Although it’s not completely behind us, 2020 has been an epic year. Businesses across the globe have faced “do or die” decision-making compressed into a matter of weeks and months, frantically adapting their digital modernization plans to help them survive.
If that were not enough to keep business leaders’ heads spinning, they are on the precipice of another major business disruption. Microsoft has signaled that 2025 marks the end of its business transformation from a publisher of packaged software to a provider of subscription service offerings. The company’s goal between now and then will be to convert customers to a subscription model, whether on-premises or in Microsoft’s cloud.
Microsoft has and continues to use various licensing strategies and tactics that lead customers to subscriptions, increase the adoption of Microsoft-hosted services, and place customers in situations in which they must purchase higher-priced subscriptions.
Microsoft’s plan appears to have four main objectives.
- Increase the cost of retained on-premises software through a barrage of change, including price increases, elimination of discounts, reduced features compared to their online counterparts, shorter support lifecycles, shift of use rights from perpetual to non-perpetual, and the creation of on-premises dependencies to other hosted services.
- Create provider “lock in” by eliminating the option to repatriate hosted workloads to a customer-owned datacenter, leveraging proprietary feature dependencies and phasing out the option to suspend software maintenance.
- Package products by spanning service utility across multiple subscriptions, placing “hook” features in higher-end bundle subscriptions, offering user services that must be implemented tenant-wide versus per user, and moving features from lower-cost subscription bundles to higher-cost bundles.
- Pose non-compliance “pitfalls” by forgoing enforcement of subscription assignments to users that require tenant-wide adoption – which allows users to unknowingly create an unforeseen liability – and setting up renewal “traps” in the new use rights spelled out in the Microsoft Online Services Terms.
Why does Microsoft’s plan for 2025 matter now?
Enterprise clients should consider the renewals they agree to with Microsoft in 2021 and 2022 as a last chance to fortify their positions for the subsequent renewals occurring in 2024 and 2025.
Moreover, as current on-premises software licensing alternatives are taken off the table, Microsoft is no longer competing with itself. In other words, the tension it has created between its modern and legacy business models can levy any number of price increases. The company is likely to achieve these increases not through the raising of prices for the subscriptions in market today, but rather through re-packaging and cross subscription dependencies it offers tomorrow.
No matter what your annual Microsoft spend is now, you can count on the sales and marketing machine at Microsoft to innovate new ways to keep increasing your costs for retained services at each renewal. The only safeguard is to build protections into your current agreement.
At the same time, it is important to note that Microsoft is retiring Premier Support and replacing it with a new offering called Unified Support. Moving forward, an organization’s cumulative Microsoft software and subscription annual spend is the driver of ongoing support costs under the Unified Support model. As Microsoft moves customers away from traditional software, it is making customer requests for extended Premier Support highly unattractive through materially higher renewal costs.
This year has been a tough year by any measure, but the pending Microsoft 2025 will bring about its own series of challenges to your business. Now is the time to plan for this eventuality. ISG helps companies navigate the complex and ever-changing software market. Contact us to find out how we can help your organization.
About the author
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.
