analysis Several factors have combined recently to make a number of Australian organisations reconsider their Microsoft Enterprise Agreements (EAs).
IBRS advisor Joseph Sweeney (Credit: IBRS)
The first is the global economic crisis. With Australian firms bracing for a downturn, if not recession, IT managers are rightly concerned that their IT budgets will be constricted in the coming year. Long-term contracts, such as Enterprise Agreements, are an attractive target for short-term cost-cutting, since they represent a large and highly visible dollar value.
The rationale is that if the organisation is not upgrading to the latest products, then why pay for it year after year?
At the same time, Vista's slow take-up and XP's continued dominance in the minds of business managers has prompted many to question the value of Enterprise Agreements (or more correctly, the Software Assurance component of Enterprise Agreements).
The rationale is that if the organisation is not upgrading to the latest products, then why pay for it year after year? In addition, organisations consider Microsoft's EA as a form of software maintenance that is high by industry standards: around 29 per cent for Microsoft applications and 25 per cent for Microsoft servers, as compared to 23 per cent for SAP.
Finally, Microsoft has a licensing scheme that is out-of-date with regards to how applications are deployed. Despite a move in the market to virtualisation of both servers and desktop systems, Microsoft dogmatically retains a hardware-based licensing scheme for its personal productivity products. The market believes that Microsoft will alter its licensing model sooner rather than later, which casts uncertainty over signing long-term Enterprise Agreements.
Despite the above, there are some very real dangers to consider before discontinuing an Enterprise Agreement.
Firstly, under EAs, many organisations have not needed to be as rigorous with regards to software asset management, which itself has significant costs. As a result, it is highly likely that pockets of undocumented installations are present.
While under an EA, organisations have a great deal of flexibility to address these potential installations "true-ups" retrospectively. Once the EA is terminated, such undocumented installations become a legal and financial liability should (and when!) a Microsoft audit occur.
Secondly, under the Software Assurance (SA) aspects of an EA, many organisations have adopted "home use" rights. Once the EA and SA are terminated, the home use rights disappear, yet few organisations have the capability to discontinue the home licences.
Thirdly, many organisations have negotiated "special dispensations" with Microsoft as part of their EA. Such dispensations include interpreting the "home use rights" mentioned above to run MS Office products in virtual desktops, regardless of the underlying hardware or its location. Another example is Exchange and Server client access licences (CALS) for mobile devices, which Microsoft has been known to bundle as part of EA agreements.
Such special dispensations are as varied and complex as the businesses covered by EA. However, these dispensations have rarely been formally documented and even where they have, they will certainly be terminated along with the EA.
Lastly, another problem area is where clients have used the EA's "cold standby provisions" to licence disaster recovery facilities at no incremental cost. Once an EA is terminated, all servers at these centres must be purchased as standard licences.
An organisation must expect that it will be audited once its EA has ended. This is not to say that Microsoft vindictively targets organisations shortly after terminating such agreements (and we have seen no evidence that this is the case), but the reality is that large organisations that have recently terminated such agreement are far more likely to be "out of spec" with regards to Microsoft licensing, largely because Microsoft has been more flexible to them in the past. As a result, the financial risks relating to software licensing are at their highest in the months after exiting an EA.
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Thanks, great article. One thing to add is for organisations to be wary of the profit motives at play with your agreement. The person selling you the software is not necessarily the best person to advise on the best deal. (This sounds like an obvious statement but it is a common misconception)
Martin Thompson
The ITAM Review
www.itassetmanagement.net