Scott Braden

Oct. 15,2013

Microsoft has announced price increases effective November 1, 2013, for products including Windows Server Datacenter, RDS CALs and a new contract format, the "Server & Cloud Enrollment” (SCE).  Click HERE to read the announcement.

And so continues Microsoft’s historic pattern of increasing prices ahead of new version releases, and the usual autumn price bumps they post.  This year it’s mostly about Windows Server and “RDS” which is the Citrix/Terminal Server/virtual desktop piece, along with related products.  Also, on the cloud front, new Azure capabilities (maturity) with bundling/pricing tie-ins to EA’s, via this new SCE agreement structure.

Advice to clients:

1.  Review your overall infrastructure platform plan including Windows Server (not only Datacenter) and its competitors, as well as your desktop virtualization plans and competitors to RDS.

2.  Perhaps buy ahead of the price increase (contact NET(net) for assessment and optimization).

3.  Evaluate Azure in context of your overall cloud platform strategy. Compare vs. Amazon and the various other private/public/shared/dedicated permutations.  It's still a very messy marketplace for these types of services and definitely still early in the evolution of the marketplace.

4.  Tread carefully before signing any new EA or ECS deals.  In your cost analysis, be sure to spend plenty of time playing "what if Microsoft drastically raises future prices."

More about item 4:  In our clients' actual experiences over the past 10 plus years, their average spend per unit of Microsoft software has been increasing at an annualized rate of around 20%.  Of course it varies from client to client, but when we perform a financial look-back analysis and compare to the renewal offers and prices, we consistently see annualized Microsoft cost increases in that 20% range. Sometimes more, occasionally less.

How can that be, you ask?  After all, everybody knows Microsoft revenues have been flat and that's why Ballmer had to retire, right?  Um, not exactly.  Yes, overall revenues are flat but that's not the whole story. Enterprise customer revenue for Microsoft has been growing quite nicely, at an annual rate of, drum roll please... roughly 20%!  The downside for Microsoft has been the rapidly decreasing revenue from the consumer and OEM segments, most notably Windows desktops.

So, as you contemplate your longer term platform and cloud strategy, have a realistic expectation that:

• Anything being sold "as a service" to an enterprise today is probably being sold at a big loss in order to gain market share. Whether it's Microsoft, Amazon, or someone else, the pricing is not sustainable.  Subsequently, expect future cost increases to be much larger than the ordinary rate of inflation.

• Microsoft, the famed monopolists, have a brilliant track record of using their monopoly to bundle in weak products (or, services like Azure), thereby gaining cheap market share until the day when the competition has withered enough that monopoly profits can be extracted.  (See also: SQL Server April 2012 price increases et al)

• It's not "just" pricing that causes cost increases for Microsoft customers; it's also the licensing and contract terms.  Don't sign a new agreement format before you understand exactly what it means.  Goes without saying right?  Trust me, it needs to be said again.

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