How to Crush Your Microsoft 365 Renewal Negotiation

The Microsoft 365 all-in cloud bundle has become a household word at most enterprises.  For those where it is not, it is most likely only a matter of time.  Many organizations have already chosen one of the various plans available, like Microsoft 365 F3, E3 or the most robust E5 offering, or they have even gone with some combination (typically Microsoft 365 E3 for the corporate users and F3 for the firstline or “deskless” workers).

For enterprise customers that already added Microsoft 365 sometime after it was “released” in mid-2017 (Microsoft 365 was essentially a rebranding of the previously available Secure Productive Enterprise “SPE” offering that came out in 2016), you may have your first renewal coming up.  Unfortunately, many are not prepared for what is about to happen.

Before covering how to effectively prepare for the first renewal after adopting Microsoft 365, there are four key challenges many customers face.

Challenge #1:  Special Discount Was Not Special Enough

Undoubtably, when Microsoft was pushing for the move to Microsoft 365, a big part of the pitch included the special one-time discount to help make that happen.  In many instances, that discount would make the Microsoft 365 cloud bundle cheaper than going with the parts (Office 365, Windows 10 Enterprise, and Enterprise Mobility + Security (EMS)).  If you were not yet interested in EMS, perhaps the discount even made EMS appear to be free.

The problem is, even if the discounting resulted in a lower cost profile, it most likely could have been even lower.  But how could you have known that?

Challenge #2:  No Price Protection in Place

Not only should you have obtained better pricing, but that issue becomes compounded because you most likely didn’t get a proper price protection in place for your first renewal (the negotiation you’re about to begin).  What this means is the pricing that should have been better is going to get even worse, even if you achieved a cap on how much worse it was going to get.

Don’t feel bad, though.  Most companies got nothing, leaving Microsoft’s ability to increase completely open-ended.   In fact, many companies that didn’t get a price protection when they initially adopted Microsoft 365 face 15-25% increases at their first renewal.

Another issue is that you may have achieved a protection for just your Microsoft 365 product SKU, but if you didn’t obtain a protection for all of your Microsoft products, Microsoft can very easily offset that protection by increasing the pricing tied to all of your other products accordingly.  For example, if you were able to cap your Microsoft 365 price increase at 10%, Microsoft can increase your other products by 20% to make up for it, since you most likely have more than just Microsoft 365 in your portfolio.

Microsoft is also very good at leveraging the ability to increase these product’s pricing to push for new product adoption.  I am sure you are familiar with the old technique, “If you were to add this product, perhaps I could do something about those price increases.”

Challenge #3:  No Investments Given

Assuming you achieved proper pricing and protections, did you obtain meaningful investments from Microsoft to offset the cost associated with implementing, rolling out the various components, and migrating to Microsoft 365?

If done correctly, you should have obtained a pool of funds which can be available for necessary consulting services that you would otherwise have to pay for.  Through meaningful investments, Microsoft was making a commitment to do what it could to ensure your expected value was received in a timely manner, while helping lower the cost profile they know is evident beyond the cost of their licenses and subscriptions.

Challenge #4:  Cannot Break Up the Bundle

Because you adopted Microsoft 365, you effectively tethered all components (Office 365, Windows, and EMS) together forever.  If it turns out you did not get the value from EMS as you expected, or perhaps you are interested in moving to Google’s G-Suite to replace Office 365, Microsoft can and will make this incredibly painful for you.

You generally cannot break up the bundle without being susceptible to significant price increases on what you are keeping.  That includes increases to the other products in your portfolio as well.  In other words, if you did not negotiate compelling pricing for each piece of the bundle that applies during the term and at renewal, and you tell Microsoft you are only moving forward with Office 365 and Windows because you didn’t get the expected value tied to EMS, Microsoft can make the decision to increase those costs so that it is far more expensive than staying with the bundle itself.

Also, going back to renewal price protections, even if you were able to negotiate a price protection tied to Microsoft 365, that protection goes away as soon as you decide to break up the bundle because the protection requires you to renew Microsoft 365 and most likely maintain or increase the volume as well.

Preparing for a Microsoft 365 Renewal

The good news is, there are ways to overcome these challenges as you embark on your renewal.  If done correctly, enterprises can even improve their go-forward commercial relationship through the renewal negotiation.   Some organizations begin their preparation work a year in advance of their renewal.  If you have the time, 9-12 months is recommended in order to have the most comprehensive picture and to orchestrate the preparation and execution phases of the negotiation most effectively.  Of course, for those enterprises that didn’t plan this way, there is still hope for them as well.

Follow these six steps to ensure you effectively prepare for your Microsoft negotiation:

1. Determine the Value Received and Not Received

Before anything else, you will need to assess your utilization of Microsoft 365.  You will need to evaluate each component of the Microsoft 365 bundle (Office 365, Windows, EMS) as granular as possible – at the feature level.  List the functionality that you are not using, and if you’re not using it, record the reason.  It will also be important to assess if there is going to be a need moving forward (i.e., just because you didn’t use it, that doesn’t mean you will not use it in the future).

Next, look back at the presentations Microsoft gave to your company when they were pushing adoption.  Did things happen as they said it would?  Was the expected ROI achieved?  Were you able to drop products identified as products that could be removed through the adoption of Microsoft 365?  Build out this list of insights and learnings and prepare to present it to Microsoft this time around.

Since most cloud agreements, including Microsoft agreements, require upfront annual commitment levels (e.g., user counts and volumes), there are too many cases of “shelfware” that you’ll want to avoid moving forward.  If you had a provision in place that allowed for decreasing volumes in-term and at renewal without penalty (i.e., price increases on what is left), that could have helped.

2. Assess Your Complete Microsoft Portfolio

Look at the value received (as granular as possible) across all Microsoft products in your portfolio beyond Microsoft 365 that you are now using, both cloud and on-premise (including software assurance benefits).  This includes products like SQL, Power BI, Dynamics 365, and Azure. And don’t forget about Bing and LinkedIn.

Are there products or features not being used when taking a closer look at these?  Are there products where limited value has been received or value that doesn’t map back to what was expected?  Note these products or features for discussion with Microsoft.

Raising the issue of underutilization and lack of expected value is not going to get you a credit or a refund per se.  However, if done appropriately and with the right stagecraft, it can help you gain negotiation leverage for improved pricing moving forward or even deeper discounting on any new products Microsoft now wants you to adopt.  Having details on hand matters but often, it is the story that matters most.

3. Determine your Microsoft Roadmap

Most enterprises will admit that this is the most difficult step, but I would argue that it’s the most important.  You will need to determine your roadmap for at least the next three years.  Having a well-defined roadmap helps show Microsoft that you have long-term vision and opportunity.  The roadmap does not need to be set in stone, it just needs to depict the vision, and like all visions, when it comes to mapping out future IT needs, it is expected to be adjusted.  This has been the case for some time, but it is certainly the case after the impact of COVID-19.

Identify the products and/or functionality that your enterprise immediately needs and when you think you’ll need them over the next three years (the most common term length tied to Microsoft deals).  Envisioning programs and initiatives that you’ll need down the road that connect directly to Microsoft offerings can have huge implications on your current contract and what Microsoft can offer.  Determine the go-forward needs/demand across all products currently in your portfolio (cloud and on-premise), including products that are often part of separate contracts like LinkedIn, Bing, and even Azure.

Ask yourself these questions:

  • Do we want to make investments that we’re not sure of and get it in the contract?
  • Are there products we are considering dropping?
  • Are there products or features we have not used yet but will?
  • Is there increased demand? Is there going to be decreased demand?
  • Is there going to be a widespread roll-out of Microsoft 365?
  • Is there interest in moving to a more robust plan – like a move from E3 to E5?
  • Are there new products that will be under consideration as part of renewal or down the road?
  • If using Azure, is the consumption expected to increase? By how much?
  • If not using Azure, is there interest? If using a competitor (AWS, GCP), will you be moving away or going multi-cloud?
  • When is your LinkedIn renewal? What does the demand look like moving forward?

4. Know What “Great” Looks Like

Creating your roadmap and knowing your leverage will only take you so far without knowing what to ask for.  You will also need to understand what is appropriate for an agreement executed today.  Assess your current deal’s pricing and commercial terms.  Determine what you believe was left on the table and not given to you but should have been.

UpperEdge has a complete set of pricing and commercial term benchmarks to achieve deeply discounted upfront pricing, downstream price protections, and flexibility.

5. Understand What Matters to Microsoft

Understanding what Microsoft’s leaders are focused on and what matters to their investment community will give you great insight into what the people on the other side of the negotiating table want (i.e., the account executives that are motivated to meet or exceed the numbers given to them).

Now more than ever, Microsoft is focused on keeping the competition (like Google G Suite) out of their customer base.  They continue to push you to more robust editions and the Microsoft 365 cloud bundle itself, creating stickiness and the inability to change vendors.

Microsoft is interested in pushing the Power Platform (Power BI and Power Apps) into as many enterprises as possible.  This is, and will be, an important objective for Microsoft.

Microsoft is also taking away capabilities from on-premise to get you to jump to O365 and the Microsoft 365 bundle.  They make the pieces alone more expensive than buying the bundle, so why not go to the bundle?

They continue to push adoption for the deskless worker community.  This is an area where Google focuses, so they need to get their solution in and used by those companies where there might be a Google threat.

Microsoft has also ramped up its efforts to displace ERP vendors like SAP and Oracle, as well as CRM vendors like Salesforce, by pushing adoption of their Dynamics 365 solution.  This is only going to intensify over the coming years.

Finally, Microsoft is very intent on ramping utilization across the entire portfolio but especially when it comes to getting you to actually use all Microsoft 365 functionality, for example, Teams.  If users (employees of the enterprise) are actually using particular functionality and the use is allowing them to perform their duties in an optimal way, it’s much more difficult to put plans or initiatives in place to move off it.

6. Effectively Present Your Case

When you feel that you have all your ducks in a row, consider the executive relationships that are in place.  Where do they reside within your enterprise and within Microsoft (on the sales and product sides)?  If the relationships are strong, it will be important to call on them at the appropriate times.

If they are not strong or even nonexistent, it will be important to prioritize establishing them through the renewal discussions.  Having the message delivered at the right level is critical and it is even more critical that the message being communicated is consistent with the message being communicated to all points of contact at Microsoft.

If you’re heading into a renewal negotiation, it is critical to know how competitive your current Microsoft commercial relationship is. The goal isn’t to change the past but to use this information to ensure that the deal you have in place moving forward is appropriate and one that aligns to your understood (and perhaps adjusted) needs.  Presenting Microsoft with the understanding you now have and shaping your discussions with them in a more informed manner is always impactful when pushing for the concessions needed to ensure the right ultimate deal moving forward.

Comment below, follow me Adam Mansfield on Twitter @Adam_M­ansfield_, follow me on LinkedIn,  find my other UpperEdge blogs and follow UpperEdge on Twitter and LinkedIn.  Learn more about our Microsoft Commercial Advisory Services.

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