Redmond Negotiator

Countdown to Your New Microsoft Deal, Part I

Many Enterprise Licensing 6.0 agreements will expire June 30. Start preparing now with these tips from Microsoft negotiating guru Scott Braden.

• By Scott Braden
• 03/29/2005

This column is the first of a series leading up to June 30 to help guide you in negotiating with Microsoft toward a new agreement. And we’re going to start with the most important step in the process: planning.

What’s the most common mistake in negotiating with Microsoft? Simple: It’s not getting started early enough.

Many companies are used to negotiating and completing large technology purchases in a month or less. And you can certainly do that when renewing or renegotiating your Select or EA. But you’ll be leaving money and benefits on the table.

When should you start? I recommend three to six months ahead of your current contract expiring. A mid-size company with relatively simple needs and the right players involved can get a really good deal negotiated in three months or less. However, some companies are so large and complex, with power spread all over the planet, that even six months isn’t enough.

Nevertheless, if your contract has a June 30 expiration date, three months is all you have left. Have you completed these tasks yet?

Phase 1: Build Your Project Team
Who should be involved in dealing with Microsoft, and what should their roles be? Many companies have a clearly defined vendor management office that will drive the deal-making; but you also need input from these players: the executive sponsor, the project leader / key negotiator, and legal and interested groups in IT such as the server team(s) and the desktop management team. And of course the financial team — CFOs tend to get interested in very large software deals!

Key Principle: You should handle your Microsoft negotiations as a cross-functional business project, similar to many projects that IT handles. You’ll need time and help from people and departments throughout IT and the company. If your company is very large or multinational, there could easily be dozens of people involved, scattered all over the planet.

Here are some key people you’ll need to work with (and gain their commitment to your project plan and goals):

The Executive Sponsor(s):
Who will sign the contract(s)? Or another way to find the right sponsor is to ask “If this turns out badly, which executive will feel the most pain?” And of course you’ll identify the person or people responsible for the budget dollars that will go to Microsoft. Often this will be the CIO, a high-ranking VP within IT, or sometimes the CFO, CEO or another officer.

When you have identified your sponsors, get their commitments to:

• Make the negotiation project a priority so you get the time and access you will need during the preparation and negotiations.
• A time commitment for critical meetings, discussions and decisions.
• Your sponsors will also be your “spokespersons” for the project, especially with other senior executives.
• Your sponsor needs to keep you in the loop about future business plans, technology roadmaps and preferences both in general and Microsoft, in particular.

Project Leader:
This is your key player. Ideally, this person knows about many different areas in IT and the business. Technical skill is less important than general IT knowledge and business experience for this role.

Note that this project will take a lot of time:

• Time to understand Microsoft licensing.
• Time to communicate with other people and gather information.
• Time to build a plan and build internal consensus.
• Time to deal with Microsoft and the reseller(s).

This shouldn’t be a full-time job unless the organization is very large or complex. Plan for an initial kick-off, information gathering and related activity for the largest efforts. The actual negotiations can take only a few hours per week via e-mails, phone calls and the occasional meeting. Then you’ll have another burst of activity at the end during contract signing and rollout phase.

Who else will be involved?

• Your purchasing, procurement, contract or vendor management department.
• Your legal department.
• Your IT asset management team.
• Your IT strategic planners.
• Your desktop and server management teams.
• Key business and/or infrastructure application managers.

Now that your team is assembled and you have a rough project plan, executive sponsorship and key business requirements, let’s get started.

Phase 2: Understand Enough Microsoft Licensing
First the good news: You do not have to be an expert in Microsoft licensing before you can negotiate a great Microsoft licensing deal.

In fact, your Microsoft rep is probably not a licensing expert either. And your reseller rep(s), while they usually know more than your Microsoft rep, also rely on basic knowledge and experience. Here’s the trick: They have good resources to get the answers and details.

Your Microsoft Large Account Reseller (LAR) / Enterprise Software Advisor (ESA) has full-time staff at headquarters focused on Microsoft licensing. Make good use of these people — ask for briefings, get their direct phone numbers and keep in touch when you have licensing questions.

You may be shocked to learn that Microsoft licensing is full of exceptions and alternatives and unclear terms. You can choose to complain, or you can use them to your advantage.

Warning: The answers you receive from your Microsoft rep or your reseller may be WRONG. After all, Microsoft licensing is very complicated, and many times the answer to your specific question is dependent on the details of your past and current agreements, purchasing history, and environment.

Warning #2: The “correct” answer is not always the same as the “best” answer. What I mean is, you should expect your Microsoft Rep to give you answers that are in Microsoft’s best interest. No surprise there, and you’ll be independently verifying everything you can via your resellers. But, your resellers have to balance competing interests — yours, Microsoft’s, and their own. So if there are two possible correct answers to a given situation, and one will result in more revenue for Microsoft and the reseller, do you think you’re going to hear about the other option?

That’s one of the reasons you should always work with two or more resellers — whenever you have a tricky question, ask all of your resellers (independently, of course). And require their answers include the relevant contract or Product Use Rights language from Microsoft. And be sure to let them know that you’re competing them on the basis of the “best” answer, not just the “correct” answer.

O.K., now that you know how to deal with licensing knowledge, let’s talk about your own internal challenges.

Phase 3: Understand and Document Your Current Licenses
This is where asset management, centralized purchasing and vendor management really pay off.

In this phase, your mission is to find out the answers to these two questions:

1. What Microsoft software do we currently have installed on all the PCs and servers in the enterprise?
2. What licenses can we prove we already own?

You may be saying to yourself, “Piece of cake. I just get a report from our asset management system and I’m done.” If that’s you, congratulations! You are way ahead of most of your peers!

Unfortunately, many large and mid-size companies today still do not have a functional IT asset management system that can quickly and accurately answer these simple questions: “What’s installed? and “What’s licensed?

Recommendation: If you don’t already have an asset-tracking and management program in place, including hardware and software inventory, procurement and contract management, use these Microsoft negotiations as a leverage point to get the program started. Systems like this have proven to pay for themselves very quickly, typically by saving money on large deals such as Microsoft Agreements.

Do this hard work up front, before you invite Microsoft or your reseller reps to the table. If Microsoft finds out you don’t have any asset tracking abilities, a defined technology roadmap, or clear spending plans, they gain a large amount of negotiating leverage.

If you don’t have a solid asset management or software inventory system, you’re looking at some unpleasant options:

• Buy and implement a software discovery tool quickly.
• Perform a physical inventory.
• Guess. Estimate. Use whatever data you have available and hope that Microsoft accepts it.

Given the time-crunch that we all deal with everyday, most people end up leaning toward the “Guess” option. I don’t have space to give you all the reasons this is a bad idea, but if you send me an e-mail I’ll send you a longer article discussing this topic.

However you end up gathering the data, you should end up with a two simple reports:

1. Every Microsoft product currently installed, broken out by title and version, with quantities. You should include operating systems, desktop applications, server applications and CALs as well.
2. Every Microsoft license that you own, broken out again by title and version, with quantities. Include Software Assurance as well.

From these two reports, you can create your gap analysis, showing where you are currently “over-licensed” or “under-licensed.” This phase will involve a lot of time and effort. You can choose to skip over the hard parts, but you’ll be passing up some of your best opportunities for leverage when negotiating with Microsoft.

The above should help you lay the groundwork for a successful negotiation. Next month, we’ll build on this by discussing defining your roadmap and future licensing needs, choosing and managing resellers and specific tips for Microsoft negotiations.