A (3:25)

Yeah, it is the perfect time to do this for sure. So you started out in your series with something you called describing something you called the financial cliff. And you said customers need to try to avoid the financial cliff. So tell me more about that because when I first read that, I'm like, what do you mean by financial cliff cliff?

B (3:44)

It's really like step one is to measure it, right? Because a lot of customers, and especially big, you know, obviously the bigger you are tend to get bigger discounts, bigger, more impactful concessions. But it's always been true that at renewal time those all go away and you have to renegotiate them. Unless you, you know, have some clause that has, you know, survivability. But that's pretty rare. So that's always been the case. But now with these compounding effects of all these other changes, like let's say you're a level D customer and you had a really nice discount on E5. Well, now that discount's gone and now your level D volume discount is gone. And now, and let's say you're coming to the end of a five year agreement, which is happening a lot because Microsoft signed a lot of five year agreements five years ago and they're starting to come due. And you know, there's been three price increases since you signed that agreement that you were protected from, plus the new one coming in July, plus the changes in the buying, licensing. Like you add all that up and you could be in for a big shocker at renewal. Like let's just, you know, for round numbers, let's say, you know, my EA is, you know, is, is a million dollars a year. Well, if you factor for all of those things and then look at what your renewal will be like in the new world, what if that comes back $3 million a year or 4 million or 5 million? Because that's happening right now, that order of magnitude. Every customer is different. But the first thing you need to do is measure that so that you know what you're up against. And the reason why we wrote that first is because that doesn't matter timing. Like it doesn't matter if you signed your EA yesterday or your EA is coming due in three months. Like the first step is to get that measurement in place, you know, especially if you just signed your ea because now you want to know what you're in store for, you know, you know, three years, five years down the road. And if you want to, you know, sort of measure that on a, on a regular basis, like annually or something, you can kind of keep track of things or, or whenever Microsoft announces a new change and you're like, okay, well how does that affect my fiscal cliff? Because that could have an impact on what you roll out when, how you, you know, what your roadmap looks like. You know, if you know you've got a big, a big financial challenge ahead of you, that may change how you make decisions today.

A (5:52)

Right. I think it's really good advice because I think a lot of people I talk to just say, well, I already know what I pay now, right? So it's not going to be that much more. And you're saying don't assum assume it's business as usual, basically.

B (6:05)

Yep, that's exactly right.

A (6:07)

All right, I'm going to take a break now before we talk about the next couple parts of your series. And I want to talk about why our listeners should make it a priority in 2026 to attend one of our directions on Microsoft Licensing boot camps. Our next boot camp is happening very soon in Washington, D.C. april 28 to April 30. You should send your IT procurement and ITAM leaders to our boot camp so they can learn how to deal with the new Microsoft licensing realities that we're talking about here today. On this podcast, you'll learn things like how to control your Azure consumption costs, how to master the strict licensing rules for high cost products like Copilot and Microsoft 365 add ons to ensure compliance and maximize your organization's ROI without overbuying and will help you craft a tailored framework for your renewal strategy to secure concessions that offset lost volume discounts. To secure your spot Today, go to directionsonmicrosoft.com training. You'll get to talk to our directions licensing experts there like Lane. And if you can't make it to DC in April, we have more virtual boot camps coming up and another in person one in September in Chicago.

B (7:26)

2.

A (7:27)

Okay, back to EA renewals with Lane. Let's talk about part two of your blog series where you talked about something you call the Microsoft Lens. What do you mean by Microsoft Lens?

B (7:39)

Well, it's, you know, whenever you go into an EA renewal negotiation, there's your perspective and there's Microsoft's perspective. And it's really important to understand because you're going to know your perspective. But it's really important to understand Microsoft's Perspective too, because that's going to govern their posture and you know, what you can expect and give you sort of an idea of how they're seeing things. And so what I wanted to do was create an article that sort of categorized that and laid out a taxonomy of how Microsoft sort of thinks of a customer. So, you know, put your mic, pretend you're the Microsoft rep looking at your account. How are they seeing you? What are they, you know, what are the milestones in their head? What are the markers in their head in terms of how they're evaluating you as a customer? Because that's changed a lot over the years. Like in, you know, in the old, in the Obama days, it was all about growth and revenue, right? And then it became, when E5 came out, it really became about who's going to go to E5 and when. And then over the last few years, it's kind of sort of wandered towards consumption. You know, like there's a lot, you know, Microsoft is graded a lot on consumption. So if you sign a big giant license agreement, but you don't consume stuff like most SaaS providers, they figured out that that makes for lousy renewals because if you're not using what you're paying for. So while those things that used to matter still matter, over the years Microsoft's kind of taken a step back from being so micro focused on any one thing that they've started kind of looking at the customer holistically. Meaning like, okay, what is revenue? Growth is one thing, trajectory is another thing, Workload adoption is another thing. They've introduced all of these new variables and it's kind of, I wanted to put some structure to that. Like, you know, because I don't, I don't, I don't like thinking in laundry lists because it gets confusing and there's too many variables. I like to put things in systems and organize them. And so what I wanted to do is take a systemic approach and be like, okay, how do we, how do we categorize this into a way that you can absorb and understand? And so that was really, the attempt of the article is to put a framework to this so you could read that article and walk away and go like, oh, okay, I can see myself how Microsoft sees me now.

A (9:55)

I like how you divided it up because you talked about there are technology signals and there are interpretive signals. So I think it would be interesting if you could explain very, very succinctly what those two things mean. And is there one that's more, one bucket more important than the Other. Or are they kind of like a renewal circle of life happening?

B (10:16)

Yeah, it's, you know, and I use the phrase, I use the word signals very deliberately because I don't want anybody to think that this is an exact science, right, like you, that there's a hard math formula here, like there never is. One customer's experience may be that has a similar situation to another customer. They may have a completely different experience with Microsoft, even if they're in the same region in the same industry. So there's still a lot of chaos in the system, as there always was. However, signals mean something. Like a signal is just that it's something that has meaning and somebody can read that signal. Right. That's why I broke them up into what I call the technology signals, which I believe are the primaries right now, and then interpretive signals, which are kind of like the other signals that go around, you know, that go around the technology framework. But my opinion, having gone through this with so many customers for so long, is that right now the narrative matters as much as the numbers. So in other words, the story that you're consumption patterns, the story that your adoption framework, all of that, that those signals are creating a story that might, you know, Microsoft's reading those signals. And the technology signals are the ones that I think matter most Microsoft wants to see. And I'm not, you know, not saying right, wrong or indifferent. Yeah, Microsoft wants. They have a vision of the world, right? They have a vision of the world that they. That they think is the best vision. And they genuinely believe that. Right? And so how you align with that vision is going to impact, you know, how they negotiate with you and how they, you know, how they perceive you as a customer. And so technology signals, I think, are the core part of that vision right now. It's all about AI and specific workloads right now. Tomorrow it may be something different. But Microsoft has really been about, Remember before AI, it was security, Security, security, security, right? Microsoft was trying to, like, they kind of own the office world. So they were trying to now own the security space, right? And then AI came along and security is still an important signal. But now AI is, you know, what are you doing with Copilot? What are you doing with Copilot Studio, soon to be. What are you doing with Agent365 and work IQ, etc. Those are the conversations Microsoft wants to have. And the further along that technology vision you are, the greater Microsoft's flexibility is. It's always been that way, but it's way more important now. The Workloads themselves. Like I said, what are you doing with AI? Copilot, Copilot Studio, etc. Now they got E7 though, that platform depth. So if you're talking about strategic workloads, but platform depth now matters too. Who's on E3, who's on E5, who's on E7, and then the stuff in orbit around it. Because Azure still matters, Dynamics365 still matters, Unified Support matters. So those signals, I think are how Microsoft constructs their vision of where you are relative to where they want you to be. And then the other things are kind of icing on the cake. You know, are you an iconic brand? Do you are. Is something that you're doing potentially a case study that will help them win other customers? Right. And then, you know, obviously. But the, one of the real points I wanted to make with that graph, is it all the traditional stuff, you know, the. Is it end of quarter, is it end of year, where's the sales team relative to quota? All of that stuff matters. But it's just one, it's just one button on that wheel now, right? It's just one category. And there's all these other things that you need to be aware of, you know, and, and we used to focus only on that one, you know, only on what I call the traditional signals. That was the game. Right, but the game's much bigger and much more complicated now.

A (14:03)

Yeah, yeah. And as you mentioned in this particular installment, you said E7 is the wildcard. Right. So all this was going on now. Microsoft, as of June 1st is going to be offering $100 per user, per month bundle of services called e7. And I feel like that, that is about AI, but it's about more than just AI. Right. And I'm curious what you think, how you think already this may change things for customers.

B (14:35)

Well, you know, at first I was very skeptical because I've watched customers choke on the E5 price for years. Like that's, you know, I've been, I've been very intimately involved in, in that problem. And then to throw $99 on top of it, like, ah, that just felt like, you know, my initial impression was very negative and I understand what Microsoft's doing. Right. E7 is a. Is maybe it's a little ahead of its ease in the sense that, you know, they're solving a problem that isn't necessarily a problem yet, but they're betting it will be. Right? They're betting on the proliferation of agents. Agents become digital workers. Digital workers need identity. They need protection. They need all the things that human workers are going to need and they need some platform to govern all of that. And that is most customers aren't there yet, right? They're still trying to figure out, you know, LLMs and they're still trying to figure out basic agendas, authentic stuff, you know, if they're even there yet. And so Microsoft's like, you know, I mean, they're doing, what is it, the Steve, the magic Steve Jobs formula. Solve the problem that's six months away and that. And you're going to be the winner, isn't. I feel like that's what Microsoft is trying to do. Same with E7. But I have since the original podcast on that, I've since encountered two customers that have a pretty positive view on e7. One in particular, you know, really, it was really fascinating because they rolled AI out in a, shall I say, a more agile fashion than a lot of other. A lot of companies are trying to really land the data estate before they even turn on AI. And that makes sense. You don't want AI running amok in your environment. But that can also lead to complete paralysis with a lot of organizations where you just never get there because classification is hard. All that stuff, infosec stuff is not easy to pull off because it's been on everybody's five year roadmap for the last 25 years to do and nobody's gotten around to it until AI came along. So like, it's hard, I get it. But, but this, this organization, you know, they took a more balanced approach and it's really interesting. I really want to stay with them to see how this is going to play out. But one of the first things they said was we're holding back a, a floodgate of agent work that we want to do because we're nervous that we don't have a way to, to really govern. Like they were poster children for E7 and so they were very curious about E7. Their biggest fear was the price tag for one. But I have a feeling that early adopter customers are going to get really good deals on E7. You know, to the point where, you know, you maybe pay less for E7 than you did for E5. I don't know. But you know, you know, that's just my opinion. But I'm saying, like, you know, you know how Microsoft is, they want people in E7. They're going to fight to get them there. And if you're ready to adopt, you're a needle in a haystack right now. So you know, I think, you know, they could get a very good deal for Microsoft that would make that not a problem. But they still have a concern about the downstream effects because they look at east like they look at Agent365 and they say, okay, well it's a user based license now, but what's, you know, when is, when are they going to drop the consumption hammer? Like that's a legitimate, that's. We've talked about that too. And I didn't prompt them. They brought that, that, that was their question was where's the hidden cost? I'm not seeing. We see this a lot with power platform, right? Customers love power platform in some ways, but they're all terrified of it because like what if you push the wrong button and you get a billion dollar bill from Microsoft? Like that's the big fear. And I'm seeing that same fear manifest around E7. So. But that being said, I now have encountered a genuinely good use case for E7. So I feel like I have a bit more of a balanced approach because I do think that we could construct a really good deal for this particular customer if Microsoft's willing to work with us. And it would be based on E7. And I think it'd be very positive for the customer. Again, needle in the haystack, 99% of the customers aren't there. This one customer just happens to be there. So if there's one, there's more. So I do feel like there is an audience for E7, but it's still a big wild card, big wildfire.

A (18:43)

It is for sure. Okay, that's interesting. So now let's talk about part three of your series where you, where you kind of take a step back and you say, you know what, if you're looking at all these different technology signals and factors that you have to consider in your EA renewal, really the biggest differentiator or key factor for Every customer is Microsoft 365. Like it's the key to the kingdom. So I'm curious, why is that the case? And what does that mean for customers around EA planning and negotiation? Like what does that fact mean to everyone?

B (19:20)

So it's funny because the simplest answer to that is grab your price sheet from Microsoft, that's your EA deal and look at it. And then it's that old song, one of these things is not like the other one number is going to stand out miles above everybody else and that will be what you're paying for M365, right? Like that's going to be the biggest line item on your bill. I mean, there are going to be other big line items and some can be pretty big, but that's generally going to be the bulk of what you're spending your money with Microsoft on. And we always have conversations about the licenses, right? And that's important, right? There's an E3 license, an E5 license, E7 license, there's gajillion permutations in between. I call them the Tetris blocks. You know, there, there's like, you know, they're, they're, they're, it's like playing the licensing Tetris game. But that's, but all the licenses are, are collections of features, right? At the end of the day, the M365 ecosystem is a big giant collection of technology features all woven together to form products, to form solutions, to form concepts like zero trust, etc. But it all comes down to the feature level. That's the real battlefield. And so because what you pay for that ecosystem is the biggest line on your bill, and because that bill is based on the features that you use, I wish there was an easier way to do it, but there really isn't. Like, you need to go down to the feature level and understand what those features are, what you're doing with them, what you plan to do with them or don't plan to do with them. Like, that's where you have to start. Because that then is going to help you understand what the right licensing configuration is. And once you understand what the right licensing configuration is, that's going to help you go into that negotiation anchored on not Microsoft's objectives, but your objectives. And then it's going to be incumbent on Microsoft. So, for example, let's just say that at the end of the day, you determine, man, I am a really solid M365E3 shop, and I need that Entre plan to step up, because I do identity protection in Entre, and that's my big thing. You know, I could, I use Purview and Defender, you know, yes, maybe. But right now, you know, this is my ideal configuration. So you know that going into your, you know, so you know, you're not going to see value out of E5, and you're certainly at this point not going to see value out of E7. So you go into the negotiation knowing that, but then Microsoft comes back and says, well, you know what if, you know, what would it take to, to go E5? And so you go back, you reassess, you think about it, and you know, a Lot of times customers will come to an arrangement where the deal is good enough and they sign up for E5, but they're happy about it because they feel like they're, they know they're not overpaying because they've got a, you know, whatever the financial packages that they negotiated with Microsoft and it works out. But if they hadn't done the groundwork of understanding their feature level, it would be a very frustrating negotiation where micro. You're always going to feel like, you know, like, like you're, you're losing, right? And you don't want that. The biggest way to prevent that is to get down there that, you know, roll up your sleeves and get down there at the feature level and build out your, you know, your roadmap so you know where to start.

A (22:36)

Okay, that's good. All right, now I know you've got a lot more coming up in future posts in this series, so can you give us a little bit of a sneak peek before you come back and talk us through the specifics?

B (22:49)

What's Next? So if M365 is. That is the heart of the negotiation, right? Like understanding what your story is being, you know, what your story is from how you use M365. The next couple of articles are going to be about new dimensions to this, right? Like for example, in the next article we're going to talk about different licensing agreements. Now you might say, oh, I've been in an EA forever. I've looked at things like CSP and NPSA and like those just don't suit me, right? And they're way too expensive anyways, especially if you're a big customer. And that was true prior to November of 2025. But after the re leveling effect, now, you know, a CSP agreement can actually out, you know, can actually out price an EA in some cases, even a big EA in some cases. And so there's a whole bunch of new things that you need to think about. One of which is, you know, especially if you're a big organization, being on an EA has in the past been a foregone conclusion. There wasn't another option that was even, you know, close to worth it. Now there's other choices now with csp, not only that, there's more choices from the Microsoft partner ecosystem, but now Microsoft themselves is offering new choices, right? Well, not choices, but they're moving customers into direct EAs where they cut out the LSP and it's a whole different support model and it's not the same as what you're used to. MCAE is like their version of the mca. It's like their version of csp and. And some customers are being pushed in that direction. So what used to be a foregone conclusion is definitely not. And something you need to be aware of because you may end up in a situation where CSP suddenly looks viable or Microsoft may be trying to take you to. Could be a million things that could happen, but it's a new dimension and there's potential hidden negotiation levers in there that if you don't understand the dynamics, you're going to potentially leave some money on the table. So that next article is going to be really important for understanding the. If this was. If the third installment was about understanding the M365 technology landscape, this next one is going to be about understanding the licensing agreement landscape.

A (25:09)

Good. Okay. That's awesome. Because I know there are also a lot of hidden gotchas when you move from EA to csp. So I think some people may not be factoring that in too. Right, correct.

B (25:21)

And it's a whole different market dynamic. Right. EA pricing set by Microsoft, CSP pricing set by partner. Like, you know, there's a whole. It's a whole new way of thinking, but you gotta, you gotta educate yourself on this one because it's really important. And then after that, I'm working on trying to identify where the Azure signals are inside of M365. Right. Like, M365 isn't the whole story anymore because more and more things you do in M365 are connected to meters that run in Azure. So if you're negotiating your EA and you're explaining to your CFO what your EA costs, you might not be representing the whole number, because in most organizations that I've seen, Azure is over here and M365 is over here. As those two worlds bleed together and you're trying to get a complete picture of what your spend is and what your utilization looks like, more and more you're going to. I think you're going to start having to incorporate Azure into that conversation or you're going to underrepresent what your EA costs are. So that's what we'll write about down the road after this next one on the agreement landscape.

A (26:26)

Nice. I'm looking forward to those two. So awesome. Thank you so much, Lane. This is all great stuff and I know it's really useful to our customers and our listeners. I would like 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 also is 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.