Microsoft is a formidable negotiator and invests much resources and time into preparing and managing an Enterprise Agreement (EA) negotiation. Let’s take you through the Microsoft “internal” process, to help you understand what to expect and how to prepare yourself.
The Microsoft negotiating team
The Microsoft team consists of two circles: an external circle that interacts with customers and an internal circle that works ‘behind the scenes’. The external circle is comprised of an Account Manager, a licensing specialist, and a technical specialist, while the internal circle includes a Group Leader/Sector Manager and a Licensing Executive. In very large deals, a Senior Director or even the local GM may be involved.
Preparation stage
Microsoft begins preparations for an EA renewal or a new EA at least a year prior to the target date. This is for a few reasons:
- To tighten and reinforce the relationship with the customer.
- To better understand the customer’s use of Microsoft technology (in other words, to collect information on the usage of Microsoft products.)
- To begin the process of upgrading and implementing the customer’s systems to the most advanced versions available in their agreement. (If the customer sees no value from their current agreement, there is no incentive to renew for another 3 years.)
What is the best renewal scenario for Microsoft?
Even though Microsoft would take issue with what I’m about to say, let me say it anyway: Microsoft loves customers that are under license at the time of renewal. This is the best leverage they have to “persuade” the customer to renew, emphasizing that customers need to be very careful which products and technologies they implement in the final year of their agreement.
The negotiation cycle (may differ from customer to customer)
- First meeting. At this stage, you reach an agreement on the list of products and product quantities for the negotiated deal. You should prepare this list well in advance as it will form your basis for negotiations. Don’t let Microsoft define your needs for you.
- Initial proposal. Microsoft will deliver an opening proposal, and usually the pricing will be from the standard price list. At this stage, you should present your financial analysis and define your targets, including what you hope to achieve in the deal.
- Second proposal. This will include an initial discount, and in most cases it is viewed as just the first round of price negotiations. You will need at least one more round to reach your target price.
- Third proposal. This may be presented by a Senior Manager, whose job is to reinforce the high level of Microsoft commitment and the “special discounting” you have now received.
- Fourth proposal. Depending on the strategic importance of the agreement, this may or may not be offered. If it does take place, this stage will be conducted at a very senior level and will conclude the negotiations.
- Legal negotiations. Usually this happens at the end of the business negotiations, but I recommend incorporating the legal aspect into all of the negotiation stages.
- Signing of the agreement.
Summary
Pay attention to your renewal date and to “new” activity by Microsoft in your organization. This is usually a sign that they are planning to renew or close an agreement with you. To maximize your leverage in the negotiations, you need to be aware of the agenda behind this extra attention. If you take your preparations as seriously as Microsoft takes theirs, you’ll be faced with less surprises further down the track.
With the introduction of Visual Studio 2010 Microsoft is offering a new packaging lineup and licensing options that should simplify the current complex licensing packages offered and make the management of MSDN licensing more transparent.
The new Offering will include three main versions:
- Microsoft Visual Studio 2010 Ultimate with MSDN
- Microsoft Visual Studio 2010 Premium with MSDN
- Microsoft Visual Studio 2010 Professional with MSDN
MSDN subscriptions are included with the purchase of the above Visual Studio 2010 packages. The specific level of MSDN subscription benefits corresponds with the Ultimate, Premium and Professional designators in the Visual Studio 2010 product name. Visual Studio 2010 Professional will also be available for purchase without an MSDN subscription.
New Pricing
Not only is the packaging and licensing changing but so is the pricing, overall it looks like prices are increasing especially for the most popular package Visual Studio Professional w/MSDN Premium, below is the retail prices for the current and new versions.
|
Visual Studio 2008
|
Visual Studio 2010
|
Remarks
|
| VSTS Team Suite w/MSDN Premium
$10,939 New / $3,499 Renewal |
Visual Studio 2010 Ultimate with MSDN
$11,924 New / $3,814 Renewal |
Price increase of ~ 8% |
| VSTS Developer/Database/Architect/Test Edition w/MSDN Premium
$5,469 New / $2,299 Renewal
|
Visual Studio 2010 Premium with MSDN
$5,469 New / $2,299 Renewal |
No Change in price |
| Visual Studio Professional with MSDN Premium
$2,499 New / $ 1,999 Renewal |
Visual Studio 2010 Premium with MSDN
$5,469 New / $2,299 Renewal |
Current version no longer available in 2010, you need to purchase the higher version in order to get the MSDN Premium subscription, price increase New ~46% Renewal ~13% |
| Visual Studio Professional with MSDN Professional
$1,199 New / $ 799 Renewal |
Visual Studio 2010 professional with MSDN
$1,199 New / $ 799 Renewal |
No Change in price |
| Visual Studio Professional
$799 New |
Visual Studio Professional
$799 New |
No Change in price |
| Visual Studio Standard
$299 New |
Visual Studio Professional
$799 New |
Current entry level version no longer available, you need to purchase the higher version, price increase of ~62.5 |
Prepare for the transition period to the new licensing and save money
Until March 22 you have an opportunity to save some serious money. Microsoft is introducing the Ultimate Offer for Visual Studio 2010. The Ultimate Offer is available to customers who have purchased one of the following products on or before March 22, 2010:
- Visual Studio Professional 2008 with MSDN Premium
- Visual Studio Team System 2008 Development Edition with MSDN Premium
- Visual Studio Team System 2008 Architecture Edition with MSDN Premium
- Visual Studio Team System 2008 Test Edition with MSDN Premium
- Visual Studio Team System 2008 Database Edition with MSDN Premium
The chart below shows how the products and subscriptions available today will evolve
The most common mistake when performing a long-term financial analysis is not taking the opportunity to calculate the Present Value of planned future payments for different licensing agreements. For example, compare an EA to a Select agreement on a 6-year timeline, with payment spread over the 6 years. Note that EA is usually fixed equal payments and Select is usually spread into varying sums for different periods. In fact, you are assessing different periods in time during which the value of your money is not yet determined. In order to calculate the total sum of the planned payments, you will need to bring all future payments to a common point in time using the same “risk factor” or “interest rate factor”.
“Present value is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful “like to like” basis” (http://en.wikipedia.org/wiki/Present_value )
Source: Wikipedia, the free encyclopedia
The 4-Step Process
- Define the number of years for which you will be performing the financial analysis.
- Specify your planned future payments.
- Compare Licensing Agreements.
- Determine your “risk factor” or “Interest rate factor”, by using the CPI (Consumer Price Index) or your company’s return on investment rate.
Example:
- Financial time line – 6 years
- Future payments – as per the table below
- Licensing agreement – EA
- Option 1 – 2010-2012 Core Cal Only, 2013-2015 Full Platform
- Option 2 – 2010-2012 Full Platform, 2013-2015 Full Platform
- Interest rate factor – 6%
Conclusion
As shown in the example, the difference between the PV and the non PV calculations is approximately 500K for a period of 6 years. With careful and correct planning, you can achieve substantial savings with this method.
“He who controls the present, controls the past. He who controls the past, controls the future” from George Orwell’s novel ’1984′.
This quote is very powerful and can be used to learn many lessons in life, I want to take a twist on this famous quote and take a look at how this can be implemented into licensing.
The nature of a Microsoft Software Assurance agreement means that a substantial part of your payment is for future versions of a products for which you do not features and if you need/want/will be able to deploy these new versions in your organization.
The question is how do you go about taking an educated decision if SA is worthwhile investment? Well the answer is actually quite simple, you need to prepare 3 products roadmaps:
- The first is your internal historical upgrade roadmap, outlining over a period of 6 years your upgrade cycle (or what I call your upgrade rhythm)
- The second is your future upgrade vision, this is based on either your past upgrade cycle or a pre planned upgrade roadmap or maybe a mix of both
- Once you have finalized charting your internal roadmap you need to cross reference it with Microsoft’s future roadmap(available from Microsoft or from a analyst firm) and analyze how the two overlap assuming a 3 year planned agreement or even a 6 year long terms financial analysis.
To summarize the more your future Roadmap overlaps with Microsoft’s over a period of 3-6 years the better chance that you will see greater value from your SA investment, if this is not the case I suggest re visiting your need for SA and having an open discussion regarding this with Microsoft.
Preparing to purchase Microsoft Licensing or entering into negotiations for a multi-year agreement can be a daunting experience for most companies. Microsoft Licensing employs a multitude of technical terms, conditions and agreements and employs experienced Sales and Licensing staff, in order to meet Microsoft on your terms I have put together a short list of recommended steps that will help you better prepare for negotiations and achieve great results.
- Essential Reading. Microsoft offers a wide range of Volume Licensing Agreements and Product Licensing terms and conditions for commercial businesses, schools and academic institutes, Government organisations, independent software vendors and Software service providers. Understanding the various licensing options Microsoft offers is the most fundamental stage of preparing for your negotiation, without this knowledge you will be at a disadvantage at the negotiation table. I recommend reading two basic documents, the first is the Microsoft Volume Licensing Reference Guide and the second is the Microsoft Product Use Rights.
2. Preparation. One of the most basic mistakes is insufficient preparation. Organisations (actually individuals, because every negotiation is conducted by people) do not spend enough time gathering the needed internal data, analysing that data, looking at future plans, defining the desired outcome of the negotiations, and understanding the goals of the other side. The inevitable outcome of neglecting these issues is poor negotiation results.
3. Goal Setting. Setting realistic and achievable goals is essential to a successful negotiation. It will determine your strategy and tactics, enable you to determine when you have reached a successful outcome, and establish your “red lines” or reservation points (what is unacceptable).
4. Understanding Microsoft. Just as you need to determine your own goals and reservation points you also need to do the same for Microsoft. This will provide understanding of the obstacles you are likely to face at the table. Such information can be gleaned in unofficial discussions with your account manager, as well as adding 15%-20% to your previous agreement (Microsoft sets very high goals for Account Managers). In addition, make a list of the decision makers on the Microsoft side and understand who has real concession empowerment (there are rules set out at different levels of the organisational pyramid, determining when and by whom concessions can be made in the negotiation process).
5. Teamwork. Preparing and negotiating with Microsoft is not a job for one individual, regardless of how capable he or she may be. It requires multiple professionals with financial, IT, procurement and legal expertise. Don’t forget that Microsoft has 30 years of experience and hundreds of people working on Licensing Agreements. You need to meet them on your terms with the best human resources at your disposal
Microsoft offers 2 types of CAL’s (Client access licenses), User CAL’s and Device CAL’s, both options are priced identically but have different user rights. As most companies order Device CAL’s (this is the default when you order a CAL from you reseller), as a result potential substantial savings are lost.
The first step is to understand what you need and the second is to determine the quantity needed. Take a look at the examples below in order to better understand how to calculate the requied licenses:
- Say you have an organisation with 500 users accessing Windows and SQL servers, the default would be to purchase 500 Windows User CAL’s and 500 SQL User CAL’s, but if we take a deeper look into the organisation we will see that they have a call center with 90 users in 3 shifts working on 30 Desktops, so the correct licensing should be to purchase 410 User CAL’s and 30 Device CAL’s, this will save the company 60 CAL’S and a cost savings of approximately $15,000.
- Let’s look at another example a company has 12,000 Desktops and Laptops and 10,000 employees (accessing Windows and SQL Servers), the simple solution would be to purchase either 12,000 Device CAL’s or 10,000 User CAL’s, but let’s take a deeper look, there are 3,000 users that have 2 Desktops (2 separate networks), 1,000 users have both a Desktop and Laptop, 2,000 employees do not have access to a PC (Blue collar workers) and the remaining have 1 Desktop. The optimized licensing scenario would be to purchase 4,000 User CAL’s (covering 8,000 Desktops) and 4,000 Device CAL’s for the entire organisation, resulting in a cost savings of over 2,000 CAL’s or approximately $400,000.
Plan carefully and understand you organizations needs and only then purchase licenses, saving money is all in the details.
