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What Matters Most to Microsoft in 2024

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Since the start of 2024, and probably leading up to it, Microsoft has made it abundantly clear where their focus lies and what matters most to Microsoft in order to meet their revenue goals and to effectively execute to their “land and expand” strategy for product adoption and utilization. Generative AI (GenAI) will take the lead as the focus for Microsoft to achieve those goals, but there are other key products that Microsoft will lean on to accelerate revenue growth and product utilization.

Here, I will go over the four products and solutions that matter most to Microsoft in 2024: Copilot for Microsoft 365, Microsoft 365 E5, Microsoft Dynamics 365, and Microsoft Azure.

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What Matters Most to Microsoft

1. Positioning Copilot for Microsoft 365 as a “Must-Have” Add-On to Your Microsoft Subscriptions

There is no question that Copilot for Microsoft 365 is Microsoft’s main focus in 2024. Towards the end of 2023, Microsoft announced that Copilot for Microsoft 365 was generally available for enterprise customers. Microsoft pushed the offering heavily as their latest innovation in Generative AI technology.

As a “virtual assistant” to the products in these bundles, the use of Copilot for Microsoft 365 promised to increase efficiency and productivity. During Microsoft’s FY24 Q2 earnings call, CEO Satya Nadella stated:

“Microsoft’s own research, as well as external studies, show as much as 70% improvement in productivity using Generative AI for specific work tasks. And, overall, early Copilot for Microsoft 365 users were 29% faster in a series of tasks like searching, writing, and summarizing.”

Since Microsoft announced the Copilot for Microsoft 365 add-on and since the roll out of the paid, invite only “Early Access Program” back in early May 2023, there have been several updates made to how users can access the product. Primarily, these updates included increasing the amount of Microsoft products you can add Copilot for Microsoft 365 onto and removing the 300-seat minimum to allow customers to test and utilize the GenAI add-on within their organization at a volume they felt more appropriate.

Copilot for Microsoft 365 was originally limited to Microsoft 365 E3 and E5 bundles, but as part of an early 2024 announcement, this was expanded to also include M365 Business Premium and/or M365 Business Standard subscriptions. As part of this same announcement, Microsoft made Copilot for Microsoft 365 available through a Microsoft CSP partner as well.

Interestingly, Microsoft also created “Copilot Pro” for Personal and Family subscribers for $20/u/m. This is a smart move because Microsoft knows that if they can get more consumer customers to use Copilot, these consumers will eventually require it to be “productive.” Since these consumers happen to also be the employees of enterprise customers, Microsoft is putting pressure on their enterprise customers to add Copilot for M365 in order to ensure maintained productivity.

Microsoft will be focused on aggressively pushing Copilot because they want their customers to adopt and utilize their AI technology. They want to position themselves as an AI leader in the market, something we’ve been seeing from Microsoft since they announced their partnership with OpenAI. The more customers that they can show have adopted Copilot, the more they can substantiate their investments and “lock-in” customers to their specific products and bundles.

Like every cloud and SaaS vendor, Microsoft is also trying to expand and grow their customers’ Annual Contract Value (ACV) as well as the Annual Revenue Per User (ARPU). Microsoft account executives need to make the annual spend of each customer go up, and driving up the ARPU through upgrades and add-ons like Copilot for Microsoft 365 is a great way to do it. Adding a hefty price tag like $30/u/m to an already pricey bundle of products also achieves this goal quite efficiently.

During the recent FY24 Q2 earnings call, CFO Amy Hood spoke to the early success and reliance on Copilot for Microsoft 365 to drive revenue moving forward, when she said:

“While it’s early days for Microsoft 365 Copilot; we’re excited by the adoption we’ve seen to date and continue to expect revenue to grow over time.”

For Microsoft to earn this win, set the expectation that Microsoft needs to look at the entire cost profile increase that comes with giving this commitment to them and it would simply not be enough to only lower the proposed Copilot for Microsoft 365 price itself. Aim for better pricing on your underlying Microsoft subscriptions.

It will also be critical to obtain proper renewal term price protections to ensure that your “get you in the door” price continues after renewal as well. If you can’t get the upfront price carried into the next renewal period, push for a cap on the increase that can be applied.

If possible, it would be good to get Microsoft to connect you to other similar customers already using Copilot for Microsoft 365 to determine whether the benefits Microsoft has been touting have actually been realized. Even if it is early stage, any insight into roll outs and benefits will be important for Microsoft to present to you in addition to the productivity improvements Satya is putting out there.

In addition to Copilot for Microsoft 365, there are also many other Copilots that Microsoft will be heavily pushing, including GitHub Copilot, Copilot for Sales, Copilot for Service, and Copilot for Security. Copilot for Service and Copilot for Sales will be $50/u/m, and customers need to have an underlying M365 E3 or M365 E5 subscription to add it onto.

2. Continued Push of Microsoft 365 E5 Adoption

The last time Microsoft publicly talked about how many customers have adopted Microsoft 365 E5, it was 12% of their base, and that was back in July of 2022 during their FY22 Q4 earnings call. Obviously more customers have adopted E5 since then, but the fact that Microsoft has not said anything publicly is a signal that they haven’t seen the adoption numbers they are hoping for.

As their most robust product bundle offering, Microsoft also knows that adopting Microsoft 365 E5 will increase that very important ARPU. It will also create “stickiness” and enhanced “vendor lock-in” given the likelihood that adoption of Microsoft 365 E5 means incumbent “security” point solutions will be knocked out or kept out moving forward. This stickiness only increases once you weave in the AI capabilities of Copilot for Microsoft 365.

If you remember, Microsoft 365 E5 did not get hit with a price increase back in March 2022, when other Office 365 plans did. Microsoft hoped that by tightening the gap between the price of Microsoft 365 E3 and Microsoft 365 E5, perhaps they could push more customers to Microsoft 365 E5.

3. Grab Market Share Through Microsoft Dynamics 365 (D365) Adoption

Microsoft has also been aggressive when looking to find ways to grab more market share in the Business Applications, including CRM and ERP, space. This includes leaning in on discounting and investment dollars.

They have also leaned in on the power of taking a “One Microsoft” approach, which includes truly unlocking the power of the data that comes with LinkedIn – a company Microsoft famously acquired back in 2016. The pitch Microsoft will often make is that there are advantages and benefits of having Microsoft solutions as widespread as possible that are truly integrated, so it makes since why this pitch extends to Dynamics 365 adoption. Regardless, it is still crucial to assess whether the benefits Microsoft is promising will actually come to fruition.

They will also tout the infused AI benefits that are available through Microsoft’s Copilot for Microsoft Dynamics 365 offering. Microsoft has even come out and said that it is “the first copilot for CRM and ERP.” Expect to see this in proposals, emails, overview decks, and leave behinds as a differentiator and another reason to adopt D365.

Beyond grabbing market share, Microsoft needs to accelerate Dynamics 365 adoption as part of Microsoft’s larger “land and expand” strategy to drive revenue growth. Dynamics 365 revenue grew 27% as highlighted in Microsoft’s most recent earnings call and report, but Microsoft knows there is still more business and revenue to be had as they reported they had “weaker new business” primarily in the ERP and CRM space.

4. Accelerate Use of Microsoft Azure

To say the cloud computing market is competitive would not only be obvious to most but truly an understatement. Microsoft competes on a daily basis with two other major players: Amazon (AWS) and Google Cloud Platform (GCP). Because of this, Microsoft is constantly trying to not only capture market share but also keep it as well. This is not something that is going to change any time soon for Microsoft, and it will likely remain an area of focus in 2024 and beyond.

One specific area where Microsoft will focus to accelerate Azure revenue growth is AI. During the FY24 Q2 earnings call, CFO, Amy Hood pointed out that 6 points of the 30% growth in revenue tied to Azure and other cloud services came from AI service specifically.

The Bottom Line

Customers that are seriously considering adopting one of Microsoft’s Generative AI offerings, adopting Microsoft 365 E5, moving to one of the Dynamics 365 offering or perhaps extending their Azure use and commitment as part of an upcoming renewal or even in-term ahead of the renewal, have a significant amount of leverage. If used correctly, these customers can achieve a best-in-class deal with Microsoft so long as they keep in mind what matters most to Microsoft in 2024.

At UpperEdge, we help Microsoft customers effectively navigate their Microsoft negotiations and use Microsoft’s goals and our insights as leverage to achieve the right deal with Microsoft. Explore our Microsoft Advisory Services to learn more about how we can help.

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