Today ― more than ever ― it’s critical to understand how to acquire technology in a manner that best protects the company’s budget. An important place to begin this conversation is with your Microsoft footprint.
Microsoft® technology is pervasive and represents a sizable investment for practically any organization. Understanding how to optimize this investment can be meaningful and, in many circumstances, provide tremendous financial gains.
Over the last several years, Microsoft has made a deliberate transition from its traditional Enterprise Agreement (EA) ― a multiyear structure, featuring large, upfront, annual payments ― to its new Cloud Service Provider (CSP) agreement ― which provides monthly subscription- or consumption-based invoicing. There are many complex differences between the license agreements.
When describing the financial flexibility of the CSP agreement, an easy example to use are professional sports:
Imagine a baseball team. Throughout the team’s season, the organization has 1,000 employees who require Microsoft technology. Under the traditional Microsoft EA, the team would make an annual payment for each of these employees. If each employee’s license cost was a hypothetical $120 per seat/per year, the total investment made by the organization would be $120,000.
It’s an easy calculation but the outcome is certainly not a good deal for the organization. In reality, a professional baseball team sheds half of its staff during the off-season. With the traditional EA, the organization would pay two times the market value for its technology (per seat) for half of the year.
This provides a structure where the company will only pay for seats actively using the Microsoft technology. In this case, if we take the annual cost per seat and reduce it to a monthly rate of $10 per seat/per month, the investment will be $60,000 while in-season and $30,000 during the off-season, for a total annual cost of $90,000.
Beyond the cashflow benefits of CSP, it’s also important to acknowledge the effective rate provided by the monthly program. In the case above, the effective annual rate is $90,000 ― or the equivalent of a 25% discount to the $120 per/per year rate provided under the traditional EA. Anything short of this level discount (on an EA) isn’t only a poor cashflow decision but also a premium price.
Today, the financial flexibility of CSP is becoming clear to organizations of all sizes. Initially, the program was released within the small and mid-market business space; largely providing companies the ability to scale up technology investments without significant, upfront capital outlays.
But with the recent pandemic everything has changed. In many industries, the impact to the enterprise segment has been significant and in some cases, such as travel and entertainment, layoffs of nearly 90% are not unheard of. The ability of a CSP agreement to immediately scale down the license footprint of an organization is a massive advantage.
Beyond providing subscription-based license management with technologies such as Microsoft 365™, the CSP agreement is also a powerful structure for cloud platforms such as Microsoft Azure®.
In the case of Azure, traditional structures generally require upfront financial commitments often tied to discounting. But much has changed and today’s savvy Microsoft cloud users are turning to CSP or other modern consumption-based agreements to pay for actual usage, more effectively preserving capital.
A final advantage of the CSP agreement structure is that it allows Microsoft partners to bundle support services within the acquisition of the technology. At Insight, we take advantage of this capability by including various cost optimization services along with the acquisition of Azure itself.
These cloud cost optimization services (bundled within the acquisition of Azure) are critical in today’s economy. By leveraging the support services included within the Insight CSP offering, our clients pay on a usage model (as opposed to paying upfront) while they reclaim wasted consumption, garnering a better return for their IT budget.
Largely speaking, moving to a CSP agreement can be a simple process. However, in some cases, it can be more complex depending on the current renewal date of a pre-existing agreement. Regardless, if you need help from an expert, Insight has the resources to make this happen for your organization, ultimately positioning your IT budget for its greatest impact.