Enterprise Software Agreements: Leveling the Sourcing Playing Field


Doing business with Microsoft has always been demanding from a technology and licensing perspective, but in the era of hosted online services, it can be herculean. Microsoft uses clever methods – software packaging, product use-rights, cross-product dependencies and license compliance – to cultivate a “fog of confusion” that challenges even the most experienced IT sourcing teams.

The confusion that Microsoft creates for IT sourcing is part of the field tactics it deploys with the goal of moving its enterprise customers “up the stack” to license more expensive user subscriptions.

At each Enterprise Agreement renewal, which typically occurs once every three years, Microsoft takes a default posture that assumes its customers must acquire the Microsoft 365 E5 offering as a means new revenue. Of course, seeking new revenue is common to all enterprise software providers, but Microsoft’s standard practice is completely detached from whether its customers want or need any of the added services the higher-end bundle includes.

Missing from any of this renewal discussion is an objective assessment on the part of Microsoft to help its customer quantify the value realized from the services currently in place and the corresponding ROI from such services.  

Most Microsoft customers lack the experience to evaluate how their previous investments have panned out and the know-how to ensure they enter a renewal discussion as an informed buyer. Moreover, the changes Microsoft brings to market over a three-year period can easily make an IT sourcing professional’s knowledge obsolete from one year to the next.

Enterprises Need Support Managing Software Provider Relationships

The software advisory marketplace emerged over the past 10 years as a direct response to enterprise buyers needing real-time support with the planning and management of their larger software provider relationships, especially Microsoft.

Software advisors are dedicated to remaining up to date with the business of today’s enterprise software providers and deliver an invaluable service to companies that enter into multi-million-dollar agreements with these providers. Overspend and value leakage are rampant in these size transactions, and executives from within these enterprises are counting on their IT sourcing teams to protect the business from undesirable outcomes.

Software advisors help clients build the most appropriate “basket of goods” to balance retained services with consumable near-term future demand and the corresponding fair market value (FMV) of those goods themselves.

FMV is a well-researched and well-documented set of datapoints that provide a barometer of pricing outcomes that are anonymously aligned to deal size, scope and complexity. The professional researchers that compile this data take extreme care to report only on deal attributes and nothing else that would serve to disclose any confidential client data.

Who Should Be at the Table for Software Agreement Renewals?

It is becoming standard practice for some of the largest enterprise software providers to discourage, or even outright disallow, their customers from retaining the services of software advisors during the agreement renewal process.

In the case of Microsoft, such a demand of their customers disables and disempowers IT sourcing teams who are under considerable pressure to protect their business from avoidable over-spend. Ironically, overspend most often is the direct consequence of over-subscription. If companies are not allowed to use professional services, does this then suggest they should not be permitted to retain outside legal counsel to help negotiate their complex enterprise contracts?

On the surface, it appears that some large software providers do not want their customers to seek professional help or guidance. They’ve essentially hung a “Help Not Wanted” sign on the front door.

Isn’t an educated customer your best customer?

The claims made by some enterprise software providers that software advisors misuse confidential customer information is completely without merit. If IT sourcing teams fail to challenge these claims, they enter into a negotiation field that is tilted against them – and the risk of overspend is substantial.

Enterprise IT sourcing teams that seek support from software advisors to help them protect their business should not need permission from their software providers. Otherwise, it’s a rigged game.

Working with a qualified advisor can help you understand how doing business with Microsoft is changing and how you will need to adapt to avoid unexpected surprises and costs. ISG Provider Lens publishes studies to help enterprises navigate the Microsoft ecosystem.

Contact us to find out how we can help.


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.