97% of the Fortune 500 rely on Microsoft software and are frustrated by rising support costs and falling quality.
Inflation is at multiyear highs, leading many CFOs to look for costs to cut. As Premier is being retired, analysts have identified Microsoft Unified Support as a significant cost reduction and avoidance opportunity in 2022.
In 2022, Microsoft Unified Support’s falling quality will intersect with a faster growing cost curve accelerated by inflation. That intersection is the decision point for third party Microsoft support according to IT research analysts.
Audience: Sourcing, Procurement and Vendor Management | CFO | CIO
Microsoft Premier Support End of Life (EOL) is June 30, 2022, which aligns with Microsoft’s fiscal year end. The Microsoft Enterprise Support Lifecycle provides consistent and predictable guidelines for support throughout the life of a product, helping customers manage their IT investments and environments while strategically planning for the future.
MSFT Premier Support is the consumption-based support model where enterprises buy the number of support hours they anticipate they will use in the following year. In general, Premier most closely maps the support spend to an organization’s specific Microsoft technology support requirements.
Once Microsoft Premier Support is retired on June 30, 2022 any remaining Premier Support subscribers will be transitioned to the new Unified Support model. MSFT Unified Support is the new on-demand support model which covers the entire organization and all Microsoft technologies.
CIOs and IT Leaders need to understand what happens when their Premier Support ends. Procurement and Sourcing Leaders tasked with IT cost optimization and future cost avoidance should explore alternatives Microsoft Unified Support. Significant cost savings is possible.
As of February 2022, Software Assurance Benefit (SAB) Problem Resolution Support (PRS) credits have been retired and are no longer available to offset Unified Support transition costs.
The End of Life date of June 30, 2022 for Premier Support is currently not applicable for government organizations, academic, and non-profit institutions who have not yet transitioned to Unified Support. More information on the end of sale date for this segment will be shared later in 2022.
Some of the actions IT leaders took during the early days of the pandemic have contributed to technology supply and service challenges that their organizations now face as demand recovers.
“74% of CFOs are now concerned with the prospect of lower profitability because of margin pressures.”
— Gartner Research
Many CIOs are responding to early input price inflation by passing on technology costs to customers and failed to make long-term structural changes, such as investing in technology suppliers to increase efficiency and improve costs. The result is they are now faced with eroding margins as they pay higher prices for IT salaries and services as demand has surged.
Less than a quarter of CTOs have pointed to innovation in their product lines to mitigate rising costs, while just 8% said they had made long-term capital investments in technology suppliers to improve digital efficiencies.
Investing in technology in the face of inflation, not scaling back, can reduce the cost of doing business.
In 2021, 60% of organizations were experiencing wage inflation. Since then, mentions of inflation on earnings calls have increased eightfold. There’s little question that inflation will be a big theme in 2022 or that it will present challenges.
When faced with challenges that could harm profitability, the instinctive CFO response is to reduce costs near-term or delay spending until inflation subsides.
In many areas, the instinctive approach to control costs will be the right one to mitigate inflationary margin pressures. Simply trying to spend your way out of inflation is not going to work.
However, digital initiatives should be seen through a different lens. Well-planned and implemented digital initiatives must have a long-term deflationary effect on business costs and, subsequently, the price of products or services.
“We call this digital deflation — investing in technology to permanently reduce the cost of doing business.”
– Alexander Bant, VP Finance Practice, Gartner
Digital investment is not the only way that you can mitigate inflationary pressures, but it may be a route you haven’t considered. Gartner experts recommend a two-pronged approach to this:
CFOs must try to lead the C-suite to drive a unified enterprise digital strategy. Inflation can be a catalyst for organizations to drive key digital and cost reduction initiatives across the whole business.
Enterprises are leveraging AI to identify opportunities to reduce spend and better optimize their IT expense management. Gartner, Accenture, and IDC have identified Microsoft Unified Support as a significant cost reduction and avoidance opportunity for their Fortune 500 and Global 2000 clients.
Consumption-based vs. As Needed
Premier Support is a consumption-based model. You buy the number of hours you think you will need in a given year. Overall, most Sourcing, Procurement and Vendor Management (SPVM) buyers feel that Premier gets them close to their actual needs most of the time. Unified Support is an as needed model. The issue being that some SPVM buyers and organizations don’t need support for all Microsoft products and cloud services – they simply don’t use all of them. As a result, they can’t justify the significant cost increase or multiple of moving from Premier to Unified.
Unified Support’s unlimited Microsoft product support initially looks attractive but often results in significant cost increases for enterprises over time. Unified Support is forecasted to cost 2-5x more than Premier over the next 5 years and a 4-6 % increase in most Enterprise Agreements (EA) at renewal.
“Unified Support costs are based on SA spending AND spending on online services AND money that would be spent on SA for any product which was purchased over the last 5 years without SA!”
— Michael Silver, Gartner Report: Microsoft’s Unified – Some Orgs Will Now Pay for What Was Free
For some enterprises, IT Procurement leaders are able to absorb the 12-15% increase during the year 1 Unified transition from Premier. They may even look the other way for year 2 and absorb that 10-12% increase. But by year 3, many are faced with an effective 30-45% increase that shows no sign of slowing. Looking for an alternative to Microsoft Unified by year 3 is a Procurement priority since it results in significant immediate cost savings and future savings.
Microsoft Third Party Support Market Landscape
Third party support providers offer both cost-cutting and cost avoidance opportunities for organizations to reduce current and future year operating expenditure (opex) spend and budget. These capabilities should be evaluated as part of a feasibility study to analyze cost savings opportunities to reduce the rising maintenance and support fees from Microsoft.
Evaluate Third-Party Support to Help Fund Future Innovation
As software vendors focus investments on new cloud platforms, current, robust licensed applications receive less investment and fewer resources dedicated to support.
The significant savings from third-party support allows customers to fund digital transformation projects that they may be unable to deliver on while under vendor support. Customers can potentially move more quickly to innovate by removing the overhead and burden of vendor support.
Determine if Your Organization is a Good Candidate for Third-Party Support
Procurement, sourcing, and vendor management professionals can use some standard rules of thumb to determine the fit of third-party support for their organizations. Companies that typically move to third-party support do so to address one or more of three primary circumstances:
Migration: They are migrating from an on-premise environment, i.e., MSFT Exchange, to a cloud-based environment, i.e., Office 365. The third-party support vendor maintains the existing environment until the migration is complete. The customer gets excellent support and saves at least 50% on maintenance fees that can be redirected to fund the migration or another initiative.
Financial Relief: They need either short-term financial relief or are in deep financial distress. Third-party support is a smart way to achieve immediate cost savings that can be dropped to the bottom line. Interestingly, companies that are newly funded by private equity firms are often mandated to reduce costs fast, thus are also prime candidates for third-party support.
Innovation: Today’s fastest growing driver of third-party support is the desire to innovate, often spearheaded by a journey to the cloud. Companies are adopting third-party support to go in “sustain” mode for their on-premise applications. The money saved and additional time earned enable smarter and faster innovation. These companies are perfectly content with their functional and stable on-premise applications and choose a third-party to maintain performance, security, and interoperability while they redirect the dramatic savings towards hybrid cloud solutions.
Organizations should, at a minimum, negotiate all renewing vendor agreements to include price caps. Better yet, enterprises should seek out multi-year vendor agreements to insulate themselves from inflationary driven price increases.
In some cases, no price protection exists for ongoing maintenance and support in vendor contracts. In such cases, particularly with the three to five year term multi-year Microsoft Enterprise Agreements (EA) or Unified contracts, there is high risk of escalating maintenance and support costs or end-of-support announcements during these multiyear terms.
If there is no price protection language in your Microsoft contract, or if the price increase protection is higher than the current consumer price index (CPI) rate, third-party support services should be evaluated.
The top 4 enterprise software platforms are SAP, Oracle, Salesforce, and Microsoft.
If you use Microsoft Unified Support then you have limited enterprise software integrations available for identity and ITSM. However, if you explore third-party Microsoft support providers you will find an expanding list of integration options including Okta and ServiceNow.
Okta is the world’s number 1 identity platform for enterprises to secure digital interactions and accelerate innovation. Gartner ranks Okta and the leader in access management ahead of Ping and Microsoft. Forrester ranks Okta the Leader in Identity as a Service (IDaaS) for Enterprise. Okta integrates seamlessly with US Cloud.
ServiceNow is an 8-time Gartner Magic Quadrant winner for IT Service Management (ITSM) and the gold standard for enterprise helpdesk and incident management. Core integrations include: SAP, Oracle, Okta, Jira, Cisco, Adobe, Salesforce, Slack, and US Cloud.
“Higher Microsoft support costs and falling quality are driving a Unified exodus. By switching to US Cloud, procurement and IT leaders are able to protect budgets and make investments that create competitive advantage and drive enterprise growth.”— Robert E. LaMear IV, CEO, US Cloud
Advantages of Using Third Party MSFT Support
There are several advantages to using a third party Microsoft support provider. Advantages include economic, operational efficiencies, and overall quality of the support experience.
Once a feasibility study is completed and the organization has decided to engage with a third party support competitor to Microsoft, substantial opex savings opportunities include:
Reduce software budgets – specifically software maintenance (support) profit and loss (P&L) operating expense (opex). Average annual savings is typically around 50% for larger organizations when compared to the Unified Support pricing model of Microsoft.
Financially backed SLAs to guarantee quality (Microsoft has targets) and specialized services such as Microsoft software development or customization.
Customized service agreements to meet an organization’s particular support needs such as fewer Designated Support Engineer (DSE) hour thresholds or focused support on a particular MSFT technology or mission-critical support for a selling season or event.
Enterprises using the lower-priced third party support provider’s proposal as leverage when negotiating with Microsoft.
Scenarios to Leverage Third Party Support for Microsoft Software
Cloud migrations – When version upgrades are no longer needed during cloud migrations, the third-party support provider can offer technical support for the customer entitled version so organizations can realize the average 50% cost reduction. This analysis should be part of the cloud migration planning checklist and total cost of ownership (TCO) analysis. Migration to alternative vendors or solutions – When new vendors or alternate solutions are selected to replace on-premises software products, third-party support can be analyzed to determine if a viable option is to use software with perpetual licenses under the customer-entitled version until the migration cutover date, and beyond, as necessary.
Low value, low volume technical support – The historical volumetric analysis of all help desk and service desk technical support and incident tickets should be analyzed every six months. This analysis helps to determine the ROI when comparing the value received to the annual cost paid for the Microsoft support service. This analysis should include the frequency of support calls, type of support, severity level, resolution time and results, and incident ticket close data for each of the software products in your MSFT portfolio.
Microsoft end of life – Situations can exist where older-version software is still being used to support certain applications, but will no longer be provided by MSFT without a customized support agreement and for an additional fee. Third-party support would not only result in the average 50% cost reduction compared to the current software vendor standard maintenance and support fees but avoid paying high customized professional service rates that Microsoft typically charges after the end-of-support date.