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Microsoft's Enterprise Agreements Increasing Minimum to 500 this Summer

Microsoft this week announced that it will be changing the minimum Enterprise Agreement (EA) count qualifications this July.

EAs are contracts with three-year terms that organizations sign to use Microsoft's software. In order to use an EA under the current plan, an organization has to be licensing 250 users or devices ("seats") at minimum. However, on July 1, 2016, Microsoft will bump up that minimum seat count to 500 users or devices at minimum.

In effect, smaller organizations that currently have EAs may not meet the minimum seat requirements on July 1. In that case, they'll eventually have to switch plans if they want to continue to use Microsoft's software.

This contract change doesn't affect Microsoft's public sector customers. It also doesn't affect customers under the Server and Cloud Enrollment plan. EA customers with more than 500 seats also aren't affected, Microsoft indicated.

Contract Options
Options for organizations that will not meet the new minimum 500-seat threshold in July are to move to a Microsoft Products and Services Agreement (MPSA) contract or to a Cloud Solution Provider (CSP) contract, or there's Open licensing. +It also will be possible to for organizations with EAs that don't meet the 500-seat minimum to renew their EAs for 36 months. However, after that three-year period, they'll have to change their contracts.

This licensing change just affects new EA contracts on or after July 1. Consequently, smaller organizations establishing new EA contracts before that date could have a long period before having to switch.

"Conceptually, if somebody is signing a new, say 300-seat deal, in June with us, they might actually have the opportunity to stay with the EA for six years -- at the regular three-year term, plus the three-year extension term after that," explained Alex Dubec, a Microsoft program manager on Enterprise Agreement, in a phone briefing last week.

Microsoft's Open volume licensing programs are designed for small and midsize organizations. Open Value is for organizations with five or more PCs and comes with Software Assurance (SA), which promises upgrades to the next software release if an organization is covered within the SA contract term. Open Value Subscription licensing allows the costs to vary, based on the PC count. Microsoft used to offer a Select Plus Open agreement, but its sales were replaced by the MPSA on July 15, 2015.

The MPSA is Microsoft's attempt to create more simplified contracts. It first saw light in 2013, but Microsoft seemed only to be piloting it back then. Now, Microsoft is signaling an MPSA ramp-up, even though it's still an evolving program. Microsoft still considers its EA to be its flagship contract agreement. The MPSA is described in Microsoft's online materials as "suited to organizations with 250 or more users." It seems that this 250 seat count is specified because the MPSA has a discount program based on a points system, which in turn is based on seat counts. MPSAs are sold with varying terms.

The CSP is a program for Microsoft's partners to sell Microsoft's cloud-based services. Microsoft hosts the services in its datacenter infrastructure but partners directly manage the service with the customer. Under the CSP, partners offer "value-added services" on top of Microsoft's subscription programs. CSP agreements involve one-year commitments. Microsoft typically doesn't have a minimum seat-count requirement for purchasers of its cloud services.

It's possible for customers to mix their use of MPSA and CSP contracts, according to Microsoft.

Microsoft's Evolving Licensing
Microsoft's customers today are using EAs, Select Plus or Open agreements, or some combination thereof. EAs are three-year agreements that include Software Assurance coverage and they enable organizations to establish contract commitments with Microsoft that lock in the prices, whereas the Select and Open agreements have been an a la carte software purchasing model.

The old traditional models didn't have the right flexibility. Consequently, Microsoft started piloting its MPSA program about three years ago.

Open agreements will be continuing, except for Select Plus, according to Dubec.

"The Open license program is going to continue for the foreseeable future," Dubec said. "The Select Plus program is currently being retired. Ultimately, our guidance is, for customers who are interested in purchasing transactionally, the MPSA has the capabilities today in market that we need to ensure that those customers and partners are well served."

EAs have been affected as Microsoft rolled out its cloud services, Dubec noted.

"We're seeing a really strong uptake of Online Services, to the point that half of our EAs signed last year are Online Services only and no longer have a coverage requirement. If a customer orders Online Services only, there's no requirement to license across the entire view of their organization."

It's been the maturity of the MPSA thus far that has given Microsoft the confidence to retire its Select Plus program, according to Mark Nolan, director of licensing marketing at Microsoft. Microsoft's aim is to move all of its customers to the MPSA or the CSP, which it calls "modern licensing programs."

"We are retiring Select Plus beginning in June, and that retirement will go on throughout the next year," Nolan said. "But we're ultimately going to move everyone to the MPSA and the CSP, or another way to put that, move everyone to the modern licensing platform."

It's a gradual move. Microsoft has been going slow to understand customer needs, he explained.

Cloud Model Push
EAs are described by Microsoft has having their origins in desktop software licensing, whereas today the company emphasizes its cloud services. While EAs come with SA, guaranteeing software upgrades on an annual basis, the SA portion hasn't been too relevant for organizations purchasing Microsoft's Online Services, which deliver software upgrades on a continual basis.

"As we've been thinking about it, we see a large proportion of Enterprise Agreement deals where the customer is purchasing Online Services only, where the concept of Software Assurance as we've thought of it in the past doesn't really apply," Dubec said. "And the Coverage Commitments as we've constructed them in the past also continue to not apply. So, in those cases, we think our cloud-first offerings and the platforms that are better suited for that kind of purchasing really make more sense for the community at large."

The "true-up" software audit process under EAs isn't affected by the program change. Each year, an organization under an EA has to provide Microsoft with a description of its software use.

"At the end of each year, so say at the end of year 1, 2 or 3, Enterprise Enrollment customers are expected to either true-up with us or submit something called an Update Statement saying that they haven't decreased the quantities and that no true-up is necessary," Dubec said. "That process will continue as it always has. So if someone signs a 250-seat EA today, they will be able to true-up as expected in a year from now."

The Partner Angle
Microsoft officials claim that the minimum 500-seat EA plan change was driven mostly by partner feedback. Partners told them that establishing smaller EA contracts required as much time as the larger ones, according to Microsoft.

The 500-seat change is also a way to push Microsoft's cloud licensing to smaller organizations, Microsoft officials have admitted. And that's how Blake Gollnick at SHI, a License Solution Provider (LSP) partner company, sees it.

"I don't think the intent [of the EA plan change], necessarily, is to resolve partner concerns, unless it is to streamline the entire sales motion of Microsoft software and more importantly, cloud services," Gollnick said, in a phone call. Gollnick is SHI's director of Microsoft practice.

The decision organizations make between opting for an EA or the MPSA is really about what sort of commitments they are willing to take. The EA is a contract for three years, whereas the MPSA has more flexible terms. It's possible to have multiple different contract durations under an MPSA, according to Gollnick.

"The differentiator really is that if you sign an EA for Office 365 today, you are going to commit to a specific required amount of licenses of Office 365 services; you're going to pay that annually, and then you true up and potentially true down on an annual basis," Gollnick said. "But with MPSA, you have the ability to sign that agreement and then commit to Office 365 services based upon the needs that you have. So if you want to start with 100 Office 365 services and then scale up over the course of a year, you can do that. If you want to essentially purchase a seasonal SKU of Office 365, based on the needs of that particular timeframe, you can do that as well. So, it's shifting the agreement conversation to a sales transactional motion around a cloud service."

Gollnick expressed positive views about using the MPSA vs. an EA.

"[Regarding] the contract in itself, if I were to compare the EA model vs. the new MPSA or next-generation volume licensing structure, the MPSA agreement structure is a lot more simplified and easier from an overall processing perspective."

The decision can become more complicated, though, when weighing SA coverage, noted licensing expert Paul DeGroot, senior consultant for Software Licensing Advisors, a firm that offers consulting support on Microsoft contracts.

"I would think this change might actually create more work for partners," DeGroot said, via an e-mail. "An EA is a relatively low-maintenance agreement compared with others. Managing Software Assurance is much more complicated outside of an EA, for example." 

However, DeGroot did agree that the MPSA offers greater flexibility for organizations.

"The MPSA now offers more flexibility than any other program -- license only, licenses with Software Assurance, Office 365, visual studio subscriptions, etc.," DeGroot said. "The latest change, which I can't say I've seen yet, is 'commitment-based' licensing, similar to the Basic Enterprise Commitment (BEC) in an Enterprise agreement. If you commit to purchasing certain products for every device or user in the organization, then you get better discounts, etc."

Still, DeGroot noted that the MPSA launch has been fairly slow going. Moreover, Microsoft account reps haven't been too helpful in promoting it.

"In the 40 or 50 deals we have worked on since the MPSA came out, Microsoft has never once included it in a proposal," DeGroot explained.

So what should organizations with less than 500 seats do now that Microsoft is changing the terms for EAs? That just depends, according to Gollnick.

"How we position it to customers is really dependent on our customers' needs, matching their environment, their requirements from an acquisition and purchasing perspective," Gollnick said. "Sometimes customers who have been in that sub-500 space are a good fit for an EA. And sometimes those customers may be a good fit for an MPSA. I don't think there's an answer one way or another. It really depends on the customer's circumstances."

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