How Will Recent Microsoft Price Changes Affect Your Organization?

Lane Shelton
Lane Shelton
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In late July, Microsoft announced several changes to their pricing models that will land on October 1, 2018. I’ve seen several articles and blogs on it by now, so I won’t re-hash what’s already been written. Instead, I want to break down the changes by likelihood of impact to you—to give you the details in a way that will help you measure how much impact you’ll see and gain an idea of what you need to do, if anything, to prepare for the changes.

But first, I want to talk briefly about the why. This is only my opinion, but I’ve been at this for 23 years so I have the long view. These programmatic price increases all share a common denominator: the steady conversion of Microsoft’s perpetual models to the as-a-service-driven subscription model. It really started years ago when Microsoft split user and device client access licenses, and then later increased the cost on user-CALs to account for the fact that one license was actually covering multiple devices. Then came Office 365 and the “user-ization” of Office and the Windows OS, along with more pricing normalization.

I wrote about it years ago, saying that we’ll likely see a steady progression towards the user-based subscription model, with Microsoft gradually increasing the pressure on perpetual customers to make the move. The October changes represent another move in that direction, and I doubt it will be the last.

Impact: Windows E3 per Device is normalized with Windows E3 User

What: Although we won’t have exact numbers until October, Microsoft is going to align user- and device-based licensing for the Windows OS. You’ll still be able to license Windows by device, but the cost will be the equivalent of the user-based model.

Who: If you have Software Assurance on Windows E3 per Device, moving to the cost-equivalency of the User model could be substantial. I don’t want to say how substantial because we don’t have actual costs yet—but based on my estimates using today’s pricing it will likely be materially significant. Bear in mind that if you’re in an EA or have pricing protection, you won’t see the impact until the expiry of that protection. However, even if that’s a year or more away for you, you’ll want to run what-if scenarios as soon as pricing is available.

In particular, if you have an Enterprise Agreement and you have SA on Windows E3 per Device (there are a lot of organizations that do this in my experience), this will hit you the hardest so you’ll want time to prepare a strategy for dealing with it.

Strategy: This is where it gets tricky. I could write 20 pages on how Microsoft’s licensing bundles work, but it would read like stereo instructions. I’ll try to summarize the major things to look for and think about, but you’re going to need expert help for this one, so don’t go it alone.

If you have Windows Device SA assigned to knowledge workers as part of your agreement because it was always cheaper than going to the user-based subscription model, that will be a no-brainer. If the costs are the same after October, flip to the user-based model for those users. The only reason not to would be if you really don’t like subscriptions, because Windows E3 User is only available as a subscription.

If you simply traded in 1:1, that will likely be a substantial cost increase, but here is where the expert help comes in. Microsoft embeds Windows OS User in their Microsoft 365 bundles. If your roadmap on other things relating to the M365 stack aligns, it may be that you can cost-justify the move to M365 such that it’s covered by the benefit of those other things you’ll be doing, effectively absorbing the Windows OS increase in the process. It’s not perfect—the increase is still there—but the benefits of M365 outweigh the Windows OS line-item, and therefore you won’t feel the impact directly. The technology stars have to align, which is why you need a licensing expert to model the before and after to make sure.

Where this strategy will prove more challenging is with shared devices. If you have a lot of Windows devices that are shared by multiple users, you’re probably licensing them with Device OS because it’s so much cheaper than having to license every user that accesses those systems. In those cases, it would still be cheaper to stay on the device model even after the increases, but that makes it a pure cost increase with fewer options to cover it with a corresponding benefit somewhere else.

But that doesn’t rule it out entirely. This is where you need to back up a few steps and look at everything you’re doing—or plan to do over the next couple of years—with the Microsoft stack. Don’t just think about the OS, or even the productivity stack around O365/M365. Think everything. What if that data center consolidation project that just got started could be optimized to save some licensing expense? Or what if you could accelerate that document security initiative using Microsoft’s security solutions—and close down some other things you’ve been paying for in the process? There may be some hidden opportunity to reduce costs somewhere that would minimize or eliminate the direct impact of the Windows OS increase or allow you to shift to a fully user-based model to future proof your investment.

The bottom line is that if you find yourself likely affected by this change, now is a good time to do a comprehensive review of your usage of Microsoft’s entire ecosystem. The right expert can help you turn over the big rocks and the little ones, and hopefully there’s a path forward where a re-calibration of your overall investment reduces or eliminates the impact of the new pricing and maybe even opens up new opportunities. Microsoft licensing is complex, but sometimes that complexity can work to your advantage if you line everything up the right way.

Impact: RDS Device CAL increase

What: Microsoft will increase the pricing of Remote Desktop Services Device CALs by 30%.

Who: This one will, for many, go hand-in-hand with the Windows OS Device increase. It’s fairly common to have a shared Windows OS system running Citrix and therefore carry an OS Device + RDS Device CAL. If you have these under SA or with price protection, when that expires you’ll feel the increase. Combined with the Windows OS increase, it will materially impact the cost of operating those systems moving forward.

Strategy: The same logic I discussed with Windows applies here. For shared systems, you’re not likely to want to go user-based because the increase in count would create an even bigger cost increase. So you need to go asymmetrical in your thinking here too. What else are you doing—or what could you do—that would allow you to re-calibrate your investment in such a way that you absorb the increase with the benefits gained elsewhere in the stack?

Impact: Office Perpetual price increase + Core and Enterprise CAL increase

What: Microsoft will increase the pricing of Office perpetual by 10%, and they will increase the price of Core and Enterprise CAL by 10%.

Who: Anyone not already in the user-based subscription model for Office or in O365/M365 for CALs. If you’re in an EA with perpetual or have price protection, you won’t see the increase until that protection expires.

Strategy: By now you are starting to see the pattern. Just like with Windows OS and RDS Device, it may be that moving from Device to User is the obvious solution, but it may also be that you’re running Office on shared devices, or in such a way that moving to user subscriptions increases your counts too much to be cost effective. Same strategy applies here: back up and look at the entire stack, and look for ways that doing X somewhere else can absorb the cost increase. It gets harder if the increases start to pile up, but that doesn’t mean it’s not worth doing. You’d be surprised—I’ve seen what started as big liabilities turn into a big customer win in the end. Like I said before, the stars have to align the right way, but you won’t know until you get out the telescope and point it at the night sky.

Hidden Impact: Office 365 “Add-Ons”

This is one that didn’t hit me until I’d thought about it for a while, but there are many customers out there that, instead of moving fully to the subscription model, utilized the “add-on” licenses that effectively bolted cloud rights onto your perpetual entitlement base. The reason for doing this was so you didn’t fully give up your perpetual rights. In practice, it is very messy to manage, especially at True-Up time for EA customers, and if you had multiple profiles in your EA the complexity only compounded.

I believe that add-ons will be a lot less attractive after October. I haven’t fully run all the different scenario permutations, but my theory is that with the increases described above, it will raise perpetual costs such that add-ons will become materially more expensive than converting over to the subscription model. If you license your enterprise this way, when your EA renews you’ll want to compare A versus B carefully, and you may find it’s time to take the full plunge into the subscription model.

Hidden Impact: Compound increases over time for EA customers

This is another hidden impact, but I’ve seen the shocking effects and don’t want to see that happen to you, so I’ll raise the cautionary flag now. Let’s say you’re in an Enterprise Agreement that doesn’t expire for another year or so. Maybe you’re already subscribing to O365 or M365 so you will only see a minimal increase at the next renewal based on the October changes. You think, “Okay, this isn’t great, but it’s small so we’ll deal with it when the time comes.” Then you get your first look at the renewal, and the pricing is 27% higher across the board. What?!

Remember that EAs have price-lock during their term. This is great as a cost control mechanism, but it has the side-effect of hitting you with every price increase you avoided during that term all at once when it comes time to renew. Depending on how your current EA is constructed and how long it’s been in effect, if there were other increases along the way and you add them all up at renewal, it can produce that shocking result.

That’s the potentially bad news; the good news is that the story never ends that way. Licenses, subscriptions, bundles—these things change on a fairly regular basis. So while there were increases you may have avoided, there are likely changes that you avoided too. What at first appears to be a shocking increase may turn out, in the end, to be an apples-to-oranges comparison. After due-diligence, assessing your roadmap, and mapping out how that aligns with the then-current models often opens up alternative scenarios that reduce that increase, eliminate it, and sometimes even turn it into a savings. But don’t wait—see what that future would look like now even if you have a couple years before you have to make your next big decision. Then there won’t be any surprises, and if anything looks like it may have a big impact, you have plenty of time to get creative in how you deal with it.

I strongly recommend looking at your roadmap and how it lines up with Microsoft’s current iteration of their technology ecosystem on a regular basis, even if you’re protected via an Enterprise Agreement. Don’t let the bundles or subscriptions or licensing get in the way. Start with what the technology is and could be doing for your business, and get yourself a good expert that knows business, licensing, technology, and how to weave those together into a long-term investment strategy—and then re-examine that strategy on a regular basis to make sure the money you’re spending remains well-spent over the long haul.

Experts at Connection’s Microsoft Center of Excellence are always happy to guide you through these transitions in the times of Digital Transformation. Please leave a comment or reach out to us for further discussion with our community.

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Lane Shelton

Lane Shelton is Vice President of Software Business Development at Connection with over 18 years of experience in the areas of Microsoft technology and licensing, software asset management, cloud computing, and software investment management. In addition, he is an SIIA-certified software asset management professional. When he has free time, Lane enjoys old-school PC gaming.

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