How Microsoft® Negotiates

Microsoft® is a formidable negotiator and invests extensive resources and time into preparing and managing an Enterprise Agreement (EA) negotiation. In this article, we will take you through the Microsoft® “internal” process, so you can know what to expect and be able to prepare yourself.

The Microsoft® negotiating team

The Microsoft® team consists of two circles: an external circle that interacts with customers and an internal circle that works ‘behind the scenes’. The external circle is comprised of an Account Manager, a licensing specialist, and a technical specialist, while the internal circle includes a Group Leader/Sector Manager and a Licensing Executive. In very large deals, a Senior Director or even the local GM may be involved.

Preparation stage

Microsoft® considers the renewal of the Enterprise Agreement as high risk. In order to reduce this risk, Microsoft® has created prescriptive guidance (known as the T-36 programme) outlining the activities that need to be performed over the three years of the Enterprise Agreement.

Microsoft® Account Managers are required as part of this process to begin preparing 18 months before the actual renewal of the Enterprise Agreement. The account manager during this time is expected to:

1. Tighten and reinforce the relationship with the customer.
2. Better understand your use of Microsoft® technology (in other words, to collect information on the usage of Microsoft® products).
3. To begin the process of upgrading and implementing the customer’s systems to the most advanced versions available in their agreement. (If the customer sees no value from their current agreement, there is no incentive to renew for another 3 years.)

The Account Manager is also instructed to identify non price concessions. It is therefore a good idea to start the negotiation process as early as possible to ensure you get the most out of the negotiation.

What is the best renewal scenario for Microsoft®?

Even though Microsoft® would take issue with what I’m about to say, let me say it anyway: Microsoft® loves customers that are under license at the time of renewal. This is the best leverage they have to “persuade” the customer to renew, emphasizing that customers need to be very careful which products and technologies they implement in the final year of their agreement.

The negotiation cycle (may differ from customer to customer)

1.   First meeting

At this stage, you reach an agreement on the list of products and product quantities for the negotiated deal. You should prepare this list well in advance as it will form your basis for negotiations. Don’t let Microsoft® define your needs for you.

2.  Initial proposal

Microsoft® will deliver an opening proposal, and usually the pricing will be from the standard price list. At this stage, you should present your financial analysis and define your targets, including what you hope to achieve in the deal.

3.   Second proposal

This will include an initial discount, and in most cases it is viewed as just the first round of price negotiations. You will need at least one more round to reach your target price.

4.   Third proposal

This may be presented by a Senior Manager, whose job is to reinforce the high level of Microsoft® commitment and the “special discounting” you have now received.

5.   Fourth proposal

Depending on the strategic importance of the agreement, this may or may not be offered. If it does take place, this stage will be conducted at a very senior level and will conclude the negotiations.

6.   Legal negotiations

Usually this happens at the end of the business negotiations, but I recommend incorporating the legal aspect into all of the negotiation stages.

7.   Signing of the agreement.

Summary

Pay attention to your renewal date and to “new” activity by Microsoft® in your organization. This is usually a sign that they are planning to renew or close an agreement with you. To maximize your leverage in the negotiations, you need to be aware of the agenda behind this extra attention. If you take your preparations as seriously as Microsoft® takes theirs, you’ll be faced with less surprises further down the track.