How to Negotiate the Best Deal with Microsoft

If you have ever been tasked with having to negotiate a better deal with Microsoft, you have most likely stayed up many nights trying to figure out how you were going to spin a 20% annual increase as a success.  As the Microsoft Practice Lead at UpperEdge, I’ve had many opportunities to work with senior procurement and IT executives who struggle with Microsoft’s approach to the relationship at renewal time.  I am no longer surprised when I hear stories of significant increases being positioned during renewals.

It is not hard to figure out why this is so often the case.  When it comes to many of the products Microsoft sells, there is limited viable competition and Microsoft is already very much entrenched within the company that has been using its solutions for the past several years.  This makes it far too complicated, if not impossible, to even start to consider moving away from Microsoft.  Moving your entire company off of Microsoft’s products (the Office suite most specifically) would be a change management nightmare that would likely cause near-term productivity to drop.  Interestingly enough, productivity improvement is one of the core reasons companies are so heavily reliant on Microsoft’s products in the first place.

Microsoft is well aware of this and knows they hold all the cards when it comes time to renew.  During one of our past client engagements, the IT executive we were advising was actually told by his Microsoft sales rep that there was nothing else they could do the meet his requirements and that he could always try and see what the other Microsoft might offer him if he was not satisfied with the current proposal.  Yes, this actually happened.  Now, in fairness, this was before Satya Nadella became CEO and started to reshape the corporate culture.  Under Nadella’s leadership, we have seen a more customer-focused Microsoft, but there are still many obstacles in the way of achieving a deal with Microsoft that includes proper price protections, flexibility and improved discounting beyond the standard volume discounting Microsoft offers.

Given stories like these, executives often ask myself and the team at UpperEdge two questions:

• Are we alone and are we being treated differently than everyone else? The answer, if you haven’t already guessed, is no.  Unfortunately, Microsoft tends to treat most organizations in this manner.  Often because they can and are not challenged to act differently.
• Is there hope in actually achieving a better deal with Microsoft through negotiation? The answer to this question is, thankfully, yes.  If you prepare yourself appropriately, know the right questions to ask, have a good story and are armed with up-to-date market intelligence you can absolutely negotiate a better deal with Microsoft.

Here are some immediate things Microsoft customers should consider in order to put themselves in the best position to succeed:

Gather granular utilization detail. Having a complete (and organized) understanding of your company’s entitlements, on a line item basis, along with the actual level of utilization is a critical data set to have when discussing actual value received versus fees paid with Microsoft.  Ideally, you want to be able to communicate the dollar value associated with any under-utilization to show the lost value.  As obvious as this may seem, far too many companies fail to effectively pull this level of detail together and thus lose out on an opportunity to pull a significant negotiation lever with Microsoft.  Being able to remind Microsoft of the heavy sales-pitch they made on why you needed to include a particular new Microsoft product in you last renewal and then showing Microsoft that you never even used the product is a very powerful message during your negotiation.  This is especially the case when Microsoft is looking to add even more new products to the offering while also uplifting the fees associated with the products you already have.

Complete a Software Assurance (SA) benefits assessment. When you renew non-subscription products (i.e. Office, Windows, SQL server…etc.) licensed under Microsoft’s enterprise agreement, you are effectively renewing (and paying for) software assurance since you already own the underlying license.   Given this, it is important to assess whether you have realized the full value of software assurance and whether you will realize the full value of software assurance moving forward.  Software Assurance benefits are organized into four major categories: Deploy and Manage (New Version Rights), Training, Support and Specialized (Spread out payments).  Based on our experience, very few companies utilize and receive the full benefit of software assurance.  While guiding our clients through the assessment, we often determine that many companies didn’t even know the full scope of benefits that were included   The issue with Microsoft is that you don’t get to pick and choose the software assurance benefits you will be utilizing.  Software assurance is software assurance.  If positioned correctly though, there is an opportunity to present to Microsoft the limited value previously received and expected to be received from Software Assurance moving forward in order to achieve valuable concessions from Microsoft that can offset the lack of value concern.  This includes, but is not limited to, achieving additional discounting beyond the stated Microsoft volume discount.

Evaluate products that are valuable to Microsoft. Microsoft’s go-forward strategy and ambitions are very clear, they want to build best-in-class platforms and productivity services for a mobile-first, cloud-first world.  They want to reinvent productivity and business processes, build the intelligent cloud and create more personal computing.  Since they are in the business of making money, they not only want to reinvent and/or build these processes, platforms and services they want to sell them to as many people and companies as possible.  They have also communicated to the analyst and investor community fairly aggressive product adoption goals and therefore Microsoft’s share price also hinges on Microsoft’s ability to sell more Microsoft products to existing and new customers.  Microsoft even adjusted its business segments, prior to Q1 fiscal 2016; to align with these ambitions in order to be better positioned to report success.  Microsoft has moved from six segments to the following three:

• “Productivity and Business Processes” (Office and Office 365 for both commercial and consumer customers as well as Dynamics and Dynamics CRM Online)
• “Intelligent Cloud” (Windows Server, SQL Server, System Center, Azure, and Enterprise Services)
• “More Personal Computing” (Windows operating system, phones, gaming, search)

Although UpperEdge would never recommend buying products you don’t need just for the sake of trying to get a “good” deal. However, our experience has shown that companies evaluating products within each of these segments (or expanding in them) has an attractive story that can influence the ability to achieve concessions from Microsoft.  This is especially the case when the products under consideration have competitive alternatives and represent strategic products directly tied to Microsoft’s go-forward strategy and ambitions.   Most specifically, a company seriously considering Office 365, Azure and even Dynamics while renewing Windows has a significant amount of leverage, and if used correctly, can achieve a best-in-class deal with Microsoft.

These are some of the areas we recommend companies consider when preparing for an upcoming Microsoft negotiation.  We will be providing additional insights through an ongoing Microsoft blog series on our company website so be sure to keep your eyes out for additional value added content. In addition, be sure to subscribe to our blog for proactive notifications of our content.  We would also be interested in hearing your experiences with Microsoft and the challenges you have ahead of you.

In addition, if you would like to further discuss how UpperEdge has helped organizations properly prepare and effectively negotiate with Microsoft, please feel free to reach me at amansfield@upperedge.com