our Q&A sessions. It's always fun and see everybody next week. Thank you very much.

Alexander: Cheers, bye-bye. And, by the way, click like if you haven't yet. Thank you. I appreciate that.