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Microsoft Licensing Model Says I’m Too Big to Deal with You

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by Louis Pellegrino
Microsoft-Too-Big

Now that Microsoft has crossed over the $100 billion annual sales threshold, it feels confident enough to say goodbye to the stratum of enterprise customers that license 500-2,500 users. Until now, these customers have occupied the lower end of Microsoft’s Enterprise Agreement option for products and services. Today they are being strong-armed into the recently rolled out Cloud Solution Provider (CSP) model – a model that is managed by Microsoft Partners, not Microsoft itself.

The announced reset of licensing price levels, in which discount level A has been replaced with “street-pricing,” means two things: 1) no longer a quid pro quo for standardizing on Microsoft products across the enterprise, and 2) a three percent or more increase in price.

A couple years ago, Microsoft upped the eligibility requirements of its Enterprise Agreement program from a minimum of 250 devices or users to a minimum of 500 devices or users. This latest move effectively raises the Enterprise Agreement eligibility requirement again – this time from 500 to 2,500 – as customers with fewer than 2,500 users no longer benefit from an enterprise commitment. 

The change is inflicting further pain on smaller customers and other organizations whose traditional use of Microsoft products was best served by licensing shared devices. Microsoft wants to exit the device-based licensing business as quickly as possible, and it is raising the economic stakes for customers that have a genuine need to leverage that model. While the less flexible device-based license was at one time priced as much as 30 percent lower than the more flexible user-based version, Microsoft has simply raised the cost of the device-based option to be equal to the user-based cost.

This aligns with a presumed Microsoft strategy to move this segment of its customer base to the CSP program and offload the associated management responsibilities to its partner channel. Over time, Microsoft will likely bring other changes to the market with the same objective in mind: reduce its need for a sales force targeted specifically at the smaller segments of the market it supports today.

Over the next five years, Microsoft will have consolidated much of its Office 365 subscriber opportunity to the point where it no longer needs to negotiate contracts with the likely potential that end users will be exposed to continued cost increases. The question of whether this will lead to potential regulatory complications arising from a very anti-competitive reality in the marketplace should be on the minds of enterprise customers as they are left with virtually no options outside the Microsoft “monopoly.”  

About the author

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.