Microsoft’s ubiquity means a large number of enterprises and public sector organizations will be gearing up for a contract renewal exercise during 2023 and beyond. As with all vendors, it is absolutely vital to start planning for renewals as early as possible, but Microsoft has its own characteristics and priorities that you should consider from the very outset of the process.

Two key factors to keep in mind for any Microsoft renewal this year

1. Consider Microsoft’s year end

Microsoft’s financial year ends on 30 June 2023. This may seem completely unconnected to your contract renewal date, which could be on any other day of the year, but it’s nevertheless the key marker in the mega vendor’s calendar, and one which will undoubtedly influence your ability to negotiate favorable terms.  

Simply put, deals completed or agreed in the run up to its year end will provide you with better value than those sealed in the second half of the year. This is because of the way the software provider sets targets for and incentivizes its sales organization.

If your renewal date falls before 30 June, do not let negotiations slide, especially into the next financial year. Microsoft can be relatively relaxed about renewal dates, sometimes allowing its clients to delay (although not always, which I’ll address later). Remember that such delays are unlikely to be in your organization’s best interest. Postponements provide you with less leverage and could mean you are trying to negotiate terms when your sales contacts are not under as much pressure to bring in new revenue streams.

Conversely, if your renewal date is after the end of June, consider entering into an early commitment to renew, when you sign up to terms during the period when Microsoft is more open to negotiation. You may even find that Microsoft proactively approaches you before your renewal date – but within its current fiscal year – offering discounts and other favorable terms.

If Microsoft does proactively offer you a deal, scrutinize it in granular detail. Large discounts on services and software are all well and good, but do you actually need or want these services either at the outset of the contract or in the future?  

In essence, do not be mistaken into thinking a big discount equals a good deal. Instead, work through a systematic Optimization program to create an accurate Bill of Materials that sets out exactly what you need over the course of the new contract term. Next, get Microsoft to make you an offer based on that scope. 

2. Microsoft has a unique perspective on lapsed contracts

Generally, software and service providers will let you reinstate a lapsed contract, although you will of course face back payments. Your organization may even suffer some kind of penalty, often in the form of reduced or lost discounts.

This is not the case with Microsoft. As mentioned earlier, depending on your organization’s size and relationship with Microsoft, it is comparatively laid back about enforcing renewal dates, but if you do let your contract lapse, you run the risk of being required to start afresh – repurchasing all your licenses, rather than just renewing maintenance.  

If you are lucky enough to get Microsoft to agree to a late renewal, there will still be a challenge to address. There will be a gap in usage data for the period between the contract expiring and the eventual renewal.  While Microsoft is unlikely to penalize your organization for non-compliance during this gap, the absence of accurate records during this period could raise a red flag during audits, and carries the hidden cost of laboriously reconciling records by hand.

There’s another important reason to ensure there are no gaps, particularly around maintenance. Microsoft Software Assurance is unusual in that it includes vital rights governing usage, so if you do not renew on time or for the entirety of what you need, you could face some unexpected challenges.

An example is in virtualized environments, where an organization will often want to transfer licenses as it moves workloads around for disaster recovery purposes or to ensure service availability. If you allow Software Assurance to expire, you will lose your ability to do this, even when you have a perpetual license covering usage. There are similarly unexpected ramifications around desktop deployments too.

The worse-case scenario is that your organization would need to rearchitect its infrastructure in line with the changes to licensing entitlement. It’s worth saying that incidents like this are in­credibly rare, but we do encounter them on the odd occasion so they should not be overlooked.

These are just two examples of the nuances and peculiarities of Microsoft negotiations. For more information, including on how the Livingstone team can help support Microsoft deployments and navigate these renewals, please take a look at our Renewal and True-up resources below.

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