Microsoft’s Evolution to the Cloud Creates License and Cost Management Challenges for Enterprise Customers

Spend Matters welcomes another guest post from Jeff Muscarella, partner, IT and telecommunications, at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.

As Microsoft moves to the cloud at a rapid pace, big changes are ahead for enterprise customers – the majority of which still rely on Microsoft’s traditional (on-premise) software products for productivity. Some customers are already feeling the vendor’s growing pains as Microsoft dives headlong into a cloud-first business strategy while continuing to support their traditional software business (and loyalists).

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One implication I’ve discussed frequently on this blog is that the pressure to get enterprises on board with Microsoft’s cloud focus is driving up audit activity. Nearly one-third of Microsoft’s EA customers are expected to undergo a licensing audit in 2015, and the likelihood of non-compliance is high. This will give Microsoft the leverage it needs to “motivate” customers to migrate to services-based offerings.

Secondly, there are concerns that Microsoft’s support infrastructure for the cloud is immature. Microsoft is supporting legacy products as well as its cloud offerings, but with limited experience and resources for the latter. As a result, cloud customers are experiencing sub-par service (especially in certain geographies) and, in some instances, have had difficulty tracking down support resources. Factor in new offerings like Windows 10, which will deliver new features and functions automatically as regular updates, and the concern escalates. What happens when a bug wreaks havoc across the IT ecosystem? How responsive will Microsoft be? Will it have the support resources in place to ensure SLA performance?

Part of Microsoft’s cloud-first strategy is to simplify how it contracts with enterprise customers. That may sound like good news at first read, but the reality is that Microsoft is the one that benefits the most here. Microsoft has attempted to simplify licensing (e.g. EAP/ECI have been replaced with Server and Cloud Enrollment) and standardize terms (e.g. new Online Service Terms that consolidates Product Use Rights and SLAs for all online services). But, these changes often translate into higher costs and can be difficult to implement. In other cases, Microsoft’s move toward simplicity appears to be more targeted at its consumer and SMB customer base. For example, the free upgrade to Windows 10 will not be free for enterprises.

Amidst all this change, Microsoft pricing is all over the place, especially when it comes to cloud-based offerings. Examples include the Azure Active Directory and Multi-factor Authentication Management. Both of these offerings were overpriced initially, which forced Microsoft to adjust the price through complicated discounting until the next list price was published.

Finally, the state of the Enterprise Agreement (EA) and Software Assurance (SA) are in flux. As Microsoft shifts to service-based offerings, many enterprises question the future of the EA and SA. It’s clear the vendor is struggling to find a contracting model that handles its business today while getting customers on board with where the company wants to be 3-5 years from now.

If you have a Microsoft transaction on the schedule in 2015 – be prepared. EA customers should be audit-ready and assume they’ll undergo a licensing audit. Be sure to quantify the cost and compliance impacts of new licensing programs and SLA terms across the broader IT ecosystem. Finally, negotiate blanket terms and conditions and benchmark every purchase and renewal. Microsoft is “building the airplane mid-flight” as they evolve their business. The opportunity for risk – and savings – is high.

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