Scott Braden

Oct. 28,2020

Pre-COVID, the worldwide climate of increasing regulatory compliance and associated requirements, was already forcing a more stringent approach to security of data and Intellectual Property protection.  With that heightened environment, Microsoft’s “365” series of enterprise cloud app bundles, has been winning increased investment and spend from clients and enterprises worldwide.  COVID-19 and the rapid switch to remote / home-based workforces has only accelerated that trend. 

Clients have told us that although they are aware of, and often have already deployed, competing solutions they are happy with for compliance, governance and security solutions, they nevertheless find that the Microsoft 365 security and compliance suites make for a compelling value proposition. Many view as a replacement / displacement / consolidation solution that provides ease of use for users.   This is especially true now because Microsoft is willing to offer substantial discounts for new customers of these product suites.

In some cases, consolidation onto the Microsoft suites can effectively reduce costs, by replacing point solutions. In other cases costs will increase, but clients gain additional functionality and are able to justify the investment on that basis alone.

Netting it out, Microsoft continues to gain share of wallet, and enterprises become more reliant on a single supplier for a broad swath of critical services.

And there’s the rub. 

We all know how Microsoft plays these consolidation phases in a market’s evolution based on how they’ve behaved consistently since their founding.  It goes something like this:

• Early phase – niche adoption:  A large ecosystem of small / startup point solutions win deals based on specific functionality and matching to specific niche enterprise needs. Microsoft is a competitor in some but not all of the niches, and makes acquisitions to fill in the blanks.
• Middle phase (we are here now) – broad awareness and need:  In this case, this phase is driven by a combination of high profile security breaches, and responding government regulation, accelerated by COVID-19 and the work from home response. Microsoft has acquired and or developed a competitive, complete range of solutions.  Perhaps not “the best” in any category, but “good enough” in all categories.  They win consolidation deals by bundling services and pricing below a comparable cost versus a build it yourself approach.  In our engagements we see willingness to discount deeply in order to win these deals.
• Mature phase:  Generally signaled by a period of rapid consolidation of suppliers via acquisition,  so that niche / point solutions players are bought up or left out as losers in the market share race.  Internally at Microsoft, market share threshold targets are met and pricing for renewing and expiring agreements and previously discounted deals are now offered at full price with little or no willingness to discount.  After all, why should Microsoft offer you a discount for a service that you are already using and have no viable options for competitors?

This is the same pattern that we’ve seen with every new category that evolves in enterprise IT, from email to desktop productivity to databases and device management, and the current move to cloud services.  We see no reason not to expect more of the same winning plan from Microsoft.   In the future, your costs for these same services will increase at a faster than market rate. Most likely, at your next contract renewal date.

So, as you develop your future cost models and consider Microsoft to become your key supplier or single source for security and compliance applications, be sure to factor in that your next contract renewal will face much higher prices.

What can you do now, to control mitigate, or even substantially reduce those costs?   Great question… and we have ideas about that.  We’ll discuss in our next article.

In the meantime, reach out to us if you have any questions around your Microsoft estate - we're here to help!

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