News

Gartner Gives Advice on Negotiating Office 365 Contracts

• By Kurt Mackie
• November 06, 2013

Evaluating competitive offerings, such as those from Google, is one of the most effective ways organizations can negotiate Microsoft Office 365 contracts, according to Gartner.

However, as the research firm cautioned in its Tuesday webinar titled "Cutting Through the Fog in Microsoft Office 365 Cloud Negotiations," an organization would need to have a Google solution under active evaluation to gain such leverage.

"When you say the name, 'Google,' Microsoft is much more interested in your account," explained Frances O'Brien, vice president and distinguished analyst at Gartner, in the webinar. Her advice was based on typical midmarket company negotiations.

Office 365 is Microsoft's brand name that encompasses a number of the company's products, which are typically sold bundled in plans. It's also possible to purchase separate Office 365 services from Microsoft, such as SharePoint Online, Exchange Online and Lync Online. The Office Pro Plus productivity suite (which includes applications such as Excel, Word and PowerPoint) that is sold with some Office 365 plans is a premises-installed product. It's not a Software as a Service (SaaS) product or a solution accessed via Microsoft's cloud.

In terms of the Office 365 plans, Microsoft offers a low-cost Kiosk plan, along with three enterprise plans. The E1 enterprise plan mirrors the Core Client Access License (CAL) suite for SharePoint, Exchange and Lync. The E3 plan is the next plan up, and it mirrors the Enterprise CAL offering for SharePoint, Exchange and Lync, but it also includes Office Pro Plus with device-level licensing. The E4 plan includes all that the E3 plan has but it also includes "enterprise voice" (voice over IP) for Lync.

O'Brien recommended that organizations compare individual component costs to suite costs. Sometimes Microsoft discounts the suite costs. She noted that Microsoft has lowered the cost of Office 365 plans twice since rolling out the service, so organizations that bought the service initially could be paying 30 percent more than organizations buying Office 365 plans today.

Enterprise Product vs. Additional Product
Costs can vary depending on whether an organization buys an "enterprise product," in which user subscription licenses are bought "in lieu of on-premises payment," or as an "additional product," in which user subscription licenses are bought "in addition to on-premises payment." Under an E3 Office 365 plan, the first option (enterprise product agreement) can cost about $16.47 per user per month, whereas the additional product E3 option can cost between $3 and $6 per user per month. However, the additional product agreement has some restrictions. There are no transition discounts and all qualified devices using Office Pro 2013 have to be counted in the cost. In addition, no CAL Suite Bridges are allowed under the additional product agreement. CAL Suite Bridges are a way of moving Enterprise Agreement licensing for end users to Office 365.

While all of that discussion seems pretty obscure, O'Brien recommended that organizations try to price out the cost differences between the enterprise product and additional product options. The lower priced option ($3) might not be lowest cost option, depending on an organization's situation.

"If you don't have a lot of users accessing Office from a lot of devices, then the additional product approach might be the way to go," O'Brien suggested.

Other Negotiations
Another negotiating strategy is to purchase additional services, such as adding Microsoft Dynamics CRM Online, O'Brien said. Organizations will get various proposals during an agreement renewal cycle. She recommended trying to get price protections by locking in the maximum price on contract renewal. Organizations can try to negotiate service level agreements and other contract terms, too, but concessions might be hard to achieve. She said that Microsoft has been reluctant to negotiate uptime service level agreements.

O'Brien also recommended trying to pin down all of the rights in the contract indicated by embedded URLs. She explained that Microsoft typically has 30 to 40 hyperlinked pages in an E3 agreement that indicate the functionality that an organization is paying for, so an organization can try to get that functionality documented in contracts.

Organizations should know how to terminate services and how to extract their data from Office 365. O'Brien explained that Microsoft typically holds an organization's data for a limited time, and sometimes organizations will want to extend that time period. Organizations may want to try negotiating a delay in payment to Microsoft until an actual rollout of Office 365 services. Organizations can try to negotiate Microsoft's liability for service outages, but she added that "unlimited liability is not going to happen."

O'Brien's talk on negotiating Office 365 contracts can be accessed on demand here.