If you are a Microsoft customer with a current subscription to Microsoft’s Office 365 (“O365”) E4 plan, hopefully you have already started assessing what you are going to do come renewal time as Microsoft has retired the E4 plan. Late last year, Microsoft announced that the O365 E4 plan will no longer be sold after June 30, 2016 (Microsoft’s fiscal year end) and it would be replaced with a new and updated O365 E5 plan.
At the time of the announcement, many were left speculating as to what economic impact there would be should customers chose to go with the E5 plan. At that time, the price for Microsoft new plan was yet to be announced. Come to find out, Microsoft decided to set the monthly subscription price for E5 at $35 per user. This amounts to a 59% increase from the $22 monthly subscription price E4 customers were accustomed to paying Microsoft. Of course, these are “list prices” and do not account for standard volume discounting available to customers. They also don’t account for one-off exception-based additional discounting available to customers (yes, our clients do achieve additional discounting beyond the standard volume discounting).
Given the retirement of E4 and the high likelihood that customers will not just walk away from Office 365 when it comes time to renew, it is important to understand and carefully assess the options available come renewal time.
1. Switch to O365 E5
- Ideal for customers that have determined the new functionality and extra benefits (i.e. Power BI Pro, Advanced Threat Protection, Customer LockBox, etc.) associated with E5 is of value to the business and worth the increased fees.
2. Switch to O365 E3 and add Skype for Business Cloud PBX
- Ideal for customers that currently have a hybrid deployment of E4. Through this option, your business will maintain the functionality previously obtained through E4 while also taking advantage of cloud-based phone number management solutions from Skype for Business Online. Microsoft’s E3 plan’s current list price is $20/month/user.
3. Switch to O365 E3 and add Skype for Business Plus CAL
- Ideal for customers that are interested in simply maintaining what they have under their current E4 plan without any interest in adding any additional functionality and/or features.
4. Switch to O365 E3
- Ideal for customers that are no longer interested and/or have the business need to maintain licenses to Skype clients for on premise deployments. Under this option, the monthly per unit price drops but at the expense of functionality that may have become heavily relied upon within your organization.
As you can see, there are multiple options that are available to current E4 customers that require an assessment of not only the go-forward economic impact but perhaps more importantly the go-forward business needs and functionality requirements.
To effectively assess and determine the best option for your organization, it goes without saying the most important resource you need (other than assistance from an outside advisory firm) is time. Unfortunately, many organizations are running out of time and may be left going with the option Microsoft pushes hardest on them. From our experience, that option is most often the most expensive option and not always the most optimal one from an “actual need” (both today and tomorrow) perspective. Microsoft may offer a “one-time” discount or promotion to entice the customer to go with the “switch to E5” option. We have seen this approach taken by Microsoft and after the additional discounting is applied it is often a very compelling upfront price. However, when assessing the cost associated with a cloud subscription-based solution like O365, it is often most important to assess the long term cost implications associated with the particular solution. This is the case, when you consider the fact that renewal is not only likely but a given.
There are several questions that need answers:
- Along with the enticing upfront per user price, what will Microsoft be willing to commit to with regard to the price upon renewal?
- Will Microsoft agree to lock the enticing upfront price for another three (3) years?
- Will they agree to cap increases?
- For how long (i.e. how many renewal periods?) will Microsoft agree to provide price protections?
Our clients have achieved long-term price protections but you need to know what exactly is competitive, what specifically to ask for and how best to position your expectation in order to achieve the best results. Those organizations that have not obtained price protections in the past have seen a very opportunistic Microsoft upon renewal. For example, we have seen proposals that include 21% price increases to cloud solutions such as O365.
It makes sense that Microsoft not only retired the E4 plan in the first place but is aggressively pushing the more expensive E5 plan into organizations as the alternative. As we have covered before, Microsoft is extremely focused on grabbing market share and expanding its revenue from its cloud solutions. Office 365 is certainly a flagship cloud solution that Microsoft has been pushing into organizations for some time now with the hope of providing a springboard from which additional Microsoft cloud solution adoption will come. With regard to the release of E5 specifically and the retirement of E4, Microsoft CEO Satya Nadella has previously said, “With E5, we have expanded our market opportunity for Office 365 by more than $50 Billion.” In addition, Microsoft’s CFO Amy Hood has previously made it clear that the E5 plan is a higher-margin product that will produce more profit for Microsoft moving forward.
Are you a current E4 customer that has a renewal on the horizon? We would be interested in hearing your thoughts and/or concerns regarding Microsoft’s retirement of the O365 E4 plan and the options you have in front of you. Please do not hesitate to comment below or email me at [email protected].