EA Platform Discount Decrease at Renewal Actually Translates to a 58% Increase in Cost.

Formula of the Month for October, 2012

Microsoft Licensing

Software Licensing Advisors Microsoft EA Formulas

The formula for October, 2012 works off of the Microsoft price list, and it’s simply a calculation of what a product should cost if the Platform discount doesn’t change, vs. what happens when someone fiddles with the discount at renewal.

To illustrate how it works, however, we’re going to take advantage of our August Formula of the Month, where we showed you how to calculate the underlying license price in a new Enterprise Agreement from the annual price of a product.

Then in our September Formula of the Month we showed you how Microsoft changes the discounts at renewal to bump up the underlying license price and therefore the cost of SA.

We used as our example the price of a Windows upgrade in an EA, at the A discount level.

To sum up our findings using those formulas, here’s what we found:

Price component Value
Annual Windows price (one-third of License, plus SA) in new EA

$78.00

Annual price x 3 years

$234.00

Effective License price in new EA

$125.81

Calculated annual Windows SA cost in new EA (29% of License)

$36.48

Actual annual SA cost in renewal EA

$52.00

SA cost increase at renewal ($)

$12.52

SA cost increase at renewal   (%)

43%

Now, let’s look at the platform discount. When customers purchase a “Platform EA,” they purchase a Windows upgrade, Office Professional Plus, and a CAL Suite (or their online equivalents) in their EA and they get a 15% discount on all three.

We’re going to use the Windows Upgrade again as our guinea pig to demonstrate how the platform discount changes when you renew your EA. Your Customer Price Sheet (CPS) may or may not break out the price of Windows in a platform separately from the platform price (it’s often shown as a Pro Desktop platform SKU), but you can always ask your reseller to break it out for you or you can go to Microsoft’s Product Licensing Advisor and get the EA prices of the Windows component inside a platform and without the platform discount.

Using the EA price list here’s what we find for a new EA. The discount percentage reflects the impact of rounding in Microsoft’s price sheets:

Price component Value
Annual price for Windows component alone

$78.00

Annual price for Windows in a platform

$66.00

Platform discount ($)

$12.00

Platform discount (%)

15.4%

Now let’s look at the same pricing in an EA renewal, where you are paying only for SA, since you covered the full license cost in your previous EA.

Price component Value
Annual price for Windows SA alone in EA renewal

$52.00

Annual price for Windows SA as part of a platform in EA renewal

$49.00

Platform discount ($)

$3.00

Platform discount (%)

5.8%

You can see that Microsoft collects an extra $9 per copy of Windows by reducing the platform discount from about 15% to only about 5% in a renewal. (So much for the “If you break the platform, you are going to lose your 15% discount” argument!)

Now, for our final trick here, let’s combine these two stealth increases—the increase in SA when you renew, plus the loss of two-thirds of the discount that customers get for purchasing a platform EA.

We’ll use some prices from the tables above to show that

Price component Value
Calculated annual Windows SA cost in new EA (29% of License)

$36.48

Platform discount

15%

Annual Windows SA cost in a new EA after platform discount

$31.00

Annual Windows SA cost in an EA renewal after platform discount

$49.00

Increase in Windows SA cost in platform renewal ($)

$18.00

Increase in Windows SA cost in platform renewal (%)

58%

In short, customers who renew an EA platform get stung by two stealth price increases. One bumps up the cost of SA by 43%. The other reduces the platform discount by 66%. The net result is a 58% increase that most customers aren’t aware of.

We won’t go through the calculations for the impact on the entire Windows/Office/CAL Suite platform (contact us if you want the gory details; they’re complicated by the inclusion of some subscriptions in the CAL suites), but we can tell you what the price sheet says.

A customer with 5,000 seats who licenses the Enterprise Desktop Platform in their EA will pay $281 per desktop, but if they had received a 15% discount instead of only 5%, their price would be $252.45, a difference of $28.55 per desktop. Multiply that “lost” discount by 5,000 desktops over three years, and the customer is short $428,250. That’s a big number.

What you can do about it…

Software Licensing Advisors is an advocate for Microsoft Customers. We combine world-class Microsoft licensing expertise with insider experience at Microsoft to save customers from stealth price increases and many other defects in Microsoft licensing. Give us a call at 1-866-825-3787.

And stay tuned, because next month we’re going to show you another formula that can help our customers understand volume licensing better and save money.

Past formulas are in our Resources page. (click here)

If you’d like to get further notices about the formula of the month, send us an email and we’ll add you to the Formula of the Month mail list or join our Twitter feed here: @MSFTAdvisors

 

Comments are closed.