April 22, 2009, 1:58 PM — Corporations armed with a savvy knowledge of Microsoft's volume licensing program may be in the best position in a long time to negotiate the cost of software, according to one analyst.
"Resellers are saying there has never been a better time to negotiate with Microsoft," says Paul DeGroot, an analyst with independent analyst firm Directions on Microsoft. "It is a buyer's market, and it is a time when customers have had unusual bargaining power with Microsoft."
DeGroot also says that the upcoming ship dates announced by Microsoft for both Windows 7 and Office 2010 make it a tactical time to explore different volume licensing options that could help reduce costs over time.
DeGroot is the author of a report released Tuesday entitled, "Microsoft Volume Licensing Programs." The report helps users understand what volume licenses they need to buy to save money on software, reduce software management costs, and enforce corporate standards.
The report comes at a time when DeGroot says Microsoft is vulnerable as its customers grapple with budget cuts and the industry trends toward online services.
The extent of that vulnerability may be partially revealed Thursday when Microsoft reports its earnings and is expected to have the first ever year-over-year drop in quarterly revenue. The earnings report also will contain information on the pace of renewals for Microsoft's all-important Enterprise Agreement (EA) volume licensing contracts.
DeGroot says economic factors could force customers to put off renewing EA, which run for three years and give users licenses for software, most notably Microsoft's two biggest cash cows: Windows and Office.
"Microsoft is vulnerable here," DeGroot says. "EA gives the user a perpetual license and so that means if you don't renew EA nothing happens. You keep using Windows, you keep using Office. Many customers are going to look at that and say 'if I need to chop money out of my software budget, this is the place I can do it and I can have virtually no impact on my operation.'"
It is not uncommon for companies to spend millions of dollars on EA contracts.
While letting EA lapse may sound like a no-brainer, DeGroot is quick to qualify his statement as a sign of the economic times. "I don't want to say not renewing your EA is the smartest thing you can do, but right now people are having to make some hard choices," he says.
DeGroot says users with existing EA agreements may find that those agreements do not align with the number of PCs they have now after downsizing and layoffs. Companies that contracted for say, 10,000 seats and have reduced staff by 30% are paying for licenses on 3,000 seats they are not using.
Users in that scenario may want to look at renewing with an EA Subscription license, where users count desktops every year. While EA Subscriptions are less expensive, they do not provide perpetual licenses so once users stop paying they must stop using the software.
"The pricing on the EA Subscription is really great and customers may look at it and say we want to keep this relationship going with Microsoft, we want to have access to the latest software," DeGroot says.
DeGroot says he would not recommend users switch from EA to EA Subscription, however, because they would be giving up perpetual licenses.
But down the road users who have chosen now not to renew their EA could get back into volume licensing with EA Subscription. "That could become an attractive option in the future," DeGroot says.
Besides thinking through EA, DeGroot says this is a smart time for users to buy Software Assurance (SA) maintenance contracts given the fact that Windows 7 is due to ship later this year. SA gives users access to new software that is released during the life of the contract.
"You will get an upgrade, so it is a good deal for this product this one time. I would not make buying SA a general rule. SA is not always a smart buy," he says.
DeGroot says one money-saving strategy would be to buy Windows 7 under a two-year Open plan, which could save 30% over a three-year plan with SA.
He also says users with good timing can tap Select volume licensing for cost savings.
"You can use timing of your purchases to get better discounts; in fact you can use Select to get a better discount than you are actually entitled to based on your volume," he says.
Users have to do some planning, including lumping a large volume of software purchases into the first year of the contract. "If you understand your options you can come to the table much better prepared to get the best deal," DeGroot says.
The "Microsoft Volume Licensing Programs" report is priced at $749. Directions on Microsoft also is hosting a series of licensing boot camps in Seattle and Chicago.