The Microsoft Predictability Problem


Microsoft, in recent years, has transformed itself from a software publisher to a software-as-a-service (SaaS) provider, leaving its enterprise customers uncertain about product licensing and the company’s commercial sales model. Enterprise customers can expect that lack of predictability to continue as Microsoft’s transition runs through 2020, with cost increases for SaaS services a common thread. In the next year, many of Microsoft’s enterprise customers are due to renew enterprise agreements (EA) signed three years earlier as Office 365 service subscriptions. Microsoft managed to move many of its enterprise customers from software licensing deals to Office 365 alternatives between 2015 and 2017 by offering aggressive financial incentives – a.k.a. discounts – on services those customers were not completely prepared to deploy or consume.

As those enterprise agreements began to expire in 2018, Microsoft customers were greeted with renewal offers that, in many cases, rescind any previous discounts provided for Office 365. These cost increases – of 20 percent or more – are for the same services covered under the previous term, with no incremental value offered to customers.

This problem is amplified if the customer has grown over the past three years. In some cases, large enterprises could see price increases of up to 40 percent for Microsoft services. This lack of pricing predictability from Microsoft has ruffled the feathers of many enterprises.

In the latest example of this unpredictability, the online service Microsoft 365 E3/E5 (M365) is changing in a way that will likely affect every Microsoft customer previously paying for this service. Microsoft has pitched M365 as a way for its customers “to have your cake and eat it, too.” The product terms allowed customers to run the traditional version of Office Professional Plus, which installs in the traditional way, in place of the product called Office 365 ProPlus – a component of M365 that installs directly from the cloud, in a process called “click to run.” This licensing term was critical for customers who weren’t running the most current version of Office Professional Plus, had application dependencies related to older versions of Office Professional Plus, or simply did not want the hassle and cost of redeploying all their Office licenses with click-to-run.

Virtually all customers who agreed to M365 (or its predecessor) in their licensing agreements between 2015 and 2017 did so because of this so-called “dual use right” benefit touted by Microsoft as a way to keep their Office experience largely “as-is” while enjoying the simplified delivery benefits of this online service. For many customers, using the M365 service was a way to keep their operations unchanged, while having the option to migrate to the hosted versions of Office Exchange, SharePoint and Skype for Business on their timetable.

We have learned that customers who licensed M365 and have renewals occurring after Dec. 31, 2018, will be losing this dual-use right for Office Pro Plus. Microsoft will force them either to immediately migrate to the click-to-run model or to repurchase Office Professional Plus licenses if they wish to upgrade. Furthermore, it is likely that Microsoft sellers are being told to keep this change “under the radar” as news of this update will likely lead to customer dissatisfaction.

These charges are unfortunate, but when dealing with Microsoft, we advise clients to think through possible scenarios in which the company makes unexpected changes to its product terms. Microsoft customers should negotiate possible remedies into today’s agreements to deal with tomorrow’s potential surprises that are likely to lead to higher costs.

ISG helps companies navigate the changing software landscape and negotiate licensing terms with technology vendors like Microsoft. Contact us to learn more.


About the author

Louis Pellegrino

Louis Pellegrino

Louis joined the ISG team in early 2014 after nearly 20 years with Microsoft Corporation. Louis has compiled a track record of Enterprise client success underpinned by customer focus, strategic thinking, organizational agility, problem-solving acumen and impactful knowledge transfer which has established his reputation as a Microsoft licensing expert.

During his time with Microsoft, Louis worked in both the Consulting Service Group as a Practice Manager and in the Worldwide Licensing and Pricing Group as a Director responsible for designing and negotiating Global Volume Licensing relationships. As a highly effective and influential communicator/negotiator, Louis has delivered consistent business results across both revenue and quality of service performance targets.