Organizations are constantly seeking better and more cost-effective ways to license with Microsoft. The decision whether to renew your Enterprise Agreement (EA) requires time and careful planning to achieve optimum results.

• Clients that go into their Microsoft software negotiations prepared with good asset management will make more informed licensing decisions and will spend less than those that do not.

• Preparation requires good asset management information that includes an accurate baseline and future technology requirements.

• Prior to negotiating with Microsoft, prepare an analysis of the software installed base and associated license entitlements. Include details on contract terms, such as license type, pricing provisions, use entitlements, version release levels owned versus those deployed (and in use) and quantities for each.

• Start the negotiation process at least three months (and preferably six months) prior to the expiration of your current agreement.

• In conjunction with demand management planning, create realistic financial scenarios for licensing costs that span at least six years (or, alternatively, two software refresh cycles) to determine the financial impact of any licensing decision you may make. This is particularly important when moving to cloud or subscription services.

• Consider renewing a Full Platform EA if you have standardized on a primary suite of Microsoft products, require the Windows 7 Enterprise features, or want to subscribe to Microsoft Desktop Optimization Pack (MDOP) and refresh your technology every four years or less.

• Consider renewing at a component level if you have mixed software requirements, or want to standardize on one or two of the three Enterprise Products (the desktop operating system [OS], an Office Suite and a Client Access License [CAL] Suite).

• Consider not renewing your Microsoft EA if you have mixed software requirements, have leftover or unused version rights from the previous EA, and plan to skip releases of software.

IT procurement professionals continue to struggle to negotiate effective contracts with incumbent suppliers where there is high dependency and lock-in. They are also looking to simplify their licensing arrangements and align contracts more closely with corporate IT goals. One of the more common questions Gartner receives from clients regarding Microsoft licensing is whether they should renew their EAs.¹ To answer that question and build a negotiation strategy, there must be a clear understanding of the options available at the expiration of the agreement, as well as the opportunities and risks of not renewing.

Microsoft made some significant changes in late 2010 to the EA license program that may make the decision more challenging (see the following sections: "Should I License a CAL Suite or Individual CALs?," "Enrollments to EA" and "Online Services"). Therefore, Gartner is updating its research on the issues to consider when deciding whether to renew a Microsoft EA to reflect current market conditions and new Microsoft offerings.

Microsoft's EA is a three-year agreement. At the end of three years, clients must decide if they want to renew as is, reconfigure the EA or walk away. This is not necessarily how Microsoft or its resellers will structure their sales proposals, so clients must request the options they want to investigate.

At the end of a client's first EA, the option is given to renew the EA for one year or an additional three years. Most clients know they can renew for another three years, but some are unaware that they may renew for just one (see Note 1).

Contractually, there is no differential in the price per desktop, per year between a one-year renewal and a three-year renewal. However, in negotiation, many clients have received better pricing by committing to a three-year renewal compared to a one-year renewal. In addition, in some cases, when Microsoft customers select a one-year renewal, they are told that they must renew it "as is" and are not allowed to remove any of the Enterprise Products (see Note 2). The one-year renewal option often appeals to clients that did not get new version rights to everything covered in their EA during their particular term. However, since Microsoft recently refreshed most of the technologies included in the Enterprise Products, new version rights would have been received, making a one-year renewal for that reason less likely. However, for organizations unsure of their technology road map for the next three years, a one-year option may be a suitable solution.

A second option available to clients entering into a three-year EA renewal is to swap in or swap out any of the products licensed within. For example, a client that has a Component EA (see Note 3) that does not include the desktop OS could choose to include it at renewal, if it wanted to take advantage of the Windows 7 Enterprise features or subscribe to MDOP. Alternatively, if a client has a Full Platform EA (see Note 4) and does not think it will need the next version of Office (or associated Software Assurance [SA] benefits), then it could choose to eliminate Office from the EA. Office is over 50% of the cost of a Full Platform renewal, so by removing it from the EA the client would save a significant amount of money in the short term. However, the client would be required to buy new licenses when it migrates the next version of the product for which SA was dropped. Therefore, determine the break-even point between buying new licenses compared to keeping a product in an EA. This analysis should include the value of SA benefits that would no longer be available and would have to be paid for (for example, e-learning or training vouchers) or done without. Keep in mind that some SA benefits (such as MDOP and roaming rights) are not even available outside SA. However, if the only SA benefit consumed is new version rights, you will see a financial benefit sooner than those organizations that use more SA.

When reconfiguring your EA, you would also be able to add or subtract Additional Products or online services. Microsoft has introduced a significant number of new products during the past three years that clients may want to include in their next EAs. For example, in late 2010, Microsoft added new products in Enterprise CAL (ECAL) Suite and removed certain functionality from the ECAL of Lync Server (formerly Office Communications Server; see Note 5) that may include some products that clients were licensing individually in their current agreements.

Conversely, if you find technology in your EA that has diminished in importance and may be targeted for elimination or a staged phase-out, then consider dropping it from the EA. In addition, if you decide that you no longer want to cover a product with SA for whatever reason, you may be able to drop that from your EA at renewal.

Of all your options, not renewing is the most significant, as it will have implications (positive, negative or both) that will ripple throughout your organization for years to come. If you do not renew your EA, then you could walk away with existing perpetual license entitlements (see "What If I Have an Enterprise Subscription Agreement?" below) and use them for as long as you like. For example, if you had a Full Platform Professional Desktop EA for 2,000 qualified desktops (see Note 6) that expires on 30 June 2011, you would have perpetual license rights to Office 2010, Windows Server 2008 CALs, Exchange Server 2010 Standard CALs and SharePoint Server 2010 Standard CALs, as well as client management licenses for System Center Configuration Manager. (If the corresponding server products were also covered under the previous agreement, then you also would have perpetual rights to them.)

You would also have perpetual license rights to Windows 7 Enterprise. However, those licenses are perpetual only for as long as you own the device that was covered with SA. Continuing with the example of 2,000 Qualified Desktops, if you retired 100 devices, then you would only have perpetual rights to Windows 7 Enterprise for 1,900 devices (unless you covered the 100 replacement machines with SA within 90 days of purchase). You would be able to use some, but not all, of the Windows 7 Enterprise features on the remaining 1,900 desktops for as long as you owned the SA-covered devices.

For any additional subscription or online services you have covered in your EA, if you do not renew or abide by any other requirements, then your only recourse is to deinstall the technology and stop using it. For example, MDOP is an add-on subscription service that conveys nonperpetual licenses. SA on the desktop OS is a prerequisite for subscribing to MDOP. Thus, if you do not cover the desktop OS with SA, then you would not be able to subscribe to MDOP and would have to stop using any of the MDOP technologies. However, consider whether everyone needs the features of Windows 7 Enterprise or MDOP. If only a portion of your installed base required those features or subscription service, then you could enroll just those devices in SA in a Select License or Select Plus Agreement.

Clients with Enterprise Subscription Agreements (EASs) have the same options available as they would in an EA (that is, renew, reconfigure or walk away). However, if you decide to walk away and not renew, then you would be required to stop using the software and deinstall it on expiration of the agreement, or buy perpetual licenses for the software you intended to continue using (when available). Buying out perpetual licenses in contracts signed in 2008 (and before) will typically cost 1.75 times the cost of each annual subscription, but that is not always the case. Therefore, check your specific contract to determine what the buy-out cost is. As with a perpetual EA, you can choose to renew just a portion of your EAS, as long as the renewal includes at least one of the three Enterprise Products.

When deciding whether and what to renew in your EA, evaluate your current situation regarding licensed products contained in your EA. Also, consider SA benefits associated with each product, in addition to the new version rights. However, beyond these general and product-specific considerations, there are also risks and opportunities that need to be evaluated (these are discussed in the sections "Opportunities When Not Renewing" and "Risks of Not Renewing").

Before determining whether to renew an EA, understand your current licensing environment. A robust software asset management (SAM) program will prepare organizations for their renewal strategies.

To begin, prepare an inventory of current license entitlements and licensed quantities. This information is available through the Microsoft volume licensing portal, but needs to be checked against purchase records for accuracy and product name changes, as well as the product use rights for any product migration grants or renewal options allowed through SA coverage. Customers with EAs expiring during 2011 will have the most current version rights for all the Enterprise Products contained in their EAs. If you have a perpetual EA (not a subscription one), then you have perpetual rights for these products, regardless of whether you deploy them during the term of your contract. For example, if you have Office 2010 covered in your EA, then you can choose to deploy it today, tomorrow or several years from now.

The only exceptions to this are the desktop OS (as described in "Walk Away" above) and subscription or online products included in your EA, such as the Forefront Security Suite, MDOP, Exchange Hosted Filtering or other online services. Because MDOP and other online services are subscription services, the licenses are nonperpetual. Thus, if you stop paying, then you can no longer use the products (unless you resubscribe to them in another Microsoft license program).

Compare your current license entitlements and licensed quantities with each product version being used. This enables you to determine whether new version rights for each product will be important to you. For example, if you are running Office 2003 and have current entitlements to Office 2010, then how likely is it that you will need another version of Office during the next three years? Keep in mind, however, that Microsoft is increasingly linking functionality of various server products to Office. Therefore, if you drop SA coverage and plan on using your current Office 2010 license entitlements for several years, any new server functionality tied to future releases of Office will not be available to you unless and until you purchase new licenses for the successor Office product. We have spoken to several clients that dropped Office from their EA after receiving rights to Office 2007, thinking that was all they needed. Three years later, they still have not deployed 2007 and are having second thoughts about moving to it, mostly because of political issues around deploying a product perceived as old.

Once you determine your current licensing environment, view it in line with plans for future technology deployments. An architectural and sourcing strategy is essential to structuring an appropriate EA. For each of the products contained in your EA, in conjunction with demand management input, review your organization's strategy for deploying new versions. This will enable you to scope your EA appropriately. It also will help determine whether it makes sense to include various products in an EA or to license them in another Microsoft Volume Licensing program, such as Microsoft Select or Open Agreements.

Finally, do not assume "business as usual." When considering your EA renewal, include finance and strategic planning groups in the discussions. Although they may not divulge corporate strategy, you may uncover information that could save the organization a significant amount of money later in the contract life cycle. This is particularly true in an environment ripe with mergers, acquisitions and divestitures. IT and business units should also be involved in the renewal planning, because they may be considering architectural changes (such as virtualization or server consolidation) or have new business initiatives (such as new CRM, sales force applications or outsourcing plans) that bear consideration in the licensing decisions.

Depending on when your EA expires, expected release dates for products covered in your EA could carry significant weight in your decision to renew. For several years now, Microsoft has been providing clients with interim releases (R2 releases), on some (mostly server) products which, although not new versions, contain enough new functionality that Microsoft requires SA on the server to access R2 functionality. For example, if you had an EA expiring 31 January 2010 and had SQL Server 2008 included as an Additional Product, and you decided to drop SQL Server from the EA (and not cover it elsewhere with SA), then you would not receive the rights to SQL Server 2008 R2. However, your SQL Server 2008 CALs would still be valid and would not need to be upgraded for the SQL Server 2008 R2 release.

Microsoft will continue to introduce interim releases that will require SA. The implication of this practice is that, for R2 releases, product road maps become less relevant. However, for planning purposes, we are including our estimates for upcoming releases. Table 1 shows Gartner's forecast for Windows, Office and other key server products.

For each of the products licensed in your EA, or for those under consideration for inclusion in an EA, compare your current state with your future state, and map that against these road map estimates to help determine whether to include a product in your EA, and whether a one-year or a three-year renewal makes sense. Keep in mind, however, that these are just estimates. Microsoft has missed release dates in the past and will likely miss release dates again. If your EA expires within six months of an estimated product release date, ensure that value is sufficient even if you do not get a product upgrade.

If you decide not to renew all or part of your EA, then you will need to have a plan for how you will license future requirements. Without a volume license agreement, you would be required to buy new licenses at full retail price. Therefore, ensure that you are enrolled in one of the Microsoft volume license programs, so that you do not have to negotiate for that agreement in haste and are not required to buy licenses at full price. Most customers have a Microsoft Select or Open volume license agreement for miscellaneous licenses that could be used for this purpose. Some clients believe they do not need any agreement, because they will use the OEM version of Office or the desktop OS. Keep in mind, however, that each user or device accessing Microsoft servers requires a CAL. Although you can use the OEM license, you would still need to license CALs, unless licensing under the per-processor license model (see "Would It Be More Cost-Effective to License Per Processor?").

On renewal, four things need to be reviewed when licensing CALs: type (User or Device), functionality required, whether per-processor licensing (where available) would be more cost-effective, and which CAL suite you should license (if any).

When first entering into an EA, you were allowed to select between User and Device CALs. While that decision may have been appropriate then, it may not reflect the ways in which you are currently accessing servers. Therefore, at renewal, clients are given the opportunity to exchange Device CALs for User CALs, or vice versa. There is no price differential between them. However, your price could be affected dramatically by changing between CAL types. For example, if you were licensing Device CALs for Exchange Server and now find that, with increased usage of mobile devices many users now have multiple devices, you may want to swap them out for User CALs; otherwise, you would be required to buy a Device CAL for each mobile device.

Therefore, if you have more devices than employees, buy User CALs. If you have more employees than devices, buy Device CALs. Programmatically, Microsoft will allow a mix of User and Device CALs. However, by having a mix of CAL types, strong asset management practices would be required.

In late 2006, Microsoft introduced a second level of CAL, stratified by functionality for Exchange Server, SharePoint Server and Lync Server. This means that, to access all the functionality in the products listed in Figure 1, you will need more than one CAL. In addition, functionality included in ECALs is subject to change. For example, in November 2010, Microsoft removed the "voice functionality" from the ECAL of Lync Server and added a third level of CAL to Lync Server, This functionality was previously included in the Office Communications Server ECAL.

Thus, on an ongoing basis, it will be extremely important for all customers to understand what functionality can be accessed by each CAL and whether or not the Core CAL or the Enterprise CAL Suite makes the most sense prior to negotiating for new or renewed Microsoft licensing contracts.

The Core CAL Suite has been a fixed suite of technology since 2001, when the BackOffice CAL was retired. Today, the Core CAL contains Windows Server CALs, Exchange Server Standard CALs, SharePoint Server Standard CALs and the client Management Licenses for System Center Configuration Manager. However, on 21 March 2011, Microsoft announced changes to the Core CAL and ECAL Suite. Beginning 1 August 2011, Microsoft will remove the Standard Lync Server CAL and Forefront Endpoint Protection from the ECAL Suite and add it to the Core CAL Suite.

This change may create a dilemma for those customers that are not using all the products included in the Core CAL. For example, if you were only using three of the four products in today's Core CAL Suite, the price of the bundle is still likely to be better than buying the individual components in a Select Agreement. However, going forward, if you were not interested in the Lync Server CAL or Forefront Endpoint Protection, the decision to license the Core CAL Suite may not make economic sense. Conversely, if you were considering the ECAL Suite because it contained the Standard CAL for Lync Server, you may be able to license just to Core CAL instead. Since the ECAL Suite is more than double the cost of the Core CAL Suite, this could potentially reduce your costs.

Evaluate each CAL Suite and the product functionality within each suite on its own merits, to determine whether the functionality you receive equates to the price you will be asked to pay. Next, determine whether that functionality is something you want to make available to all users or only to some. Programmatically, Microsoft will not allow customers to "break the bundle" of the CAL Suites within an EA. However, it has occasionally been done upon negotiation. Therefore, compare the cost of the individual components in a Select Agreement compared with the cost of the Core CAL Suite. Individual ECALs can be licensed separately for just some of your licensed base. However, if you step up the Core CAL to the ECAL Suite, unless negotiated otherwise, you must do it to your entire base. Look at the individual cost to license the functionality you need. You may find that if you want to use several of the items included in the ECAL Suite for everyone, then the entire bundle is less expensive than the components.

Per-Processor licenses are an alternative to CALs. Licensing on a Per-Processor basis would require a license for each active processor in a server. Per-Processor licenses can be used to license both external and internal users. With the exception of Windows Server, a Per-Processor license, you do not need either User or Device CALs for the particular product being licensed.

Only seven products can be licensed on a Per-Processor license model where CALs are not required:

• BizTalk RFID 2010.

• BizTalk Server 2010 Branch, Standard and Enterprise Editions.

• Commerce Server 2009 Standard and Enterprise Editions.

• Forefront Threat Management Gateway, Medium Business Edition.

• Forefront Threat Management Gateway 2010, Standard and Enterprise Editions.

• SQL Server 2008 R2 (licensed in Per-Processor mode), Datacenter, Enterprise, Standard, Workgroup and Web Editions.

• SQL Server 2008 R2 Parallel Data Warehouse.

As part of the EA renewal process, ask Microsoft to provide you with pricing for any of the above products where you have a high ratio of users to servers, and price it out to see if licensing on a Per-Processor basis is more cost-effective.

Microsoft's policies and use rights for virtualization vary by edition and by product pool (applications, servers and systems). For example, for Windows Server and SQL Server, if you purchase the Standard Edition of the product you have the right to one physical and one virtual machine per license. If you license the Enterprise Edition, you have the rights to one physical and up to four virtual machines. When licensing the Data Center Edition of either product you have unlimited virtualization rights as long as you license every processor in the server.

In addition, license mobility allows for certain server application licenses to be moved freely between servers within a server farm, effectively creating a concurrent licensing scheme. It reduces the number of server or processor licenses that customers need to buy to the maximum number they use at any time. This is positive news, but it requires asset management processes and tools to meter and record license usage.

Therefore, when reviewing your EA renewal, see if you can license fewer servers by virtualizing your application servers. Programmatically, Microsoft does not provide credits for any servers that may no longer be required. However, since a renewal is a negotiation, you may be able to negotiate for discounts on new licenses if you move to a per-processor license model for any applications as part of your virtualization initiative.

For the desktop OS, some virtualization rights are dependent on SA; specifically, the virtualization rights included in the Enterprise version of Windows 7 and two products contained in MDOP — Application Virtualization (App-V) and Microsoft Enterprise Desktop Virtualization (MED-V) — require SA to utilize. However, since the desktop OS is an Enterprise Product, when licensed in an EA you would be required to license all Qualified Desktops. However, some organizations have found that only a portion of their enterprise needs a virtualized desktop. Therefore, determine what your organizational plans are for desktop virtualization, including how many devices will require virtualization and in what period. By knowing this, you will be able to determine whether a Select Agreement or Enterprise Agreement will be a more cost-effective way to license the desktop OS and what SAM processes and tools are required to demonstrate compliance.

Microsoft continues to make changes to its licensing programs and products licensed under these programs. Several new offerings bear consideration when looking at your upcoming renewal. In particular, in October 2009, Microsoft introduced Enrollment Programs for various server products, and, in November 2010, it expanded its offering of Online Services available in an EA.

Enrollments are for various server products and considered "add-ons" to EAs. However, although they are add-on enrollments under an EA, you are not required to license anything else in your EA beyond the enrollment. Historically, the only way to license server products in an EA was to license one or more of the three Enterprise Products. Currently Microsoft offers two enrollments: the Enrollment for Application Platform (EAP), and the Enrollment for Core Infrastructure (ECI). Both enrollments offer three-year contract terms and follow a true-up process. However, there are some differences between the programs.

The EAP is the next generation of the Application Platform Agreement and has two product packages to choose from — Standard and Premium. New licenses included in the Standard offerings are discounted 15%, and those in Premium are discounted 40%. Customers can license any one or more of the products in either package. Customers can choose from an annual true-up or a true-up at the end of three years. What is interesting about EAP is that it enables customers to "get current" and defer the license cost for products not covered with SA as long as they stay in the program. For example, if you had 50 SQL Server 2000 licenses not covered with SA and wanted to move to SQL 2008, you would be able to move those 50 licenses into the EAP at just the cost of SA. Because you would only be paying for SA on those 50 licenses, they would be nonperpetual and, to continue to use them, you would be required to keep paying in the EAP or buy perpetual licenses at a predefined rate. All new licenses added to the EAP would include the license cost and SA. 

ECI contains three different Core Infrastructure Server Suites with server-side licensing: Datacenter, Enterprise and Standard. Product use rights vary by edition. ECI was designed to enable Microsoft customers to manage their core infrastructure more efficiently. However, to do this, Microsoft altered the licensing rules for certain products included in the enrollment. Specifically, when licensed in the ECI, Windows Server Standard and Enterprise Editions are licensed by processor, not by server. Windows Server CALs are still required. System Center is also licensed by processor and includes the server management licenses for Data Protection Manager, Operations Manager and Configuration Manager. The Data Center and Enterprise suites also include Virtual Machine Manager.

To encourage clients to license under this enrollment, Microsoft is discounting the suite prices by 20%, depending on the configuration. Unlike the EAP, you are not required to license all your Windows Server products in the ECI. Before enrolling, determine whether the cost of the bundle and the associated change in licensing model makes sense based on your organization's plans for technology deployments. Organizations using two or more of the products contained in the suites should consider licensing one of the ECI suites to reduce costs.

Microsoft continues to expand its online service offerings in an effort to transition more of its customers to the cloud. Some of the recent offerings include Office 365 (O365), Windows Intune, the Windows Azure Platform and Microsoft Dynamics CRM Online. We believe that for EA customers, O365 will be the most relevant at this time.

O365 is the next generation of Business Productivity Online Standard Suite (BPOS), and will be available in Microsoft EAs during 2H11. For customers that have EAs up for renewal prior to the release of O365, Microsoft has issued an amendment to its Enterprise Agreement enrollment that enables current customers to reserve the right to subscribe to O365 when they are ready to move to the cloud for software solutions. (This amendment is also available for customers midterm in an EA.)

O365 recognizes that different people within an organization have different work profiles and requirements. While the EA is still an enterprisewide commitment, O365 allows organizations to match user requirements with technology deployment (for example, professional and shift workers will require different technology stacks). Microsoft does not require O365 and other cloud offerings to be licensed companywide. (For example, a Select customer can obtain O365 licenses through the updated EA without making a companywide commitment. For cloud-only licenses, the only requirement is a minimum quantity of 250 users.)

But O365 is licensed a bit differently than BPOS. When customers licensed BPOS in an EA, they were required to license either the Core CAL or ECAL Suite. With O365 there is no such requirement. Therefore, Microsoft has introduced CAL Suite Bridges for new customers looking to license O365, which include certain access rights included in the Core CAL or ECAL Suite but not in O365. Existing BPOS customers will be able to migrate to O365 up to one year after its release.

Whether you want to license O365 or other Microsoft online services, thoroughly investigate use rights, service-level commitments and data security precautions for each product under consideration. For additional information on cloud licensing protections and considerations see "IT Procurement Best Practice: Nine Contractual Terms to Reduce Risk in Cloud Contracts." For additional information on O365 see "Microsoft Office: Buy It or Use It From Office 365 'in the Cloud?'"

Microsoft will routinely offer promotions on various products within the EA. Details of current promotions can be found at www.microsoftincentives.com.

Although it is not an official promotional offering, we continue to hear from clients that Microsoft is offering discounts to certain clients that commit to renewing their EAs or ESAs early. The discounts and how they are applied will vary by client. To get the discount, clients just need to "commit to renew" 30, 60 or 90 days early. Your renewal date will not change, it just gives you the discount and Microsoft the opportunity to move on to another client without protracted negotiations. While the discounts may be attractive, do not rush into a decision to renew your EA just to get the "early commitment" discounts. Take your time. The decision to renew your EA (or not) carries risks and opportunities that need to be assessed before making any commitment.

One of the benefits of an EA is the ease of administration associated with the EA compared to other license programs. In an EA and EAS, you are counting Qualified Desktops, or, in the case of CALs, you can elect to cover (and count) Qualified Users (see Note 6). In other Microsoft license programs, you are required to count licenses, which could again increase the time it takes to manage software licenses. In addition, with the perpetual EA the annual true-up option allows you to submit orders annually for products included in the agreement, whereas in a Select Agreement (and an EAS) you are required to submit an order in the month of acquisition or, with an Open License, prior to using the license. Depending on the frequency of software buying, the administrative burden associated with ordering could increase. Budget for this in any cost models used to support your licensing decision.

Gartner does not recommend purchasing an EA solely to avoid administrative tasks. However, having adequate SAM processes in place is still important to stay in compliance and ensure that future negotiating leverage is not lost.

This is an important consideration for many because of their current financial situations. EA and ESA renewals will be obligating your organization to another one- or three-year financial commitment. If you enter into the renewal, you are making a commitment to make predetermined payments and, in the case of a perpetual EA, annual true-ups for desktops and other products added during the year. Although in a perpetual EA Microsoft does not programmatically allow organizations to true-down (other than for certain online services), in practice it will often work with clients to accommodate their changed circumstances because of a head count reduction greater than 10%. In addition, Microsoft has also started programmatically offering clients extended payment terms and structured payment terms. Therefore, if cash flow or financing is a current concern, ask Microsoft how it can help structure a deal that will meet your financial requirements. In the case of an EAS, you are allowed to "true-down" as long as you do not go below the number of Qualified Desktops or Qualified Users you enrolled with.

Contractual protection or the lack thereof is of particular concern during a renewal. Many organizations have made side deals with their Microsoft representatives or Enterprise Software Advisors that have not been appended to the contract. For example, some clients have been told by their PC OEMs or their Microsoft resellers that they can buy the Home Edition of Office and then use their Volume License media to reimage the PC with Office Professional Plus. Their OEMs or resellers have told them that they have a "special deal" with Microsoft and that what they are doing is legal. It isn't. Regardless of what your OEM or your Microsoft representative promises, unless you have it in writing, signed by Microsoft and appended to your contract, you will likely be facing a compliance issue in the future.

If you look at the EA contract language, Microsoft is quite clear that no changes can be made to the contract without having an amendment signed by both parties (Microsoft and the client) and then added to the official contracting detail. Some clients find it acceptable to have a deal blessed with a nod and a wink, only to regret that decision later when the person nodding and winking is no longer responsible for their accounts.

Beyond that, the contracting documentation specifies the software use rights. While Microsoft does a good job of providing public information on some of the contracting documents (such as the Product Use Rights document² and the Product List³), the definitions of certain terms or nondefinition of other terms has caused many clients (and Microsoft) concern. Therefore, it is essential to define any particular terms that may affect your usage and, ultimately, your costs.

In addition, look at any of the other Microsoft contract terms and conditions that may inhibit the way in which you use and deploy Microsoft technologies. We have seen many client contracts over the years that have contractual concessions based on the ways in which they use Microsoft technology, or exceptions specific to their organizational situation. Many clients believe that you cannot negotiate contract terms and conditions with Microsoft, but you can. However, to get those concessions, you need to go in with a specific business case you are trying to address by asking for the concession. Organizations that go into a Microsoft negotiation with a laundry list of contract terms and conditions that "Gartner said we should get" or what some other consulting firm advises will be less successful in getting any concessions at all.

Companies that elect not to renew their EAs will reap immediate cost savings and could in essence take a holiday from paying for maintenance on the current installed base. For each year you stayed out of the EA, you would continue to save.

If you elected to renew your EA, but only at a component level, then you would still save money. However, the renewal cost of the remaining components would increase by 5% because you would lose the Full Platform discount. In addition, you would lose the 15% Full Platform discount for any new Qualified Desktops or Qualified Users added to the EA.

Understand, however, that these savings will evaporate when you need the next version of a product that is no longer covered with SA, because you will have to buy it as a new license. Therefore, consider your future-state technology environment.

Although this may seem counterintuitive, by walking away from your EA or renewing for an amount significantly less than the current agreement, you may increase your negotiating leverage with Microsoft. The reason for this is that Microsoft is particularly desirous of the annuity revenue stream associated with SA. If a client chooses to license through a Select Agreement, then it can elect not to subscribe to SA when it buys licenses, whereas in an EA or an ESA, SA is a mandatory component. We have had some clients report that, several months after they discontinued their EAs, they were courted by Microsoft representatives with an EA that was more financially attractive than the deal from which they walked away. Although there is certainly no guarantee that, if you walk away, you will get a better deal, it is within the realm of possibility and bears consideration. We have, however, spoken with clients that negotiated hard with Microsoft and expected it to come back with a better deal, and it did not. Therefore, you must be willing to walk away, or be prepared to license in another program.

Whenever there is competition in the market, there is the possibility of price decreases. Perhaps the biggest potential opportunity could come in the form of price declines for the desktop OS and Office. If, during the next few years, Microsoft experiences additional competition in the desktop space, then the cost of those products may decline.

Although not renewing an EA can give you immediate cost savings, dropping an EA may cost more in the long term, depending on when you need to move to the next version of Microsoft products. At that point, you would need to buy licenses for the new version. Thus, consider when you will need those new licenses. For some clients, getting funding for new licenses after paying little to nothing for two or more years can be challenging. So, before walking away, perform an analysis to determine at what point you will need to buy licenses for the next version. In most cases you will have to stay away for five years, thus saving five years of renewal rates to recover the cost of a new three-year EA.

When you license through a direct EA (see Note 7), you have a direct relationship with Microsoft. If you dropped your EA and licensed new requirements through a Select Agreement, then you would no longer have a direct relationship with Microsoft and would be required to work through a reseller for additional product requirements. Although this may not be a big issue for some clients, for others it could mean receiving considerably less attention and the loss of other benefits they may have taken for granted in the past. For example, some clients with EAs have been able to negotiate for participation in Executive Councils; to meet with Microsoft senior executives; and to receive early previews of product road maps. It is likely that, without an EA, these benefits would not continue.

For clients enrolled in an EA, prices are fixed at the time of initial enrollment; the prices of any products contained in your initial order will not increase during the term of the agreement. For example, if you signed an EA in January 2010 for the Office Professional product, then you locked in prices for three years that were 5% less than what they would have been for Office Professional Plus in May 2010. Without an EA, that 5% price increase would have been passed on to you the next time you purchased a license for Office. However, the price of new or renewal EAs did not increase from 1 October 2001 until November 2006 — a full five years without a price increase. The same cannot be said for all the individual products released during that same period and purchased through the Select or Open License programs.

Another risk of not renewing an EA is the increased potential for an audit or SAM Engagement. As long as a client is in an EA, it is, in most cases, assumed compliant provided it has met the annual reporting requirements. Customers who elect not to renew their EAs no longer have the option of reporting Qualified Devices or users annually and must report all individual products added monthly under Select, or prior to use under Open.

Some clients have reported that, when they advised Microsoft of their intention of nonrenewal, their Microsoft representatives suggested that they would likely be considered candidates for a voluntary SAM engagement, conducted by one of Microsoft's business partners. To many clients, this seemed like a veiled threat of an audit. Although the SAM engagement is not an audit, the expected outcome is that, if you are found to be out of compliance, then you are required to license any shortfalls. However, even companies that have renewed their EAs have been invited to participate in a SAM engagement. The prospect of a SAM engagement or an audit should be of minimal concern for companies with good SAM practices. In addition, because Microsoft SAM engagements are voluntary, clients have the right to decline. However, Microsoft, at its discretion, may validate the customer true-up data submitted through a formal product deployment assessment

If your organization has negotiated for any customized contract terms and conditions, unless they were incorporated in the Master Business Agreement (which is a perpetual document), then those use rights will expire with the expiration of your EA. For example, if you had a Full Platform Professional Desktop head-count-based EA that licensed 5,000 employees, but your environment had 8,000 devices, and if you did not renew your EA, then you would walk away with perpetual license rights to 5,000 copies of Windows 7 Enterprise, Office 2010 and Core CALs. This could create an immediate out-of-compliance situation — the shortfall between 5,000 employees vs. 8,000 devices. Of course, without an EA, you would have the secondary portable use rights afforded to you in the Microsoft Product Use Rights document. This right enables you to load a copy of Office onto a secondary portable device (such as a laptop), assuming both devices are for the exclusive use of the same user. Therefore, evaluate the value of each contract term that you will lose.

For the most part, SA benefits cease on expiration of the EA (see Note 8). Table 2 shows an excerpt from the March 2011 Product List, detailing SA benefits byproduct pool.

Of particular concern for companies with an Office Suite, or any other covered desktop application previously licensed in their EA or ESA, is the loss of Home Use Program rights (assuming you took advantage of those rights). According to Microsoft contract terms, if your EA or ESA expires (and SA is not renewed in some other manner), then you are required to inform your employees to deinstall and discontinue use of any affected products. However, Microsoft stipulates in the Product List (a part of the Microsoft contract documents) the following:

• "Customers are not responsible for their individual employees' compliance with the Home Use Program end use license terms. Those terms are between Microsoft and the customer's individual employees. We do require that customers limit the Home Use Program access to employees and inform employees of when they should discontinue use of the Home Use Program software in conjunction with a lapse in Software Assurance coverage or employment termination."

Before deciding whether to renew an EA, examine each of the SA benefits, and check your use against them. Ensure that you take advantage of any benefits you deem valuable before they expire. For customers with a Microsoft Premier Support Contract, this would include converting any 24/7 Problem Resolution Support into Premier Problem Resolution Support incidents or hours.

As mentioned earlier, an EA provides clients with ease of administration, since you are counting Qualified Desktops and Users rather than licenses, and, in the case of a perpetual EA, annual true-up orders. In contrast, in a Select or Open Agreement, you must create and submit orders for products monthly. Thus, if you ordered new products monthly, both with and without SA, the total volume of transactions can be burdensome. We have spoken with several large organizations that returned to an EA mere months after walking away due to the increased administrative burden associated with managing other license programs.

For everyone:

• Contact your Microsoft value-added reseller, large account reseller or Enterprise Software Advisor. Ask for a briefing on new products and license models and how they will affect you in your environment from a technology, licensing and financial perspective.

• Take your time. The decision to renew, reconfigure or walk away from your EA carries risks and opportunities. Evaluate your options from a business, financial and technological perspective. Start the negotiation process at least three months (and preferably six months) prior to the expiration of your current agreement. To renew, you must submit a renewal order within 30 days after the previous term expired. If you cannot make a decision within that 30-day window, then ask Microsoft to provide you with a 30- or 60-day extension.

• Analyze information from your SAM program. SAM is an essential ingredient to effective software procurement. Before beginning negotiations with Microsoft, analyze the established software installed base and associated license agreements, as well as the integrated hardware and software growth plan. Remember that not all users are created equal — some may require advanced functionality, while others may require only basic functionality. By understanding use statistics and requirements, you will be able to license only what you need. You may already own many of the licenses you need.

• Create realistic financial scenarios. These financial models should span at least six years (or, alternatively, two software refresh cycles), so that you can determine the financial impact of any licensing decision. Your Enterprise Software Advisor or large account reseller can provide some assistance in this task.

• Evaluate SA benefits. Remember that a benefit is not a benefit if you do not take advantage of it. Determine which of the benefits are valuable to you and which are "nice to have." If new version rights are the only valuable benefit you find in SA, then you must model your environment to determine what the effect will be if Microsoft doesn't release new versions during your three-year contract term.

• Take advantage of all SA benefits before the expiration of your agreement. Benefits, such as 24/7 Problem Resolution Support, Training Vouchers or Packaged Services, not consumed in the expiring agreement will not carry over to the new agreement.

• For each of the products licensed in your EA or for those under consideration for inclusion in an EA, compare your current state with your future state, and map that against product road map estimates to help determine whether to include a product in your EA and also to help determine whether a one-year or a three-year renewal makes sense.

• For each product you license, determine if it is more cost-effective to purchase the license only in a Select Agreement (or other licensing vehicle), or if SA would be more beneficial.

• If new version rights are the only valuable benefit you find in SA, then you must model your environment to determine what the effect will be if Microsoft does not release new versions during your license contract term.

• Reassess your CAL strategy. Understand what functionality the standard CAL can access and what additional functionality will require you to buy the ECAL. Otherwise you risk finding your organization out of license compliance, losing negotiating leverage and incurring significant additional licensing costs as a result.

• Model the cost of enterprisewide EAP against the cost of licensing each product in the traditional way in an EA and against a Select Agreement with and without SA.

• When considering Microsoft online services, thoroughly investigate use rights, service-level commitments and data security precautions for each product under consideration. Ensure that all hyperlinks contained in the contracting and SLA details are incorporated by reference into your contract.

For clients looking to renew their EAs:

• If renewing your EA will require the signing of a new contract or a new Microsoft Business and Services Agreement (MBSA), ensure that you have previously negotiated terms and conditions carried over into the new agreement. In addition, Microsoft has made changes to the EA and ESA contract over the years. Therefore, evaluate the new contracts to make sure you understand and agree to any changes.

• Remember that your SA benefits reset at renewal. Make plans to take advantage of your refreshed SA benefits.

For clients looking to walk away:

• Establish an alternative means of acquiring new licenses. Do not wait until you need new licenses before arranging for an alternative Microsoft volume-licensing program.

• Ensure you can withstand the scrutiny of a SAM engagement or an audit. Microsoft has several tools designed to facilitate license management. For example, it has the Microsoft License Statement, which enables customers to obtain their Microsoft volume license statements through Microsoft's volume licensing portal. Other Microsoft-provided resources can be found at http://www.microsoft.com/sam.

• Plan to stay away for at least five years. Unless the decision to walk away from an EA is based on short-term cash-flow considerations, plan to stay out for five years to offset the risk of buying back in at a new license price too soon. However, if during that five-year period your organization's business, financial or technological requirements change, re-evaluate the decision to stay out of an EA.