You may be a procurement manager in the software category, and you were given Microsoft to manage as a vendor. And you would like to know, "what is it I have to deal with?" What is all this jargon: renewals, true-ups, commitments?
So let me start with the basics of an Enterprise Agreement, and we'll keep this introduction as simple as we can. But we will ramp up the complexity and the details in the following articles and videos in this series.
And we'll start from the core question.
What is an Enterprise Agreement?
An Enterprise Agreement is one of the ways for an organisation to procure Microsoft licenses. There are multiple ways available, and the Enterprise Agreement is, perhaps, the most popular one.
It was introduced quite long ago. I think it was about 2003 if I'm not mistaken.
There's a barrier of entry. If your organisation is below 500 employees, you don't qualify for an Enterprise Agreement.
We expect Microsoft to raise the bar to about 2400 seats in or shortly after March 2022.
Amongst various ways to buy Microsoft licenses, amongst multiple types of agreements available, Enterprise Agreement provides the most comprehensive choice from the Microsoft price list of:
support and maintenance,
and cloud services, including Microsoft Office 365 and Azure.
It's a "term" agreement. If you sign it today, it's going to last for three years. You may extend it, but generally speaking, it is usually a three-year-long agreement.
Three important commercial features of an Enterprise Agreement
There are three fundamental commercial features of an Enterprise Agreement. There are many more, but these are the main ones.
The first one is that the cost of the license you buy in the beginning, when you sign it, is split into three annual payments. Whatever you add later, you pay for it straight away. But those licenses that you buy in the beginning are to be paid in three annual instalments. Each year, you pay one-third plus interest.
The second feature is, when you order a product, its price is fixed until the end of the Enterprise Agreement. Microsoft usually has annual increases on the price list. As long as you order licenses through your Enterprise Agreement, your price is fixed until the end. You're protected from those price increases until the end of the term.
And the third feature is, of course, there are volume discounts. The bigger your commitment is, the bigger your purchase is, the more significant is the discount. There are, of course, details and nuances that I will cover in the following articles and videos in this series.
Three important licensing features of an Enterprise Agreement
Of course, there are also various licensing features and conditions of an Enterprise Agreement. And in today's article, I'd like to draw your attention to the following three.
First, you have to commit to specific products and volumes to sign an Enterprise Agreement. You have to commit to purchasing something licensed "enterprise-wide". Another name, slang for that "something", is "a platform product".
The best example would be, you would usually commit to buying a license for every user or every computer depending on the type of "platform product" you select.
You get all the benefits of an Enterprise Agreement in exchange for that commitment to license everyone or everything with a particular platform product or a set of platform products.
Without some form of a commitment, there's no Enterprise Agreement. That's its core licensing condition, core principle. Enterprise Agreement is not for you if you are not ready to commit to that.
The second feature is maintenance.
Software Assurance is the name for maintenance in the Microsoft world. It is compulsory. All the licenses you purchase in an Enterprise Agreement have maintenance as a mandatory feature. If you need a license without maintenance, without Software Assurance, you have to buy it through other channels.
And the third licensing feature is "True-Ups". You only need to count your users and your devices on platform licenses at the end of a year. And if there's any growth, you have to report it to Microsoft.
So, if a user base grows during the year on your platform product, you don't have to rush and buy new licenses. You buy them at the end of the year, which is, well, let's agree, it's a convenient feature.
Two types of Enterprise Agreements
There are two types of EA. Namely, an Enterprise Agreement (EA), which is for perpetual licenses plus maintenance, and an Enterprise Subscription Agreement (EAS or ESA), which is essentially for subscriptions.
What's the difference? In the non-subscription type, you pay for licenses and maintenance in three annual payments. And in the end, you're left with perpetual licenses. Your maintenance stops. Your Software Assurance stops. But you're left with perpetual licenses. They're yours. Forever.
In a subscription agreement, you pay your subscription fee every year. And, if a subscription agreement ends, you're left with nothing. But you have a "buyout" option, so you can buy those licenses out if you want to, in the end.
Or, you can renew.
Enterprise Agreement renewal
"Renewal" is available for subscription agreements and non-subscription agreements.
Why would you renew? Well, on a subscription agreement, it's obvious. If you want to continue using the products, you have to re-subscribe. Simple.
But why would you be renewing a non-subscription one if, in the end, you're left with licenses?
Well, here's the catch. When you sign your Enterprise Agreement for the first time and buy perpetual licenses with Software Assurance, Software Assurance (maintenance) has certain licensing rights and certain features built-in. And if you're a large organisation, I give you a 99% of probability; you're going to be using those licensing features that you get only with maintenance.
You are left with perpetual licenses at the end of the Enterprise Agreement's three-year term. The licenses belong to your organisation. But if you do not renew your Software Assurance, you lose those rights that come with Software Assurance, and for every, well, 99% of the modern organisations, those benefits that come with Software Assurance are vital.
How do you keep them? You renew your Enterprise Agreement. But you don't buy new licenses. You renew Software Assurance for the next three years.
So in a simplified example, in the first three years, you pay for perpetual licenses and maintenance in three annual instalments. Then when you renew it for the next three years, you're just going to pay for maintenance to continue using the licensing benefits of Software Assurance.
For those of you who will survive my dedicated YouTube series until the end (including waiting for me to publish new episodes), there will be a video talking specifically about what you will lose if you don't renew your Software Assurance.
Notably, a renewal is effectively the signing of a new agreement. You're not extending your existing contract. The key three letters there are N. E. W. It's a new agreement.
There'll be a new price list. You're not protected from any price rises anymore; you start from scratch, from the price list at the renewal date.
Perhaps, there'll be a new language of the Enterprise Agreement if Microsoft decides to update the wording.
There'll be new product packages.
There'll be new Product Terms.
But it's also an opportunity to negotiate for both sides. And if you had something fancy in your previous term, you're not guaranteed that the discount will be carried over to the new term. It is an entirely new agreement.
And that is why we recommend starting preparations half a year, a year before the renewal. Because it's a significant event, and it's not wise to approach it unprepared.
Is Microsoft Enterprise Agreement a good choice for you?
There are, of course, strings attached. An Enterprise Agreement may not be for you.
Firstly, it's that "commitment". If you commit to license every single user in an organisation, any growth – you have to true up every year. If you merge another company or you acquire another business, you need to figure out a way together, how to license everyone now in the big integrated company.
If your number of users goes down, there are minimal ways to reduce subscription licenses. And there is absolutely no way to reduce your perpetual license quantity. In that regard, a platform commitment may not be for you. And if your organisation shrinks significantly, you may end up with lots of shelfware.
The other string attached here is Software Assurance. It is compulsory. You can't buy a license without Software Assurance in an Enterprise Agreement. But there's an easy solution to that. You can buy a license outside of an Enterprise Agreement.
There are a few things to watch out for when you do that, which I'll cover in the following videos and articles in this series.
And please subscribe to our channel on YouTube, so you get notified when we upload new chapters to the dedicated series.
And we hope you'll be less confused when you deal with Microsoft Enterprise Agreements from now on.
If you'd like to learn more, please contact us using the form below, and we'll get to you as soon as we can.