February 27, 2012
Microsoft recently announced that it will change to its European currency pricing policy from July 2012, and the effect could be a 20% price increase for UK customers. It didn’t publicize the change, preferring to let its resellers tell their customers as and when the change affects them, so I thought I’d tell my readers what you need to know. Firstly, here is some background. Most global software companies have one master price list in their home currency and reset price lists in other currencies every year or even every quarter using then-current exchange rates. Microsoft has always taken a different approach, having set €, £, and other prices in 2001 and continuing to use the same exchange rate ever since. There are pros and cons to this approach:
· Pro: local prices are stable and predictable. In contrast, € and £ prices from other US-based vendors may rise or fall by 20% from one year to the next as the currencies fluctuate. (This is one reason why SAP’s revenue rises and Oracle’s falls when the € weakens against the $, as these price changes affect demand.)
· Con: European companies pay more than their US-based peers. This doesn’t matter so much if you’re only competing with domestic rivals, but global companies see and resent the discrepancies.
So what has changed? Microsoft will reset Swiss Franc and Pounds Sterling prices in July to align with € prices, based on exchange rates at the time. Microsoft will keep the prices aligned in the future by adjusting for subsequent exchange rate movements. The immediate effect is that £ prices will rise by about 20%, Swiss Franc prices will fall by the same amount (subject of course to what happens in the currency markets between now and then).
Forrester’s take. This is a reasonable move by Microsoft. There is no good reason why UK customers should pay less and Swiss companies more than their European neighbours. It is unfortunate that the former will see a significant rise, but it's merely an undeserved advantage disappearing. UK customers should blame our weak currency, rather than Microsoft, for the increase. Moreover, Microsoft has given plenty of warning so UK companies can pre-empt the increase. It would have been nice for European customers if Microsoft had also decided to align € and $ prices, but that is a more complex issue that deserves a separate discussion.
Existing EA and SA contracts are unaffected. These are three-year commitments that fix your prices at the start of the term, so the new prices won't affect you until you come to renew those agreements. For example, SA invoices for year 3 of agreements signed in 2010 will be at the same prices as the bills for years 1 and 2. Importantly, sourcing professionals with agreements ending between now and Microsoft’s year end will be able to renew them at pre-increase prices.
UK buyers with Select agreements should consider bringing forward any Microsoft purchases. Coupled with Microsoft sales teams’ perennial desire to maximize their Q4 numbers, buyers should be able to save 30% or more by buying in June what they would otherwise have purchased in September or December. The price difference may also swing the SA decision by increasing the saving against buying new licenses in four or five years' time when you next upgrade.
Swiss purchasers should threaten to delay deals unless they get the price reduction immediately. The local sales team still has to make its June number, despite the 20% price reduction waiting to take effect in July. The only way it can do that is by offering bigger discretionary discounts, in effect giving customers the equivalent of € pricing before it's officially available.
Bottom Line: Microsoft licensing is an increasingly complex topic. Deciding between programs, navigating the policies, and understanding how to get the best possible deal are all areas where education and independent advice can be valuable.
Contact Forrester if you’d like to know more, and take a look at our upcoming workshops:
Successfully Negotiating Your Microsoft Licensing Agreement March 13, 2012, Dallas, TX
Successfully Negotiating Your Microsoft Licensing Agreement March 29, 2012, London, United Kingdom