Discounts - How are Microsoft discount tactics changing?
Are you a Microsoft 365 E5 customer currently enjoying high discounts? Keep reading to manage expectations for your next renewal and to come prepared!
Topics in this blog
Risks of the cloud
With many Microsoft customers adopting the cloud, it becomes important to understand where you can use leverage.
When you adopt the cloud, you will eventually end up using all the services Microsoft has to offer within a certain suite, like M365 E3 or E5. Unfortunately, once you use more of the suite, your negotiation position will suffer!
We have seen this first hand with clients who had high discounts in their previous agreements (up to 30%), but who are now stuck in really tough negotiations. If you have adopted the cloud and are already using many of the services within an M365 suite, Microsoft will no longer give you any discounts. While it is not strange to see this kind of behavior, this is a change in tactics from Microsoft.
This is something to bear in mind when signing up for a new deal with Microsoft: once you deploy, you lose your negotiation position! We are here to manage your expectations.
Pushing sales
Microsoft says they want to help innovate your business. Innovation to Microsoft sales representatives means selling you their newest products, regardless of whether you need them all, and preferably without a discount. Right now, their focus is on items like Power Apps and Viva and in recent months we have not seen a proposal without these two included! To increase their revenue numbers, Microsoft is greatly reducing the discounts on your 1:1 renewal and they claim you need to buy their latest gems to qualify for discounts.
If you are based in a country with high cloud saturation, the next time you are due to renew your Enterprise Agreement, you will be faced with this challenge.
Ramped discounts
Lately, Microsoft has been working with ramped discounts The reason behind this is simply that Microsoft wants to set the exit discount for the contract as low as possible. This means that they will look at the final year of your Enterprise Agreement, and take that discount as the discount to renew your new contract upon.
Tips from our licensing experts
Pro tip 1: The exit discount means that they look at the final year of your contract; at the value of the contract at that moment in time. They will use that as their base for new negotiations. This could mean that on average you received discounts up to 25%, but in your final year it might have been only 10%.
Most companies base their budgets on the past year (not three years), so this is actually a smart move on Microsoft’s part, and they will use the 10% to kick off their negotiation strategy. For instance, if you have a ramp that is set at 13 15 5, then the exit discount would be 5%. However, it could be beneficial to start at 30, 25, 20 making your exit discount 20%.
Pro tip 2: Another recommendation would be to start a conversation with Microsoft on locking in a longer Enterprise Agreement term. With ongoing inflation and more and more price increase this could be very beneficial to you. Try to negotiate a price lock for all M365 suites and its components, or even better negotiate a five-year agreement to ensure a price lock and avoid unnecessary costs towards the future.
Further advice
License optimization can save you lots of money.
- Prepare thoroughly for your EA renewal – know exactly what you are using from a suite. Within any suite so many products are included, but what do you actually need? What is the bare minimum that you could renew?
- Are their alternatives to license these products? Can you move to alternatives?
- Can I identify users in my organization that might not need the full functionality from this suite? Microsoft will work to persuade you to buy E5 for your entire company, but you might not need it for every employee. Make sure that the right user profiles are used within your organization and that licenses are set up correctly internally. I.e. you might be able to move employees who hardly use many features to an M365 F-suite (F1 or F3) with the right security and compliance (M365 F5) features
- You might be able to use E3 with an E5 security suite and E5 compliance, if you are not using the full power BI and Teams phone functionality.
- Declutter! Check out our session on optimizing Microsoft cloud subscriptions and explore where you can scale down the number of licenses within your environment.
Continue reading our series on top changes in FY22: Increasing licensing complexity.
For more information
Visit our YouTube channel or Contract Negotiation Support page. You can also reach out to our licensing experts at info@licenseq.com.
