Negotiating with Microsoft: The Goliath of Software Vendors


The COVID-19 pandemic has wreaked havoc throughout businesses worldwide, leaving many leaders with no option other than to abandon their initial plans, forecasts and goals and make new plans for survival.

Yet, for all the stories of hardship, concession, and sacrifice, a select few companies have been able to thrive. Take, for example, Microsoft. Its fiscal year 2020 revenue was $143 billion, which was an increase of nearly $18 billion from fiscal year 2019, including the first six months of calendar year 2020. The company’s net income for the same period was $44.3 billion, which was an increase of nearly $7.5 billion (non-GAAP).

For the three months running July 2020 through September 2020, Microsoft increased quarterly revenue by $4 billion and net quarterly income by $3.2 billion. So, the prorated net income performance for the first nine months of 2020 – including seven months of a global pandemic – equates to $36 billion, which is greater than 95 of the Fortune 100 companies’ total annual performance in the pandemic-free 2019.

Most of us do not need more evidence of Microsoft’s power in the software market, but the fact is, its revenue makes it a formidable negotiator. Some publicly available examples suggest a number of Microsoft clients find themselves in the difficult position of facing an increase in the cost of retained services at renewal with no new services or added value.

The reality is that Microsoft customers need to rally around a core set of principles when heading into negotiations. These include:

  • Price to value: Stick to your perceived or estimated value of a product or service rather than the provider’s cost of the product or historical prices.
  • Time to value: Determine and communicate your expectations for the period between acquiring or buying a new product or service and realizing the value promised.
  • Flexibility: Assert your need for flexibility and a reasonable shared risk between the parties due to current economy and business uncertainty.
  • Predictability: Demand predictability as a condition of doing business with you so you and your providers can continuously improve, fortify and retain your partnerships.

Your approach to Microsoft or any other strategic partner is to remind them of the expectations you have of them when you elevate them to a business-critical role in your organization. The above value tenets are central to helping establish and maintain the conditions you need in pursuit of a healthy partner ecosystem that positions you for success.

Strategic partners would do well to demonstrate a degree of good will toward their customers in times like this, but if they do not, public and private organizations must arm themselves with the latest strategies for sourcing and contracting with powerful providers – even as they grow stronger. 

The alternative is to look at newer, non-Microsoft options that meet enterprise needs for productivity, security, management, hyperscalers and even Microsoft product support.

ISG is here to help. Contact us to discuss how to prepare for your next negotiation.


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.