Dynamics AX 2012 Coming to EA

Dynamics AX 2012 will be the first enterprise resource planning (ERP) software sold in Microsoft Volume Licensing when it becomes available under Enterprise Agreements (EAs) Sept. 1, 2012. Dynamics AX is Microsoft's high-end ERP product, aimed at global midmarket companies and business units of larger companies. EA purchases may offer the best unit pricing for Dynamics AX, particularly if the EA already includes a large volume of Microsoft server products. However, the existing Dynamics licensing program will still offer some advantages to customers over EAs, and Dynamics AX implementation partners will probably find the existing program more profitable.

EA Offers an Additional Licensing Path

An EA lets organizations with 250 or more PCs license almost any Microsoft business software or services offering. EAs typically offer the best unit pricing, including significant discounts on server software. However, some licenses must be purchased organization-wide or in certain combinations. All purchases in an EA commit customers to annual Software Assurance (SA) coverage for the remaining term of the EA, giving them rights to future software upgrades and other benefits. EAs typically run for a renewable three-year term.

Dynamics AX 2012 was released in Aug. 2011 and has not been available in EAs. Instead, customers have purchased the product through a separate Dynamics licensing program, called Business Ready Licensing or Business Value Licensing, and have commonly bought licenses through the same Dynamics channel partner that implements and maintains the Dynamics AX installation. Customers will still be able to buy Dynamics AX in Dynamics licensing after Sept. 2012, but Dynamics AX 2012 will also now be available in EAs. The Dynamics AX 2012 license model will also receive some updates effective Sept. 2012. (See the illustration "Dynamics AX 2012 License Model".)

Dynamics AX 2012 in the Enterprise Agreement

Dynamics AX 2012 licenses and SA will appear in EA price lists as Additional Products in the Servers pool. This is similar to the treatment of Dynamics CRM, which is already sold in both Microsoft Volume Licensing and Dynamics licensing.

Additional Products. Products sold through EAs are either Enterprise Products or Additional Products. Enterprise Products must be purchased organization-wide with a commitment at the start of the EA term, while Additional Products may be purchased in any quantity, at any time during the agreement term.

Servers pool. Products on the EA price list are organized into pools; for example, the Servers pool includes Additional Products such as SQL Server and Dynamics CRM. The Servers pool also includes two Enterprise Products: the Core CAL Suite and Enterprise CAL Suite. These Client Access License (CAL) suites license users or computers for access to Windows Server, Exchange Server, SharePoint Server, and other major server applications. In the most common type of EA, informally known as a "desktop EA" but officially called an "Enterprise Enrollment," a customer can qualify for volume discounts on Additional Products in a pool based on the quantity of Enterprise Products that the customer has ordered in the pool.

The treatment of Dynamics AX in an EA has two important implications. First, organizations will not have to buy Dynamics AX for all users or computers in an EA. Instead, they may license only the users or computers that require the product. Second, the prices that a customer will pay for Dynamics AX licenses and SA will be strongly influenced by the number of Core CAL Suite or Enterprise CAL Suite licenses that the customer has purchased on the EA. Organizations that have large numbers of users or computers covered for one of the suites will receive deep discounts on their Dynamics AX purchases (and other Servers pool purchases), even if the Dynamics AX installation itself is small.

Dynamics AX purchases will also follow the usual EA rules, including the following:

• License prices and SA rates are locked during the EA term
• Payments for licenses bought at the start of an EA may be spread over the full EA term; in effect, customers receive no- interest, three-year financing for the initial license purchase
• After the initial purchase, additional users and computers may be provisioned immediately throughout the year and then licensed in a single "true-up" batch purchase for that year
• All new licenses purchased during the EA term are automatically enrolled in SA through the end of the term.

There are also two important differences between Dynamics AX and other products in EAs.

No downgrade rights. Dynamics AX 2012 is the only version that may be used if licensed through the EA. Organizations may not buy licenses in an EA for earlier versions. They also may not license Dynamics AX 2012 in an EA, but run an earlier version in its place, something that is permitted by other products in Microsoft Volume Licensing. In general, Microsoft is aiming the EA option at new Dynamics AX 2012 installations.

No free software updates. Most products in Microsoft Volume Licensing offer some kinds of free software updates (such as service packs) with the license purchase. Dynamics AX does not; customers who purchase Dynamics AX through an EA must maintain active SA coverage to receive any updates for the product.

Better Unit Pricing Versus Less Favorable Upgrades

In general, buying on the EA could yield better pricing than purchases through the traditional Dynamics license program. This will particularly be true for customers who have a large investment in other Microsoft server products but deploy Dynamics AX 2012 to a relatively small number of users. Furthermore, the EA's spread license payments could reduce financing costs and simplify budgeting, as such spread payments are not generally available (on comparable terms) for purchases made through the Dynamics program. (Microsoft experimented with spread payments for Dynamics in a 2009 Business Ready Flexible Pay Promotion that has since ended.)

The EA annual true-up process also simplifies license compliance, because organizations may expand their Dynamics AX installations at any time and then make catch-up purchases of licenses and SA by a predictable date each year. Finally, purchasing on an EA could simplify an organization's purchase process, by bringing Dynamics AX purchasing under the same central procedures and personnel who handle an organization's other Microsoft purchases.

However, the EA also has some drawbacks for Dynamics AX purchases. Notably, the SA coverage offered in an EA lacks some features of the Business Ready Enhancement Plan (BREP) offered in Dynamics licensing. BREP resembles SA in that it offers version upgrades and other benefits in return for an annual payment based on the price of the underlying license. However, BREP customers receive a Protected List Price, which fixes the annual BREP payment for a Dynamics installation based on the list price of licenses when the system is built, and the required payments increase only if the organization makes changes to the system, such as adding users. SA payments in an EA, in contrast, reset based on current license prices at the start of every EA term, which can mean a cost increase even if the customer has not expanded its installation of the covered software.

Also, customers may re-enroll in BREP after allowing it to expire, by making retroactive payments at a penalty rate. SA, in contrast, has no re-enrollment option; customers who allow SA to lapse (for example, by allowing an EA to expire) will generally have to buy completely new licenses with SA to regain coverage.

Finally, some customers might prefer the simplicity of purchasing Dynamics AX through Dynamics licensing: a single Dynamics partner can sell licenses as well as implement and maintain the Dynamics AX system. In contrast, an EA purchase of Dynamics AX will involve at least two partners: the Large Account Reseller (LAR) who sells and services the EA, and a Dynamics partner who implements a system. For large organizations (with more than 6,000 computers or users), Microsoft might also be involved in sales, implementation, or both.

Tougher for Partners

Dynamics partners will not earn margin directly on license sales through an EA; any license margins will go to a LAR or Microsoft. Instead, as with Dynamics CRM, partners who implement Dynamics AX can claim Certified Software Advisor (CSA) fees for specific license purchase or SA renewal transactions. Fees initially will be paid as a set percentage of each transaction, but starting July 1, 2013, the percentage will vary depending on the partner's license sales record and other factors.

In general, CSA fees will be less generous than those earned reselling licenses in Dynamics licensing; for example, the maximum fee earned on a Dynamics AX license will be 25% of the license price in an EA, compared to the maximum of 60% that a partner could earn from a license sale in Dynamics licensing. Furthermore, if a customer opts for spread license payments, the CSA fees associated with the transaction will be paid over the three-year term of the EA rather than upfront, a less attractive cash flow for the partner.

One implication: Customers evaluating Dynamics AX proposals should ensure that both service costs and license costs are being taken into consideration. Partners who implement and maintain Dynamics installations licensed through the EA might need to charge more for services than partners who resell licenses through Dynamics licensing.

Resources

Dynamics AX 2012 is summarized in "Dynamics AX 2012 Tackles Governments, Large Organizations" on page 9 of the Jan. 2012 Update and "Dynamics AX 2012 Rebuilds Platform" on page 14 of the Dec. 2011 Update.

Enterprise Agreements are explained in "Understanding the Enterprise Agreement Program" on page 17 of the Sept. 2011 Update, "Deciding on an Enterprise Agreement Renewal" on page 13 of the Oct. 2011 Update, and "Enterprise Agreement Refresh Makes Significant Changes" on page 22 of the Jan. 2012 Update.