← The Directions on Microsoft Briefing Podcast
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- [00:00]
A
Foreign. Welcome to Microsoft's fiscal 2027. To all those who celebrate, we already know that this year is going to be full of changes for enterprise customers, thanks to moves that Microsoft has been setting up over the past several months. In today's episode, we're going to talk about some of the hurdles that organizations should anticipate this year and suggest a few ideas for clearing them. Thanks for joining us today on the Directions on Microsoft Briefing podcast. I'm Mary Jo Foley, the editor in chief here at Directions. I'm your host for the series of podcasts for those interested in the Microsoft enterprise IT ecosystem. Today, my guest is Lane Shelton. Lane is a director of Product Development and Advisory Services here at Directions. Hi Lane, thanks again for joining on the podcast today. I feel like you've become my most regular guest, which is great.
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B
Happy to be there. I mean, there's a lot to talk about.
- [01:16]
A
There is great. July 1st, which just happened, was the kickoff for Microsoft's new fiscal year. It also was the kickoff for for price increases for many Microsoft 365 plans, which take effect for customers whenever their next renewal comes up. So Microsoft 365 E3, the list price has gone from $36 per user per month to 39. E5 is up from 57 to 60. And lots of other Microsoft 365 SKUs are getting a big price hike too. So okay, July 1st has happened. The price increase has taken effect. But I wonder if you have any tips for customers who did not do anything before now and they didn't get an increase, kind of cut out of their contract. What can they do now, if anything?
- [02:11]
B
Quantum negotiation. That's where you actually negotiate backwards in time using quantum mechanics. The ship sailed, right? It's past July 1st. However, remember that this price increase came right on the back of the giant price increase in November where they got rid of volume discounts on, you know, on all their subscription products, including those that you mentioned, and most importantly on those that you mentioned. So, you know, I'm all about the subtle art of negotiation, but sometimes brute force works really good too. And so what I would say if you're, if your renewal is happening soon or in the next 12 months, next 18 months, I would recommend, you know, basically brute force with Microsoft and point out that, you know, you didn't cause these price increases like Microsoft did and they, they hit them back to back like this. So that's, that's hardly fair. You know, if you, if you've been in an EA for a long time, like you've never had an event like that where there's been that much increase, like right at the tail end of your enterprise agreement. So I would go with the approach of, listen, I don't want to, you know, I want my negotiating starting place to be back where it was before you did all that. And we can talk about these massive price increases, you know, on our next renewal, not this one coming up. So you know, that's not going to work if your renewal is two and a half years from now, but if you're in the next year, I think there's some legitimacy to that argument. So I would take a strong hand on that one.
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A
Okay. Yeah, you just mentioned something else I was going to ask you about, which was the volume discounts being eliminated for larger customers who've always kind of counted on them being part of their enterprise agreements. So you've been doing a lot of blog posts for us on the Directions site about the effects of these volume discount eliminations. So I am curious, any tips for, for things that customers can do to kind of lessen the impact when they're renegotiating with Microsoft this year and beyond. I know they also are going to be facing possible elimination of their EA replaced by an mca. So there is a lot going on there, right?
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B
Yeah, a lot going on. So what we just said first, brute force, that, that works too. But also negotiate holistically, like make sure that you're bringing your entire Microsoft ecosystem to bear even if it doesn't seem relevant. Right. Like take stock of everything you're doing with Microsoft, not just M365, Azure, Dynamics, etc. But also start looking for meaningful competitive alternatives. Build that competitive threat is another really good example. And that doesn't necessarily have to be outside of Microsoft. One of the things you can start doing is looking at csp because CSP is a competitive marketplace. And you know, depending on where, where you're at in your cycle, et cetera, sometimes CSP can actually become very attractive. Now there's a whole lot of caveats that go into that and the bigger you are, the more caveats there are. But I wouldn't take it off the table. Like I would plan to look at CSP as an alternative. You know, if you're, you know, if you're looking for competitive landscape, you know, we have customers now. In fact, I just got off the phone with one recently who said that for the first time ever, they're going to start long term conversations with Google. And not about GCP either. I'm talking about workspace and looking for use cases in their organization where maybe the Google stack does make sense. Or they could engineer it to make sense so that they can start to have a competitive relationship with Google and Microsoft. Because Microsoft's not the only one that has fiscal cliffs. Google does it too. So you know that people are starting to think, you know, think about that. So I would start looking at, you know, looking at competitors. Take a, take a fresh look at csp, bring your whole Microsoft story to bear in the negotiation. And then also what I call DIY savings, right? If Microsoft's going to take away pricing discounts and make your costs go up, there are things you can do to make your costs go down. Things like looking hard at your workforce. Are there frontline workers in there that are being licensed with enterprise plans? Perhaps, because every one of those that you can shift from enterprise to frontline could be a pretty massive savings doing that. If you're talking about Azure, are you looking heavily at FinOps and how you can save money with savings plans, reserved instances, all of that good stuff. We do have customers that are going into renewals in a much better position because they put in the sweat equity of getting rid of all their waste going into it. And that helps bend the cost curve as well.
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A
Okay, good, good tips. So somehow we have yet to talk about AI on this podcast and the impact of what Microsoft has forewarned customers. More consumption based pricing is coming, right? So they've said this, get ready. Consumption based pricing is coming for many of our current services. So if you're a customer, how should you be thinking about this when you're trying to do planning and budgeting?
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B
Expect more of it. But I would say also make sure that you have a mechanism for identifying those consumption meters because they come in different flavors inside of Azure, knowing where they are, there are purview meters, there are copilot meters, there are this meter, that meter. Knowing where those are is not a trivial affair, but it's also not an impossible one. There are certain reports even inside of Azure Cost Manager, that simple reports that you can generate that'll help you hunt for and identify those meters and be able to start, you know, reporting on them. That's a good muscle to build right now because think about it like you know it. What E7 came out like May 1, right? Three months, like a couple of months ago and already you've got a co pilot or a copilot, cowork meters, you've got work IQ meters. You know, if you're using third parties in other, you know, circumstances like the meter stack. You've got Copilot Studio meters like that, you know, Copilot meters. The meter list will continue to get longer. So the sooner you get to being able to master and wrangle these things, report on them, understand how they're different from your other Azure spending, the sooner you can build that muscle, the better off you're going to be.
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A
I think that's a good point for me to take a break so that I can talk about something AI related Our Atlas AI Assistant here at Directions, which we are now testing with select members. We may be biased, but we think this is going to be the AI companion of your Microsoft licensing and technology dreams. We built it to make it simpler for you to find the enterprise focused Microsoft information you need based on the insights of our team of experts who've been curating and developing this content for the past several years. We Once we launch the Atlas AI Assistant later this month in July, it will be available only to Directions on Microsoft members. So if you are not already a member, check out the different ways you can join@diallectionsonmicrosoft.com and make sure you check out the membership benefits that you could be making use of right now. Okay, back to Lane and our fiscal year 27 look ahead. So we just started talking about meters right before I talked about the Atlas AI Assistant and you've done some posts for us about all the different ways that Azure metered services are starting to show up in customers bills. So you talked a little bit about this already. But what else should you tell people or what else should they be watching out for as this continues to happen?
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B
Sure. Well first of all, the wall between M365 and Azure is dissolving, right? Like it's starting to happen. You're starting to see it. And Microsoft's even said that the future of modern work is a mixture of user based licensing and consumption, but to expect there to be consumption Now Satya didn't say that that long ago and already we've got the two examples that we talked about. But this has been happening for a while. I talked about purview meters and how those work. We've got Dataverse, we've got things like power platform elements that have spinning Azure met. There's all kinds of different ways that these Azure meters exist, but they all are examples of the same thing. That dissolving wall between M365 and Azure, that is strategy. That is not something that is happening by accident. Because think about it, per user licensing has its built in limitation. You can only collect so much and Microsoft wants far more than $99 per user per month out of a customer. And those Azure are basically spend times infinity, right? Those things have no ceiling, they have no, they have no count. So I mean they have no, you know, no limit. So I would say that, you know, they're going to start showing up more but the sooner you get to really understanding where they are, how to track them, how to measure them. You know, I was talking to a customer very recently who they are super sad. They're probably the most savvy customer I've ever dealt with in terms of like they know the features of M365 ecosystem as well as I do. Truly impressive even. They got bit by this because in their citizen developer projects they had lit up Copilot Studio and it turned on Azure consumption behind it, but the cost just exploded. These are the folks that know what they're doing. They had this massive explosion of copilot credits and they had to quickly wind that back and turn that off and say they're never going to do that again. And that's a smart customer. So I'm not saying that all customers are smart, but at the same time the danger here is very real of having surprises as this wall dissolves. So again, I can't emphasize it enough. It's not that you need a sort of multidisciplinary approach. I would say grab somebody from finance, grab somebody from procurement, grab the right people from form a committee, start meeting on a regular basis, figure out how to read these meters and how to identify, report on and triage these meters so you start to build that muscle for managing the environment. You will absolutely thank me later if you stand that committee up and start looking at this stuff.
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A
You will thank me later. Lane Shelton, Speaking of Azure and Azure consumption, you have been writing another series for us at Directions about Mac, the Microsoft Azure Consumption commitment, which is supposedly a deal that Microsoft offers customers who commit to using a set amount of Azure for a three to five year term. So the big question is going into fiscal 27, do Macs even make sense anymore? And why or why not?
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B
You know, that's a really good question. It's a hard question. They absolutely can make sense if based on one thing, if you have a really solid understanding of what your consumption profile is going to look like over the next three to five years and then you basically take 25% off of that total, like that's your, you know, that's your mat, you've got to come up with a safe total to negotiate because we have all these capacity issues that are out there and those are not. You know, Microsoft knows these capacity issues exist, but when it comes to Mac negotiations, they're like, what capacity issues? Like they, they just don't really even have a way to account for this, account for it in a contract in a way that makes, in a way that makes sense. So you know, you're basically committing to stuff that Microsoft can't really underwrite and say that they can guarantee that that capacity is going to be there. You know, what if you, you know, what if you find that the capacity is not there now you have to start paying, you know, paying expenses and having multiple landing zones and you know, an army of people to figure out how to keep all of this under control. Like, I'm not saying that in an actuarial sort of perspective like the discounts and incentives would have to be pretty huge for it to make sense. But that being said, you know, and customers need to take a fresh look at PayGo, you know, and because PayGo has the least amount of restrictions. Right. You have the most freedom. But I would say a couple of things. Number one, a mat can be worth it if you lowball the consumption to the point where, to the point where you're very comfortable that you're going to hit that number. Even factoring in for capacity and things like that, that's number one. But I would be very careful about long term commitments, you know, that, that, that are based on, you know, bigger numbers or speculative numbers. I would watch for that. Yeah. Very carefully.
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A
Okay. Okay. We made a passing reference already to Microsoft 365 E7 which is Microsoft's new high end Microsoft 365 tier. That goes for $99 per user per month at retail. So is that a good deal, a bad deal? Deal or no deal, Lane?
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B
Okay, so at list price it's a bad deal and a no deal. But it's also the most negotiable bad deal that Microsoft's probably ever shipped. I mean, let's, let's face it, you know, Microsoft wants to sell you E7. We all know how this game is played. It's been played for a very long time at $99 per user per month. Because remember, $99 is just the starting point. Now you got a factor for all those spinny little Azure meters, you know, and that's going to only add to the cost. So you know, if you can negotiate a good deal, it can be a good Deal. But in my opinion, as it stands at 99, it's a terrible deal, number one, you know, because it's only the ante, right? You're just, that's just your chip in the big game. But also things have been changing. Right? You talked about this too, like how Microsoft has sort of moved the goalpost of what is their AI strategy as far as M365 is concerned. It's like to become the agentic control plane, right? Like they're all about being the, you know, managing the agents and they've been busily, you know, sort of deprecating the value of the models, right? Commoditizing the value of the model, saying, yeah, we don't, you know, here, here, Claude, you want to come in and play in our arena, go for it GPT. Go for it. Like, that's not where the money is. The money's in the control plane. Which. That makes sense, right? That's actually a pretty sound strategy. We actually wrote about that as the foundation of E7 way back when all this started, but actually before it was even released.
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A
Right.
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B
So not a bad strategy, but it does one thing. It kind of devalues Copilot. And Copilot was the headliner, right? The $30 per user per month headliner. And now it's. What is it? Somebody told me, I wish I could remember who, so I could give them credit, but they said now it's become the penthouse that nobody wants to live in. Which I thought was, was fairly clever. Now Copilot still has value, but is it $30 per user per month in this new world? I don't know. That's, that's, that's, that's challenging. The other thing is, and if you challenge the value of Copilot, let's take, let's. Again, let's just stick with list prices, right? What's E5? $60. Agent 365 is $15. I don't know exactly what an entre ID governance step up is. Probably like, I don't know, six bucks or something like that. So what's that? 60, 75, $81 without copilot 81 is not 99, but there's a little bit of blue sky in between those two numbers, if you know what I'm saying. Like there's a world where you could actually standardize on E5 plus Agent 365 in the entre piece without Copilot. And if you're talking list price, you know the values. The value of E7 isn't there they
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A
are discounting it though, right? Like, even from the, right out of the gate, they were discounting E7 pretty heavily, I think. Right?
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B
I mean, I can either confirm or deny what Microsoft is, you know, doing with their discounts, but let's just say that, you know, that, you know, at 99, the price point doesn't work. And you don't have to be a genius with the math to figure, you know, to figure that, to figure that out. And, you know, and Microsoft wants to win E7 customers. They want very badly to win E7 customers. And again, credit where credit is due. The E7 Vision is a pretty good one. Like, you know, you can chat, there's all kinds of challenges, and we'll talk about those in just a minute. But, but as far as placing a bet in this agentic world for which there's no rule book and no rules and nobody knows what the future hold, Microsoft's technology bet is pretty solid. You know, does it match that price point? Not right now, but things are changing every day. So they had to put it, they had to put their chip down at some point. This is the one they've. This is the one they've played. But make no mistake, they want to win and they're going to price their deals accordingly.
- [19:25]
A
Okay, so you, you mentioned something really interesting to me that I hadn't thought about. You said, you know, in all the different ways they're selling E7, there is no E7 for frontline right there. That doesn't exist. So curious if you think this is coming or should come from Microsoft or does it not make sense? Right.
- [19:46]
B
It's coming and it has to. Because if you think about what agentic AI is, you're not. That sort of blurs the line between knowledge worker and, you know, and frontline worker, because you could see very. I could envision all kinds of scenarios where a frontline worker on a factory floor would have a huge benefit from generative AI. Agentic AI, like right there, doing their work on the factory floor at a frontline worker kiosk. Whether it's accessing an agent for HR benefits or some kind of line of business schematic agent that bounces against this, that or the other, and produces an output that helps make that factory floor safer. I don't know. You could come up with a bunch of use cases. But it does feel to me like, and if you look at the way that Microsoft's licensing now, this is somewhat in dispute right now, but, you know, but it does appear that based on what they're saying, they made it very clear there's no multiplexing. Remember, multiplexing means there's no degree of separation between your benefit and the license. So if you create something from which all your employees can benefit, probably stands to reason that you're going to need at least Agent365 for your frontline workers. At least potentially the entre governance. Because your frontline workers will benefit from that too. Copilot. Maybe, maybe not. Probably not right away. But Microsoft proved us right on that one again too. Because somewhere between June 1st where they announced that Agent365 basically required an E5 prerequisite, meaning you know, if you're entry 65E3 and you want to go Agent365, you're, you know, you're out of luck. And that was controversial in and of itself. But then they snuck in a change to the product terms later where they added. And then they documented it in June 15th update where they added that frontline worker Purview Plus Defender, what we sometimes call the F5 SKU is now a suitable prerequisite for the frontline workers. So Microsoft's actually quietly baked it into their own product terms that, that frontline workers can qualify for for Agent365 and they felt the need to make that explicit. The only explanation for that is, you know, F7 is coming at some point.
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A
Okay, I, I bet you're right. But we'll keep an eye out for that one.
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B
Yep.
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A
Okay. Agents365, we haven't talked a lot about it yet, but I feel like you were just mentioning with the product term changes, we almost every week there's something new about Agent365. So if you were talking to an enterprise and said here's what you need to know most importantly about Agent 365 in the coming year, what would you say? What should they be watching out for there?
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B
Three things. All right, so first, basically Agent 365 inherits your maturity in Purview, Defender and Entre. Right? So if you're planning on using Agent365 to any what I would call enterprise grade capability, it has ties to purview, right? It has to benefit from Purview. So if your Purview maturity is a 1 out of 10, then your agent 365 experience for, you know, for, for applying policy to agents is going to be a 1 out of 10. It inherits this. And same thing with Defender. Now you know, Defender is a little bit more nebulous, but you know, There are conditions where you absolutely need Defender in order for Agent365 to properly do its job. And what's going to happen if you're a crowdstrike shop, you know, are you going to have to run Defender and crowdstrike side by side? Like, I don't know any SecOps team that's going to want to do that. So, you know, and that's again by design. So I would say that, you know, Agent 365 by itself doesn't have an engine. Its engine is purview, defender and entre when it comes to, you know, how it does what it does. So, you know, those are things that are going to be on your roadmap. The basis for Agent365 is M365E5. That debate wasn't settled. Like, we've still have those debates about whether you should have all that Microsoft security or you should have a hybrid environment with an E3 base, or do you go to E5 and like, we're still having those arguments every day. And Microsoft with E7 and Agent365 is kind of trying to come over the top with a trump card and be like, you know, nope, sorry, you've got to go E5 or you can't manage your agents. That's. So that's number one. Number two is what we talked about earlier, which is watch the, watch the scope, right? Watch the scope of this thing. Because it's likely that eventually you're going to start needing Agent365 for your frontline workers, unless they change the definition of how they license things, which is users that are benefiting from a service. You know, if they don't change that, then you're probably going to at some point end up with Agent365 for all your employees. Like that's, you know, again, my, my prediction there. So number two is, remember, you're licensing the humans, not the agents. And you gotta think like that in order to make Agent365, you know, whether you're going to decide whether it truly works for you or not. And the third thing is like there is that sort of, you know, you can, you can do some stuff at Agent 365 without requiring the full Agent 365 license. And I would encourage you to do that. But be prepared that you're going to ladder up from free to fee pretty quick, right? Because you're going to basically do those discovery functions, find that you have a bunch of stuff out there you didn't know about you're quickly going to want to start applying policies to it and securing it, and then you're going to be paying for it for everybody. So there's like, watch out for the, watch out for the Trojan horse of the stuff you can do without requiring a license because it probably will very quickly move you into territory where you do need the license.
- [25:29]
A
Yeah, yep, yep. And I also, I don't know, I know they, right now it's per user, not per agent, but I feel like it's just a matter of time before somehow it's going to be per agent.
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B
Correct. And there'll be Azure meters.
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A
Yeah, right.
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B
Somehow that'll tie into Azure meters. Yeah. Always be prepared. If you're paying a user license fee right now, be prepared for Azure meters.
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A
Any other licensing or technology hot buttons that you're advising customers to keep an eye on in the coming months?
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B
Yep, a couple. Right. So none of this market is settled science like Microsoft may be playing, making these big bets, but there are alternatives out there that are there and there are alternatives that are emerging. Like I was talking to a customer recently who had checked out Sailpoint's management of its agentic capabilities and they were well impressed with what they were seeing. And that was again the first time I heard Sailpoint's name tied to that. So that got me looking. And there are alternatives not only to the product stack that you see within M365. Right. There are other visions for managing agents, but there's, there's also challenges to the very concept that you would manage agents as humans. Like there are, there are agentic workflows where non persistent agents are created and destroyed, like thousands of them at a time, which then provides a different type of security because nobody can hijack credentials that only exist for nanoseconds. So there are other ways of thinking about agentic management that don't align with Microsoft's vision too. So again, like none of the rules are. None of the rules are written, but Microsoft now has competition in this space that is probably worth checking out. And then the other thing is, you know, we've had, I think you've done some podcasts on sort of the death of Office, right. What if AI kind of wipes out the application layer and Office doesn't even exist in three to five years? Right. Not only is the competition emerging, you know, in parallel with Microsoft as everybody tries to figure out this agentic, you know, this agentic world, but it's also retroactively challenging parts of their stack that have never been challenged. Before. So I say all that to say watch for, you know, watch what you lock into, watch what you commit to long term. Watch, you know, watch those locks. Because this market is changing very quickly and, you know, and things are happening in pockets. Like, it's funny because as we do some of these roadmap sessions, it'll come out like we're talking about AI strategy. And once everybody's in the same room together, it's like, oh, I didn't know you were doing that over there. I didn't know you were doing that over there. Hey, that's really cool what you're doing over there. Why aren't we doing all this stuff together? Like, you'd be surprised how much AI innovation is happening that you don't even know about. Because I'm seeing that pop up every day and it's fascinating to me. This stuff is moving so fast.
- [28:30]
A
It is.
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B
Be careful what you lock into.
- [28:33]
A
All right, I love that. Thank you so much, Lane. Great stuff as always. Thanks.
- [28:39]
B
Awesome. Thanks, Mary Jo.
- [28:42]
A
I want to remind our listeners they can find lots more coverage of all things Microsoft related on directions on Microsoft.com thank you so much for listening. If you have questions, comments, or any topics you would like to hear the Directions analysts cover in one of these podcasts, please do not hesitate to contact me via X or BlueSky. Directions on Microsoft is also on LinkedIn, so make sure you follow us there and give us a follow at DirectionsMSFT on X or directions on Microsoft on BlueSky for all of the latest Microsoft Enterprise product and licensing information. Thanks again,
- [29:27]
B
Sam.