Renewing contracts for bulk licensing of Microsoft products may be costing businesses millions of dollars for products and services they likely won't need before the contracts run out, says an expert who helps customers negotiate the agreements.
The contracts call for customers to buy future versions of software sight-unseen as well as current versions they have no near-term plans to deploy, says Paul DeGroot, principal consultant at Pica Communications.
For example, about three years ago a Pica customer using Windows 7 and Office 2010 bought a three-year enterprise agreement that included future versions of Windows and Office. At the time, DeGroot advised them they'd likely be using Windows 7 and Office 2010 beyond the contract period so there was no need for an agreement that provided Windows 8 and Office 2013. But the client bought the agreement anyway.
Now as the client is considering a new Microsoft contract, it still has no plans to migrate from Windows 7 or Office 2010, and since it now owns perpetual licenses for both, there's no need to spend money on a contract that provides whatever Windows and Office versions that come next, he says. It's already sitting on licenses for Windows 8 and Office 2013 that it's not using.
That represents a savings of at least US$2 million for the customer over three years for its 5,000-PC network, he says. Based on those savings, the client won't renew its agreement. Many large enterprises have upward of 100,000 PCs representing even larger savings, he says.
DeGroot says Office licensing is the most expensive part of enterprise agreements, and dropping it can reduce the costs 35 per cent to 50 per cent, "and it will do no harm." In fact not upgrading may make end users happy because they don't have to learn the quirks of a new version, he says.
"Microsoft is pushing you to make choices long before you know what their impact will be," says DeGroot. "This is gambling, and you don't have to do it. Use the licenses you bought without paying Microsoft more for it."
If businesses know now that they'll stick with versions of Windows and Office for five years, there's no need to consider purchasing newer versions until 2017, making due without agreements.
In the meantime other viable alternatives may appear or business hardware and software needs may shift. With the market for PCs declining, he says, in five years businesses may find they want to shift their hardware to tablets instead.
For its part, Microsoft acknowledges that customers want an overhaul of its of volume licensing practices and has initiated what it calls its next-generation licensing initiative.
According to Microsoft the new structure is based on three key elements:
- A simplified agreement structure consisting of a Microsoft Products and Service Agreement, a foundational licensing agreement, and Purchasing Accounts.
- One agreement for both on-premises software and online services.
- New and upgraded systems and tools to managing Microsoft licenses and services.
Carrying out these principles are two concrete mechanisms, the Products and Services agreement and the Purchasing Account.
The Product and Services agreement consolidates common terms and conditions from current Microsoft Business and Services agreement, the Microsoft Select Plus Agreement and Microsoft Online Services purchasing terms and conditions contracts into "a single, nonexpiring agreement for all organisations," Microsoft says.
"By consolidating licensing in a single agreement, organisations can streamline the overall contracting process and integrate transactional purchases for on-premises software and Online Services.
Combining these purchases together provides the best volume discount, per pool and account type, across your organisation," Microsoft says.
The Purchasing Account is a buying entity within an enterprise customer's organisation, such as a particular department.
The administrator of the overall Product and Services agreement can view all the Purchasing Accounts.
"For instance, you can view and manage purchases by individual Purchasing Accounts, legal entities, account types, or by the entire organisation," Microsoft says. "Because you are now managing "accounts" rather than agreements, you have one buying relationship with Microsoft and one agreement with an organisational view."
So far, Microsoft's description of the initiative is too vague to draw many conclusions, DeGroot says. For instance, some of the old licensing options called for mandatory Software Assurance maintenance contracts and some didn't. It's not clear how many of those options will carry over, he says.
He says it's likely the details will reveal a system that encourages buying software-services on a continuing subscription basis rather than software itself that customers own forever.
"They're trying to build a volume program that will send customers in the right direction as a far as Microsoft is concerned," DeGroot says. "That means using Microsoft software for every part of the enterprise at the highest prices over the longest period of time. They're not much different from other vendors."
Tim Greene covers Microsoft and unified communications for Network World and writes the Mostly Microsoft blog. Reach him at tgreene@nww.com and follow him on Twitter@Tim_Greene.
Read more about software in Network World's Software section.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.