Whether you’ve been a Microsoft customer for an extended period and are considering embracing the AI companion (Copilot) trend or are initiating a new partnership with the tech giant, you might discover yourself entangled in a perpetual loop, attempting to navigate through the terminology, technical prerequisites, choices, license frameworks, and contractual terms and conditions.. Just when you think you’ve decoded Microsoft’s licensing, changes are announced, throwing you back into the spin.

Our team has been negotiating Microsoft contracts on behalf of clients for years and across many industries. In light of this, we’d like to share insights that can prove helpful whether you are looking to renew, restructure, enter a new agreement, or find yourself in the midst of an audit with Microsoft.

  • Selecting Your Licensing Vehicle: It’s crucial that the contract and terms governing your licenses align with the size of your organization and your licensing needs. Microsoft offers various “Licensing Vehicles” like Open Licensing, Enterprise Agreement, SCE (Server & Cloud Environment), each with its flexibilities and limitations. Understanding these nuances is vital for making informed decisions. Note that selecting a combination of contracts within your corporation may be an option, particularly when the needs of a specific unit differ from the rest of the enterprise. Ensure a solid understanding of Licensing Vehicles and the constraints and advantages associated with each one before deciding on your contract structure. For instance, while the SCE contract offers discounted pricing on Software and Software Assurance (SA), it requires a commitment to full Software Assurance coverage across the installed base of an SCE component. If your organization doesn’t plan to keep a specific environment under SA, SCE might not be the right license vehicle, as the cost of SA will likely offset the incentives of the contract vehicle.

  • Sizing Your Needs: With Microsoft contracts, organizations often overbuy licenses due to common oversights. Defining requirements accurately is crucial, especially with the myriad flavors of products offered. Organizations may end up purchasing incrementally premium products without clarity on how added features and functionalities align with business requirements over the contract term. This is common with enterprise-wide products such as O365 suites, where organizations enter contracts at optimistic levels, paying for unutilized features months or years before deriving value from them. Remember that you can always true-up and upgrade; however, downgrades and true-downs in mid-contract term are challenging unless these rights are solidified in your contract during original or renewal negotiations.

Server licensing, specifically SQL licensing, poses optimization challenges for companies. Defining requirements, such as Production vs. Test and Development, and virtualization needs, can help license a server for compliance at the least expensive option. When used correctly, developer licenses significantly reduce costs compared to a full server license. Engage a well-versed professional to assist in defining your requirements, mapping them against available options, and setting up a contract structure that offers the needed flexibility.

A well-versed professional who understands these issues can help you with defining your requirements, mapping them against the available options and setting up a contract structure that offers the needed flexibility.

  • Understanding Licensing Metrics: Whether counting users, cores, or processors, knowing your entitlement and usage as defined by your Microsoft contract is crucial. It’s easy to overbuy and leave dollars on the table or underbuy and expose the organization to audit risks if your understanding of the license metric doesn’t align accurately with Microsoft’s definition. For example, when sizing for O365 usage, many rely on Active Directory (AD) as the user count report; however, AD may not generate an accurate count of your true users, as distribution lists, conference rooms, and terminated employees likely appear in AD but don’t count as users for O365 licensing. Asking the right questions and performing the correct cleanup procedure can help you right-size your Microsoft contract. The server environment requires the same level of detailed attention when it comes to Microsoft licensing. With server licensing moving to a Core-based model and technology shifting towards larger capacity servers, understanding the licensing implications of upgrading a server and how that impacts your license count and Software Assurance costs is essential. Virtualization rights and entitlements can also differ between different types of licenses, adding another layer of complexity to the metrics considered.
  • Bundle vs. A la Carte Options: To add flexibility to their products, Microsoft offers many options to customers in the form of bundles or an a la carte list of features, especially in the case of user licensing in the cloud. Bundles are a more economical choice only if you have a use case (and a plan to implement) all or most of the features. If uncertain about a functionality and have no plan to implement it, it holds zero value to your enterprise, regardless of how deeply it is discounted. Our team can assist with due diligence and financial analysis of the options available to you.

  • Transitions from On-Premise to Cloud: If your organization is still using some on-premise products and planning to transition to Microsoft’s cloud offerings, you’ll have a significant undertaking and opportunity to consider. The significant opportunity lies in restructuring your contract as part of the transition. With some leverage during this transition, ensure that your new Microsoft contract has competitive pricing and enough flexibility to accommodate your ramp period. You should never have to pay for both on-premise and cloud solutions, and the contract structure should provision for and align with your strategy over time.

  • Your Entitlements and Risk of Audit: A Microsoft audit is an unpleasant and time-consuming process that often comes with a significant financial impact on organizations. Clearly defining audit rights and limitations in your contract is essential. The audit clause should also capture the process of remediation should an audit uncover noncompliance. Leaving such terms silent exposes the organization to the risk of paying list price for licenses and additional fees and penalties, including the costs of the audit incurred by Microsoft. If faced with the decision to perform a self-audit or in the case of receiving an audit notice from Microsoft, it’s crucial to engage experts who are knowledgeable and experienced in the field. Defining the scope of any audit, whether limited to a certain product, contract, or region, and understanding the trigger for the audit is vital. As with any other audit, working with Microsoft in good faith is essential, but also ensure that the audit process does not interfere with your business. This is an area where we have helped clients navigate the audit process by determining the nature and format of information that should be communicated and negotiating a reasonable settlement in case of discrepancies.

  • Azure Commitments: Azure has become a common and significant component of Microsoft contracts with various commitment levels and corresponding tiered discount structure. It is important to size up the commitment so that you can benefit from the additional incentives without leaving money on the table. Try to keep your commitments to an aggregate level to smooth out the peaks and valleys in usage over term. Keep in mind that if you are falling short of your commitment, there are options in negotiating more time or channeling third party software purchases through Azure Marketplace to contribute towards your Azure spend.

Your Microsoft contract is likely among the most expensive and complex of your IT contracts. Because of that, it pays to have an experienced advocate on your side when trying to renew or restructure your Microsoft contract. It’s even more helpful to have someone fighting for you if you are embroiled in a Microsoft audit. If we can be of assistance, please do not hesitate to reach out by contacting us at info@symphonyconsult.com.