Why Microsoft Introduced the 3-Year Term

Until now, Microsoft 365 subscriptions under the Cloud Solution Provider program were limited to monthly and one-year terms. Enterprises seeking longer commitments typically turned to the Enterprise Agreement (EA), which has long been the default choice for large organizations. By introducing a 3-year option in CSP, Microsoft is:

• Aligning CSP with EA: Enterprises leaving the EA model now have a multi-year CSP alternative.
• Getting ready for the alignment between CSP and MCA-E: The Microsoft Customer Agreement for Enterprises program is expected to supersede the EA and Microsoft is busy aligning the different purchasing models.
• Locking in customers: Multi-year commitments increase predictability for Microsoft and their customers.
• Responding to demand: Many customers wanted longer-term price protection outside the EA.

Pros and Cons of the 3-Year Commitment

Benefits

• Price Protection: Pricing is locked for the duration of the contract, shielding you from annual increases. In an environment where Microsoft frequently adjusts licensing costs, this is a significant advantage.
• Budget Predictability: Enterprises can forecast licensing spend over three years with greater confidence.
• EA Alternative: Organizations moving away from the EA finally have a comparable option in CSP, with more partner flexibility and potentially faster support.

Drawbacks

• Reduced Flexibility: Three years of price protection is a long time. But keep in mind, Microsoft may change its licensing models during that period, and prices could even come down. As a result, you might want to adjust your subscription midterm.
• Upfront Risk: If your organization downsizes, migrates to alternative solutions, or restructures, you may be stuck paying for licenses you no longer need. This can be easily solved by mixing 3-year, 1-year and monthly subscription models, however this creates more focus on license management.
• Partner Dependency: CSP agreements are brokered through partners. The quality of management, reporting, and support varies widely. Choosing the right partner becomes even more critical when signing for three years.
• Minimum commitment: For all products available under a three-year term, a minimum of 100 licenses per product is required. This may complicate user profiling, as certain profiles could require fewer than 100 licenses.
• Incomplete product portfolio: The current choice is limited to M365 E3, M365 E5, M365 E5 Security, M365 E5 Compliance, and Teams Enterprise. Additional products or standalone Office 365 offerings are not (yet) available under a three-year term.

Price Protection and Billing Implications

The three-year CSP term introduces new financial dynamics:

• Locked Pricing: Once signed, the per-user price will not increase during the term. This can save millions for large organizations in markets prone to frequent Microsoft price adjustments.
• Billing Options: Customers can choose between two billing cycles – annual or tri-annual payments. However, the commitment itself is binding for three years, regardless of how you spread payments.
• Inflation Hedge: In regions with currency volatility, this stability may outweigh the loss of flexibility.

Transitioning from EA to CSP with the New 3-Year Option

For many enterprises, the big question is whether this CSP development makes it easier to exit the Enterprise Agreement.

Key Considerations

• Comparable Term Length: With the 3-year CSP option, enterprises accustomed to EA’s three-year cycle now have a viable alternative.
• License Management: CSP is more granular and now offers the option of monthly, annual or tri-annual subscriptions. Licenses can be added on a daily basis and aligned with an existing subscription. Reducing subscriptions is only possible at the end of the subscription term.
• Migration Strategy: Transitioning from EA to CSP should be carefully timed with your renewal. Evaluate workloads, user profiles, and pricing structures before making the shift.
• Partner Choice: Unlike EA, where Microsoft is your direct counterparty, CSP involves a partner. The right partner can help optimize usage and negotiate better CSP pricing.

Where Does the MCA-E Fit In?

Microsoft isn’t just reshaping CSP terms. It’s also reshaping contracts. The Enterprise Agreement (EA) is being phased out, with the Microsoft Customer Agreement for Enterprise (MCA-E) emerging as the new contractual foundation.

Here’s how the pieces connect:

• MCA-E as the Framework: If you’re moving away from EA, the MCA-E governs your Microsoft relationship. It sets compliance and liability terms but doesn’t prescribe subscription lengths.
• CSP as the Vehicle: The new 3-year Microsoft 365 terms are purchased through CSP, typically under the MCA-E. In other words, MCA-E provides the legal foundation, while CSP delivers the commercial structure.
• Comparison with EA:
  • EA: 3-year term, direct with Microsoft, limited flexibility.
  • MCA-E + CSP (3-year): EA-like cycle but via a partner, with price protection.
  • MCA-E + CSP (1-year/monthly): More flexible but with exposure to price volatility.

Strategic Implications

For enterprises, this means the EA’s 3-year cycle is no longer the only game in town. Under MCA-E, you can now decide:

1. Lock in a 3-year CSP commitment: gaining stability and cost protection for the products that have the greatest impact on your Microsoft budget.
2. Stay flexible on 1-year or monthly CSP terms: preserving agility while accepting higher price risk.

MCA-E, in essence, reframes the EA model by offering choice, but that choice comes with new trade-offs.

Want to dive deeper into the differences between the Enterprise Agreement and the Microsoft Customer Agreement? Request our free MCA vs EA Legal Guide today!

Impact on Large Clients Needing Renewal Flexibility

Enterprises with thousands of users face a balancing act:

• Locking in Savings vs. Staying Agile: A 3-year CSP term can deliver substantial cost stability, but it also reduces the ability to right-size quickly.
• Changing Workforce Needs: Industries with seasonal or fluctuating headcounts should carefully weigh whether flexibility is more valuable than price protection.
• Strategic Options: Some organizations may blend terms. For example, committing a base number of licenses on a 3-year contract while keeping additional users on 1-year or monthly terms.