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IT pros push back on Microsoft volume license deals

IT pros at TechEd 2009 question the value of multi-year Enterprise Agreements.

LOS ANGELES -- Discussions of volume licensing and pricing policies weren't on the official docket at Microsoft's largest IT conference here, but IT managers' concerns bubbled to the surface.

At a TechEd 2009 session on IT strategy this week, one IT pro asked a panel, including two Microsoft IT evangelists, why the company's Enterprise Agreements are so pricey. He said he had helped his former employer, a large Microsoft hardware partner, hammer out that company's EA.

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"The negotiations got quite contentious," said the attendee, who declined to be identified. "I'm not at liberty to say what we paid exactly, but it was tens of millions of dollars. You were one of our big cost drivers. What are you doing to get more efficient?"

Karen Forster, a director at Advaiya Inc., said many companies pay for more software than they end up using and should make sure they deploy and use it all. Advaiya is a consultant specializing in Microsoft technologies.

"Advaiya does a lot of business value assessments and we're finding people not using them to their best advantage -- it's like throwing money out the window," Forster said.

Others here said they'd like to buy just what they want from Microsoft and not invest in "shelfware" that's part of Microsoft's integrated stack vision.

Corporate IT scrutinizes maintenance costs, volume deals

In this economy, IT shops are scrutinizing the cost of volume, multi-year contracts that cover support and maintenance. It's hard for a cash-strapped IT manager to justify paying 20% to 29% of the license cost annually for support.

Oracle charges 22% per year for ongoing support and maintenance. Some experts said if you look at Microsoft EAs and related Software Assurance deals, the percentage is even higher. Support for desktops is about 29% of the software price; for servers, the number is more like 25%.

The CTO of a large Midwestern financial services firm said his company is pushing its software vendors to get maintenance and support down to 18% of the discounted license price. So far, he said, he's "batting .500 with Microsoft yet to go."

Directions on Microsoft analyst Paul DeGroot said that many companies trying to preserve cash flow may just let maintenance agreements -- which often run to tens of millions of dollars per year -- lapse.

"They realize that, 'hey, here's a place we can cut a million' and, unlike a lot of cuts that affect the business, such as laying off staff, nothing will happen…," DeGroot said. "If someone complains, you can give them a choice between paying their salary or buying them new software. I have a feeling how that will go."

No one expects the vendors to waver publicly. Upgrade and support revenue is hugely profitable. But all of them also quietly negotiate one-off deals with their big customers.

The CTO said if his company gets all its support and maintenance down by 4%, it will save $4 million per year.

Tony Wenzel, an IT manager for Newton, Mass.-based Atrius Health, said EA agreements are a big issue for all companies in these tough times. "You've got to be concerned with them now."

Another attendee said he took a complaint about his EA price to a Microsoft rep at the show. "He agreed it was too high and told me we should deal directly with Microsoft instead of going through a third-party partner. That would save us money."

New wiggle room in EA negotiations

Some say Microsoft, getting the message, is newly open to cutting better EA deals. "I'm hearing from some resellers that Microsoft has never been more willing to deal than now…. [That's] quite a change from a year ago [when] customers were complaining that Microsoft wasn't budging," DeGroot said.

"Microsoft has started offering early EA renewal incentives and discounts on volume software including virtually all of their servers," DeGroot added. "There's a terrific deal on Exchange and Exchange CALs, which are rarely discounted, where you can get a 35% discount. Since that includes [Software Assurance], you'll get the upgrade to the next version of Exchange out of it as well."

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