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Evaluating Enterprise Agreements

Posted: 
August 18, 2008

An Enterprise Agreement (EA) is the simplest way to license all the PCs in an organization with standard Microsoft software, and it offers the best discounts of any Microsoft volume licensing program, but it's not necessarily the best choice for every customer. The selection of software available in an EA, an organization's business and IT decision-making structures, its IT roadmap, and its negotiating clout are among the factors that determine whether an EA—including renewal of an existing EA—is the right fit for a customer. Customers should have software asset management tools in place that can help them make the right choices.

Microsoft's Volume Licensing Plans

Microsoft's volume licensing plans offer customers several benefits, including the following:

  • Lower prices on software
  • Tracking of software purchases over time and regions for easier planning and compliance
  • Access to special benefits and software
  • Predictable and zero-interest installment payments (with some plans)
  • Simplified, rapid deployment of new software on PCs, such as when adding a new employee
  • Greatest flexibility in deploying downgrades
  • Better management of licensing media, such as CD-ROMs or downloads.

Microsoft offers a half-dozen major volume licensing plans aimed at different customer sizes and requirements. The most common for larger organizations are Select License plans, which offer discounts from about 25% to 50% off retail prices, and EAs, which offer discounts of as much as 60% for large customers and are the easiest way to manage licensing requirements for large numbers of desktops (although they offer a limited selection of software and require purchase of upgrade rights).

Upgrade rights for all volume licensing customers are provided by Software Assurance (SA), an add-on to license purchases that also offers some technical support, the right to purchase specific additional software, training vouchers, and other benefits. It must be purchased at the time a license is purchased and is paid annually, usually for the remaining term of a volume agreement (which runs for three years in most volume plans). The annual fee is 29% of the license price for desktop OS and application software and 25% for server software, including the Client Access Licenses (CALs) that are required by many Microsoft server applications for each user or device that accesses the application.

EA Basics

EAs offer discounts of about 40% to 60% off retail prices, and discounts are based on the number of desktop and portable computers in the customer's organization, with a minimum requirement of 250 computers. Discounts are divided into four tiers, A through D; customers get the A discount with 250 or more computers, B for 2,400 or more computers, C for 6,000 or more, and D for 15,000 or more.

EA customers agree to purchase basic desktop software, such as a Windows upgrade, Office, or a bundle of CALs, for every desktop computer in their organizations, including Apple Macintoshes and computers running Linux, but excluding computers devoted to special uses that do not require Microsoft software. Payments are made annually, and during the first three-year term of an EA they include the cost of both licenses and SA; if an EA is renewed, the customer continues to pay only for SA, since full payment was made for the licenses in the initial agreement. Companies that purchase Windows upgrade rights, Office, and a CAL bundle in an EA get an additional 15% discount. With that discount, a company with up to 2,399 computers would pay about US$362 a year per PC in a new EA.

Because they pay for upgrade rights in an EA, customers are entitled to any upgrades that are released during the term of their agreement, regardless of whether they deploy the upgrade during the agreement. Thus, a customer who purchased Office through an EA in force in Aug. 2008 is permanently entitled to use Office 2007 on the number of computers included in their EA even after the EA expires.

An EA is also available in a subscription version, in which customers do not pay for and do not receive perpetual licenses for the software, but pay only for SA. This reduces annual costs, but if customers stop the subscription they must stop using the software or buy out the licenses.

EA Products

An EA is primarily designed to license a limited set of software commonly used on desktop and portable computers, for use on every computer in their organization. Products licensed in this way are denoted as "enterprise products" in an EA. (For a list of the main products and bundles sold through an EA, see the chart "EA Products and Platforms".)

Customers can purchase most other Microsoft software through their EA as "additional software." Discounts for additional software are based on the Select pricing schedule, using a formula in which the number of PCs in the EA are mapped to Select's point-based discount schedule. When purchased as part of an EA, additional products must be purchased with SA.

Because of the required SA purchase and the fact that not all Microsoft products are available as additional products in an EA (for example, CALs that are in one of the CAL suites are not available as additional products in an EA), many enterprise customers who have an EA also have a Select agreement.

Considering a New EA

Companies may purchase an EA for several reasons, but the program is not the best fit for every customer. Company size and structure, the type of business it is in, the state of its current desktop systems, and other factors come into play. Many aspects of EAs are negotiable, although customers may need to be creative, accepting additional consulting time rather than a greater discount, for example. Customers who have a clear idea of their own requirements will be in a better position to communicate to Microsoft the trade-offs that will deliver the optimal agreement for both Microsoft and the customer.

Main EA Benefits

The main reasons that customers purchase EAs today are ease of license management and lower cost. Secondary drivers include upgrades and access to some software available only through EAs.

Easier management. Licenses for desktop and portable computers are difficult to track. A company might purchase some through an OEM, others through Open or Select license plans, and have others as part of a Microsoft Developer Network (MSDN) subscription. Software inventory tools and a company's purchasing procedures may not be able to track all of these licenses or the channels through which they were purchased, making it difficult to know whether all software on an organization's desktops and portable computers was obtained legally. Because an EA is based on a simple count of an organization's computers, companies can be assured that all desktop and portable computers are fully licensed for any enterprise products that they license through their EAs. EA customers can also easily provision new computers at any time. Payment for the licenses will be handled at the next EA anniversary during a "true-up" that adds new computers to the agreement.

Microsoft license assessments and enforcement programs that look for organizations that are underlicensed are also much less likely to flag an organization that has an EA for further scrutiny, such as a customer-paid software audit.

Lower cost. EA discounts are generally the largest that Microsoft offers, with the caveat that purchase of SA is required with all licenses. A license for Office Professional Plus with SA costs US$888 when purchased at the Select A level, but only US$756 when purchased at the EA A level. An EA is a particularly efficient way to upgrade all the desktops in an organization that has fallen behind and wants to standardize on the latest version of a desktop OS or application.

SA upgrades, exclusive products, and other benefits. Since SA includes new version rights, customers are automatically entitled to any new product versions released during the term of their EA. In addition, certain software cannot be purchased unless a customer has SA. For example, the Desktop Optimization Pack—a suite of tools for desktop and application virtualization and streaming to desktops, inventorying desktops, managing Group Policy, diagnosing problems, and collecting information about system errors—can be purchased only if the customer has SA on the Windows OS. SA also has other benefits, such as technical support incidents, deployment planning, training vouchers, and home use rights.

Is an EA the Right Fit?

In spite of its benefits, an EA is not for everyone. A company's structure and IT requirements can affect the value that a company gets out of an EA.

Platform requirements. Analyses of how Office is actually used typically find that a high proportion of clerical and office workers use only the components in Office Standard Edition—Excel, Outlook, PowerPoint, and Word. However, Microsoft does not offer Office Standard in an EA. As a result, the EA discount on Office may be partially consumed by the higher cost of Office Professional Plus, whose extra features the customer may not use. Similarly, customers who do not require all four of the CALs in the Core CAL—they may not use Configuration Manager, or they may use Notes and Domino rather than Exchange and SharePoint, for example—will not benefit from the modest discount that the Core CAL Suite offers over its components purchased individually in an EA.

Desktop-focused. The primary focus of an EA is the desktop or portable PC, and companies with minimal individual computer requirements, such as a midmarket manufacturing firm or a Web-oriented organization with few desktops but many servers, could get relatively little benefit from an EA.

Dispersed vs. localized business. A company with many branch offices or subsidiaries may find that an EA is the best way to ensure license compliance, in the absence of IT services in local offices that can track software use and count licenses. On the other hand, a company with most of its staff in one location and the ability to centrally track its purchases and actual software use may find that purchasing the same software for every device or user nets more software than the company will actually use.

Budget and IT structure. Large organizations that budget by division or operating unit often find that not every unit wants to use or pay for the same software. Some units may protest contributing part of their budget to software that they would not have purchased on their own.

Reading the Roadmap

The inclusion of SA in an EA raises software prices substantially, but may not deliver corresponding benefits. How quickly an organization updates its desktop software and its own long-range IT plans play important roles in analyzing the benefits of an EA.

Early adopter or laggard? No matter how attractive the discount, unused software is not a good deal. Some firms, such as services companies, may want to use the most current software so they can exchange Office documents with a variety of clients and read any version of Office file formats. Many others, however, are content to lag behind the market, upgrading with only every other version. The SA payments required by an EA will effectively eliminate their EA discounts.

Unpredictable upgrades. Although upgrades are the most important benefit of SA for most customers, delivery of such upgrades is not guaranteed, nor can customers be certain that a future upgrade will deliver enough benefit to justify enterprisewide deployment. For example, after customers received upgrade rights with their purchases of Windows XP in fall 2001, five years passed before the next version of the desktop OS was released, in Nov. 2006. Customers who paid for an upgrade and SA for those five years ended up paying more than twice as much as customers who had no upgrade rights and simply purchased new OS licenses when Windows Vista appeared. To make matters worse, many who had upgrade rights are not upgrading older machines to Windows Vista, since only recent hardware can run the OS; instead, they are purchasing Windows Vista again when they purchase new, replacement computers with OEM licenses.

Price, feature changes. As new products are introduced, Microsoft frequently changes prices and feature sets. In some cases, customers who have SA on a product are protected from price increases on upgrades released during the term of their agreement. In other cases, they are eligible for "step-up" pricing for new editions of a product.

Although valuable, such protections are not predictable: Microsoft usually announces them only when a new product is released. Since customers must purchase SA for a license at the time they purchase the license, which could be many years before the release of the next version, customers cannot be certain what, if any, price protection or compelling features they will receive for licensing the next release of the product ahead of time.

An EA also does not offer full protection against price increases. For example, customers who had SA on CALs for Exchange 2003 were surprised when Microsoft required an additional Enterprise CAL for features of Exchange 2007, such as voicemail. The customers' SA payments got them an upgrade to the Exchange 2007 Standard CAL, but they had to pay an additional fee for the Enterprise CAL.

Utilization of SA benefits. SA benefits other than upgrades are complex, and not all benefits will be employed by every organization. Organizations should quantify the likely value of SA benefits to themselves, noting that they might require additional staff to administer the benefits. Also, organizations should evaluate third-party alternatives to the products available only through SA (such as the Desktop Optimization Pack) to ensure that the Microsoft offerings meet their needs and are cost-effective when the annual cost of SA is added to the price of the products themselves.

Renewing an EA

EAs expire after three years and can be renewed. Customers can renew for one or three years, but cannot renew for consecutive one-year terms—after a one-year renewal, the only renewal option is three years.

Most of the issues that arise in new agreements will also factor into renewal decisions, but pricing is different, product roadmaps may dictate the renewal term, and there are options short of full renewal that organizations need to consider. Furthermore, organization-wide cooperation will be necessary in the case of nonrenewal.

Pricing

During the first term of an EA, a customer pays for both licenses and SA, but in a renewal it pays for only the SA portion of the covered software, which ranges from 25% to 29% of the license price. Thus, annual payments can drop by more than 40%, a significant incentive for renewing an EA.

Furthermore, an organization that does not renew an EA, but plans to stay with their current platform and perhaps renew an EA at a later date should be aware that restarting an EA entails purchasing new desktop licenses for all the devices covered by their EA—even if it already owns those licenses. Microsoft will sometimes give customers credit for all or some licenses that are current, but this is not guaranteed.

As a result, a decision to not renew an EA has long-term implications and must be analyzed very carefully. For example, an organization that does not renew its EA in 2010 and elects to stay with Windows 7 and Office 14 should not plan to sign a new EA until 2014 at a minimum. Starting a new EA before that time could cost more than it would have cost to renew the old EA at the lower renewal rate.

Roadmap

In spite of the greater discount, some customers may see little on the horizon that justifies continuing to send annual payments to Microsoft. Particularly in times of economic stress, firms may be tempted to scale back or discontinue an EA. Lining up the organization's own IT plans against Microsoft roadmaps may reveal the best renewal plan—not every IT initiative that a customer undertakes requires the latest version of a Microsoft product or a product covered by an EA.

(For an example of a Directions product roadmap for Office, see the illustration "The Office Roadmap".)

For desktop products in particular, customer evaluation of the product roadmap should be based on their likely deployment schedules, not on Microsoft release schedules. For example, customers who wait for the first service pack to be released for Windows 7 and then take another three months to evaluate it may not actually deploy the product until 2011, and by 2014 will have been using it for less than three years. Because licenses do not need to be purchased until actual deployment begins, an organization that wants to deploy Windows 7 can delay an EA that includes Windows 7 until deployment begins. Alternatively, it may purchase many replacement or new computers with OEM Windows 7 licenses before it is ready to deploy Windows 7 on the remainder of its computers. At that point it may be less costly to purchase the remaining Windows 7 licenses that it needs for older computers through Select or Open rather using an EA, because the EA will require purchasing upgrades to Windows 7 for many computers that already have OEM Windows 7 licenses.

Limited Renewal Options

Organizations that have doubts about renewing an EA can consider options within the program, such as partial renewal and short-term renewal.

Partial renewal. Some organizations may conclude that they don't need to use the full Professional or Enterprise platforms, but can selectively renew EA coverage of strategic products. For example, an organization on the Professional platform might decide to drop coverage of Office in its EA and make Office 2007, for which it is already licensed, its standard suite for the next five years, while keeping Windows OS upgrades and the Core CAL suite. Office accounts for nearly 60% of the price of an EA, so this decision could significantly reduce a company's EA payments.

Organizations that employ good software asset management tools are in a stronger position to negotiate for higher discounts or for lower-cost alternatives. Some asset management tools track not only installed software but also how frequently it is used and the last time it was used. An organization that can demonstrate to Microsoft that only 10% of its users ever run PowerPoint or Access is in a much stronger position to negotiate a steep discount on their EA, paying only for Office Standard for example (even though they might be licensed for a higher-priced edition of Office).

One-year renewal. A one-year renewal can give an organization time to reach a strategic milestone in its IT development, after which it can reconsider its options and continue in an EA or not. For example, since both Windows and Office are due to be refreshed at the end of 2009 or early in 2010, companies with an EA expiring in June 2009 could consider a one-year renewal, which will probably gain them permanent rights to Windows 7 and Office 14. If the organization then decided to keep those versions for the following five years, it could forgo renewing Windows and Office on its EA.

Companywide Consensus Needed

Large, complex organizations have complex software requirements, but in many cases an EA provides a satisfactory foundation for many units, which they can supplement with occasional purchases of additional products through their EA or another volume licensing program.

A decision to not renew an EA can lead to organizational conflict, pitting operational units or geographically dispersed offices against each other if they find that restrictive software policies are harmful to their budgets or operations. Thus, any organization considering nonrenewal or significant modifications to its EA should ensure that the planned changes are communicated broadly and have wide support.

Resources

Microsoft's licensing home page, with links to important volume licensing documents and price estimation tools is at www.microsoft.com/licensing.

The Directions "Enterprise Software Roadmap," published twice a year, provides a comprehensive review of release schedules, major features, and related information for Microsoft business software, including products included in EAs.

Enterprise CALs are described in "Client Access Licenses Split Server Features" on page 3 of the Mar. 2006 Update.