How to Work the Angles with Microsoft

The software vendor's massive size and product diversity give customers some negotiating advantages.
David McCannNovember 15, 2010

Negotiating license agreements with Microsoft is similar in many respects to doing so with any other technology provider, but there are some special considerations related to its size.

Although the company is no longer quite the technology monopolist it once was, a typical large or midsize business is still likely to be aswarm with Microsoft products: the Windows computer operating system, Exchange e-mail, Office applications, the SQL database language, collaboration solutions, servers to run all of the above, and more.

Tim Hegedus, a senior analyst with licensing adviser Miro Consulting, notes that volume usage is a breeding ground for negotiation — even more so now, with technology expenses being scrutinized more intensely than ever. Lately, Microsoft is making more pricing concessions, he says, such as extending so-called Tier C volume-based discounts off standard pricing to customers that normally qualify for only the lower Tier B discounts.

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Hegedus says companies should press Microsoft as to whether they can get the deeper pricing break and not be content with the discount they’re already getting — which is not really a discount at all, he points out, since it’s what they’re automatically entitled to based on their volume usage. In many cases, Microsoft is giving in with relatively little negotiation, he says.

If a negotiation does reach an impasse, Hegedus advises getting an executive involved in the process and requesting that Microsoft reciprocate to demonstrate there is an urgency on the vendor’s part to get the deal done. (Because of the large number of deals Microsoft is working on at any given time, managers usually handle negotiations, although final approval on agreements usually comes from the executive level.)

As with any licensing agreement, consider what the optimal time would be to make it. Pushing deals to the end of a vendor’s fiscal quarter can help win approval in cases where pricing talks have been touchy. That’s especially so with Microsoft, says Hegedus, because the executive who must sign off on the agreement probably has dozens or hundreds of agreements on his plate at quarter-end.

And companies should think twice before buying the vendor’s popular Software Assurance program — which allows them to spread payments over the license term and provides free upgrades to new versions — for all of their Microsoft software, cautions Hegedus. For example, if a company replaces its desktop or laptop computers every three or more years, there’s less reason to buy Software Assurance for Windows, because the next-generation hardware will probably come with a new version of the operating system.

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