How to stop overpaying Microsoft, Part 2: How to limit your Enterprise Agreement

There’s nothing wrong with a Microsoft Enterprise Agreement if you really need one. However, because Microsoft requires the EA to cover certain bundled software, many organizations actually wind up overspending with an EA, instead of saving money. In this post, we’ll cover the benefits and drawbacks of the EA, including the dreaded “true-up” clause.

There are benefits for going with an EA. Some of them are:

1. Ease of management through an annual true-up (allowing organizations to implement technologies as needed and for enterprise products and additional products enrolled on the EA true-up on an annual basis or for additional products not previously enrolled on the EA purchase when implemented).
2. Higher level of discounts over other volume licensing programs.
3. Enhanced Software Assurance (SA) benefits over some of the other volume licensing programs.
4. Pricing is set by Microsoft without any additional markup from your reseller.
5. Three-year contract costs are annualized for payment.

There are also drawbacks for going with an EA. Some of them are:

1. Annual true-up can add substantial unexpected costs.
2. Locked into having to license (pay for) all desktops/users for Enterprise products.
3. All products on the EA require SA.

Let’s dive into two key points a little deeper.

Defining the Enterprise. One of the restrictions of the EA is that all devices or users within the Enterprise need to be licensed for the Enterprise products (typically OS, CAL and Office). Therefore, it is imperative that you ensure that the definition of your “Enterprise” is closely locked down to avoid over licensing situations. 

For example, a full platform EA retail customer who has computers in each retail establishment (and doesn’t have those computers locked down to running only the line-of-business application, like a point-of-sale app) would have to license each of those computers for the OS upgrade, the Core CAL and Office Professional Plus. However, workers in the story may only need the OS upgrade, Windows Server CAL, and Systems Center CAL, with no need to fire up Word or Excel. This could result in overspending by $275/computer for software licenses for Office Professional Plus that you neither need nor use.

Make certain that you clearly identify your needs as an organization. Who is using what technology and how can they be segmented (or does segmenting even make sense…if not, an EA is probably not for you)? Work with your reseller and Microsoft representatives to have them present you with an appropriate solution to meet your needs (this may seem obviously but this is one of the key areas I see neglected).

Then take the solution they suggest and play devil’s advocate…based upon their proposed written definitions who falls into the definition of the Enterprise and should they from a usage perspective?

For instance, a common definition is “Knowledge Worker.” This definition is typically for the full platform of products. However; if you have a large Mac environment they would fit this definition as well. Are they using the full platform of the products? If not, get the definition further refined. At the end of the day, Microsoft may tell you that they can’t define the Enterprise further – weigh the potential impact of leaving the enterprise more widely defined compared to the cost savings of the EA. It may mean that you should walk away from an EA to avoid taking on inappropriate risk.

Please note – the time to handle this is at implementation of a new EA or at renewal of an EA. Once you’re under contract your ability to drive this discussion becomes severely limited.

Annual True-up. You’ll notice this is both a benefit and a drawback in my listing above.

The way this process works is that once a year (at your anniversary) you account for the products that are enrolled on your EA. For those products that are “Enterprise Products” as defined by your EA you look at any increase in desktop/user within the past 12 months and that is the amount you need to place on your True-up order. Please note, there has been a lot of incorrect information about what needs to be counted in the True-up in the past (including with yours truly) – contractually anything put into use during the year needs to be counted (so if you ramp up for the holidays and then ramp back down – you are supposed to account for your ramped up size…not the smaller number that exists at time of actual True-up).

True-ups are a lump sum payment where you pay for the product for the remainder of the contract (your Customer Price Sheet that is provided with your EA contains the cost of additional licenses based upon year of implementation). Basically it assumes you put the product in use mid-way through the year. So a product added at the time of signing the EA would be charged for three years but the cost for it is spread over the three years of the contract. However; at the year 1 True-up that same product would be charged for 2.5 years and must be paid for in a lump payment. As noted in Part I of this series, this drives when it makes sense from a cost perspective to account for growth – do you plan to account for known growth happening next year at signing of the EA or at the Year 1 True up? The answer depends upon your business needs.

Any products that are not on your EA already need to be purchased as they are implemented. As with the True-up, these purchases are made as a lump sum payment for the remainder of the agreement (unless otherwise negotiated) but are not to wait until the annual True-up process. You will sometimes run across a sales person who encourages you to purchase a quantity of 1 of a future product you intend to use so that you can do a True-up on that product. Don’t fall into this trap! Too often that simply means you’re paying money for a product you may never use with very little benefit.

A major challenge to the annual True-up process is that too many organizations don’t control what is deployed within the course of the year. They can get an unwelcome surprise at True-up time. Make sure you continue to consider all software implemented as a business cost – and accrue for it appropriately to avoid business concerns when it comes time to pay! (See my other posts on this topic: Tips when considering exiting an EA and Other reading on Microsoft Enterprise Agreements.)

Any lessons you’ve learned from managing an EA? Share them and help others avoid making costly mistakes!  Watch for my upcoming post on Microsoft Enrollment for Application Platform (EAP).