Steven Zolman

Apr. 20,2011

Forrester recently released their 2011 “Software Pricing and Licensing Trends” report.  No surprise, “the cloud” is a hot topic, along with all of the potential and likely impacts as suppliers and enterprises evaluate and migrate to this new-ish delivery and pricing model.

Forrester predicted that Microsoft would begin to formally offer pricing on Office by role-based user within three years, similar to some agreements it already has with specific firms.  Um, sorry to tell you this Forrester, but that’s already the case with Office 365 pricing.

Forrester also said it expects to see software providers increasingly allowing software maintenance flexibility, shifting focus from revenue recognition alone to customer satisfaction, and redefining module-user pricing.   On this, we must disagree.  I really don’t understand how a for-profit software company can abandon revenue recognition as a key metric and requirement of any licensing deal. And experience should teach us (and Forrester) that a for-profit software company is going (attempt to) use any transition in licensing or delivery models to increase dollars, not decrease them.

Case in point: Microsoft watchers know that FY2011, ending June 2011, has been Microsoft’s year of “all in for the cloud”.  In practical terms, that means we’ve seen Microsoft sales teams pitching Office 365 in every agreement discussion, regardless of whether the client has asked for or expressed interest in Microsoft’s cloud services.  Though traction has been slow in coming, there is a lot of interest among enterprises in the Office 365 approach, and Microsoft sales teams have been working hard to position high-cost Enterprise Agreements (EAs) as the best licensing model to support that transition.

But... at a cost – EA’s typically increase unit prices by 5-15% at each renewal date, and the added flexibility promised by Microsoft is actually a mis-direction.  The nature of an EA locks in the customer to a fixed spend, regardless of whether the enterprise makes use for the technology; so many customers who are ‘interested’ or ‘considering’ cloud services will end up over-paying for a normal license model and never actually enjoying the benefits of cloud services.

The more things change, the more they stay the same. Forrester did get one key concept right: it’s critical for enterprises to build long-term roadmaps of their infrastructure.  What are the options for how you will deploy technology in the next 3-10 years?  What are the constraints and what-ifs?  What are the costs associated with each of these options? How do the proposed licensing models support (or hinder) these plans?

These are all questions where the suppliers, and Microsoft in particular, are very difficult to deal with.  There’s a natural incentive for the Microsoft sales teams to skew their proposals and analyses in order to make the most profitable deal terms look attractive to the customer.  And, since Microsoft and their partners hold licensing information and pricing so closely, it’s quite difficult for enterprises to independently build alternative models or effectively critique Microsoft’s canned analyses.  How can you be expected to compare alternatives if you’re only shown the options that Microsoft wants you to see?

NET(net) has the proprietary knowledge and experience to build and correctly analyze your options – using Microsoft’s own terms and pricing – and then use that knowledge in concert with our patented negotiation methods to ensure that you arrive at the deal terms the best meet your needs for the next 3-10 years.   In this time of market inflection from traditional to subscription-based licensing, the decisions you make now will have long-term repercussions. You should make sure they are the right choices for the right reasons.

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