Posted by Duncan Jones on June 10, 2011
A couple of months ago I was blogging from sunny Barcelona with the Red Sox 0-6. Now I'm in Barcelona again for our IT Forum, but this month its raining heavily here, while back in UK we officially have a drought. But the good news is that Boston is 6-0, at least in Yankee Stadium. A lot can change in two months.
The same is true in IT. Just now, Microsoft faces threats to its strong market position from many directions, and Steve Ballmer is under pressure, but strong results for its June fourth quarter could deflect the flak. That's one reason why sales teams will have greater incentives than ever to close Enterprise Agreement deals in the next couple of weeks. Hopefully if you're negotiating an EA right now, whether a new deal or a renewal, you've read my report Consider These Five Criteria When Choosing A Microsoft Volume Licensing Program and maybe even had an inquiry call with my colleage Christopher Voce or me. One common question we get is whether the stated deadline to accept an offer is real, or will the same deals be available in the last days of the quarter or even in the subsequent months? The short answers are Yes, it is, and no, they won't." Microsoft has its own deal approval processes that take time to complete, and though it won't want to reject Purchase Orders, it may have problems processing them if they arrive too late. And the deals available almost certainly wont be as good next quarter because sales teams will still have 9 months remaining in which to recoup any shortfall.
The sales teams have strong financial incentives to sell EAs, particularly for Office. In our report Five New Microsoft Licensing Twists That Every IT Buyer Should Know last year we wrote: "For many Forrester clients, SA on Office is too expensive. Buyers considering renewing an EA or adding SA to an Office 2010 purchase will struggle to see sufficient value in Office upgrade rights when they don't know what the next version will contain or when they'll want to move to it. Some firms may want SA on their Office licenses for internal budgeting reasons or to get other SA benefits with operational impacts such as Roaming Use Rights and the Microsoft Office Multi-Language Pack (MLP). For other firms — especially those that, like the majority of our survey respondents, intend to skip releases — the numbers may not add up."
That's still my view. Microsoft has had strong sales of Office 2010 under its transactional programs, but its Q3 numbers showed no growth in multiyear deals, and we know from our interactions with clients that many are seriously considering dropping SA on Office, but are getting intense pressure and attractive incentives to keep SA in place. OTOH, Office 2010 and Windows 7 are encouraging many clients to finally upgrade their XP/ Office 2003 environments, and Microsoft may be able to replace the non-renewals by selling new EA's to these companies, if it lets the sales teams make the deals at the price customers are willing to pay. For example, its policy of fixing European prices independent of currency fluctuations was fine when €/$ exchange rates oscillated around parity, but doesnt seem fair to European multinationals now that the euro has strengthened steadily for several years and is currently approaching $1.50. Microsoft may need to give extra discounts to European customers to offset this perceived unfairness -- it can afford to do that and still get more $ than an equivalent sale in US at list price.
Bottom Line: sourcing professionals negotiating with Microsoft have an exceptional window of opportunity right now if you can genuinely threaten to delay a deal or walk away from the EA program, but you also risk the window closing on you if you push too hard or leave it too late to close the deal.