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The Directions on Microsoft Briefing Podcast
What You Need to Know Before You Sign a Microsoft MEO
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- [00:20]
A
If your Enterprise agreement is up for renewal anytime soon, you're likely to get what's known as a multiple equivalent offer from Microsoft. And at first glance, it might look attractive. You seemingly get a choice of different discount options from which to choose, but as we know, in Microsoft Licensing land, things are seldom as rosy as they may appear. In today's episode, we will walk you through how an MEO works and what to do to try to make it more advantageous to your organization. Welcome to the Directions on Microsoft Briefing Podcast. I'm Mary Jo Foley, the editor and chief here at Directions. I'm your host for this series of podcasts for those interested in the Microsoft Enterprise IT ecosystem. My guest today is Directions Senior Analyst Steve Kelly. Steve is an independent advisor specializing in Microsoft Enterprise agreement Negotiation, license optimization, audit defense, and finops modeling. Before joining Directions, he spent 11 years as president and CEO of software licensing Advisors, an independent Microsoft licensing optimization and negotiation consultancy. Steve is also the founder of Microsoft, Google and aws bid marketplace licensebids.com hi Steve, thank you so much for joining me today to talk about meo.
- [01:47]
B
Glad to be back. This one's been on my mind for a while now. The MEO is showing up on every EA renewal that I'm working on right now, and most customers don't fully understand how seductive the offer is.
- [02:00]
A
All right, well listeners, Steve recently wrote a great summary of how MEO works for our blog at directions on Microsoft.com so if you have not yet checked that out, you should. But Steve, you're here now, so give us the elevator pitch about meo. What is this thing in a nutshell?
- [02:18]
B
Sure. So when the EA comes up for renewal, especially when it's the status quo, you're just renewing the same thing. Microsoft will put a proposal in front of you that looks like a choice. Now, your current footprint, let's say you're on E3 gets quoted at full list price, no discount. Given the 2025 price consistency announcement that occurred in August of 2025 and was implemented in November, that ended volume discounting. So in sitting right Next to that E3 renewal proposal are one or two alternative options. E5, say, with a 40% discount at least in year one, maybe E7 with a 65% off initially. The year $1 total of all three columns lands in roughly the same place by design, right? You look at it and you think well and get more for the same money. That's at least Microsoft's pitch. Here's what's actually going on. Those discounts aren't flat across the term that'll easily be seen. They erode every year. Microsoft is willing to do five year terms where they would do 40, 30, 20, 10 and 0% discount presented on a non standard five year term then. So by year five, both discounted paths land at full retail. And full retail on E5 is 58% more than what you were paying for E3 when you started. E7 is 175% more, almost three times what you walked in paying. So that's not really three offers. That's one trap with three doorways.
- [03:55]
A
Definitely. So it seems like the trick of MEO is you make the first year pricing look so enticing that customers might just rush out and not really sit there and do the math and look through it all. But as you note, it's not year one that's the issue. Right?
- [04:11]
B
Right. Right. Year one is the bait. The real problem is year five and what happens at renewal after that. Because here's the thing, by year five, the discount is already gone. You're paying full retail for the last 12 months of the agreement before you even sit down to negotiate. You've been given two more years beyond the normal 36 month EA term to implement the additional features and functions. So the excuse that you aren't using them lands flat in your Microsoft negotiation. And frankly, it probably isn't even completely true. And when you sit down to renegotiate, you spent five years deepening your dependency on that Microsoft stack, the levers that you would normally use, the threat to downgrade back to E3, a credible alternative set of competing offers from other vendors, or a carefully defined set of Personas that all may be gone. You're set up for the highest price of the term with the least leverage of the term. That's not a coincidence. That's what the original discount was paying for. Microsoft was buying your inability to push back at the next renewal. So that discount bait is real. The exit and renewal trap is also real. Both of those things are true at the same time. And most customers focus on the first one without realizing the full ramifications of the second. That's kind of further out. Sure, the customer will calculate the total contract value and they'll see that eroding discount over time and the prices going up. But the year one enticement will be an easy sell internally with short term thinking applied.
- [05:50]
A
It's like when you go to a store and they give you a 40% off and you're like, oh, but it's not the price that Well, I saw last week it was the original before sale price. So it's not even a deal. You think it was a deal?
- [06:04]
B
Right. Right.
- [06:05]
A
So you were talking about the third party solution stuff and in your blog post you also talk about this idea that Microsoft makes displacement of these third party solutions that customers might use with something from Microsoft part of the contract. So they'll say something like, why not use Microsoft Defender instead of CrowdStrike or Entre instead of Okta? That's something customers should expect they're going to hear as part of an meo, right?
- [06:31]
B
Yeah. And absolutely. And to be fair, you know, the displacement pitch isn't. It isn't crazy. I mean, Defender has come a long way. Entre is fine for most organizations. Some of these Microsoft products are genuinely competitive.
- [06:45]
A
Right.
- [06:45]
B
The savings story isn't fake either. If you cancel Crowdstrike and Okta and mimecast zscaler, your DLP tool, I mean, you free up real budget that could fund this upgrade. But here's what's happening underneath. Every one of those displacements doesn't just save you money, it hardens the Microsoft dependency. Right? Your security operations center retools its detection content onto defender. Every SaaS integration gets refederated through Entre. Your retention labels and your legal hold workflows get wired into Purview in ways that aren't very portable. Each. Yeah, each of those decisions might be defensible, you know, on its own, but the MEO isn't asking you to make them one at a time on the merits. It's asking you to make six of them simultaneously on a single procurement signature for a five year discount that's contractually scheduled to disappear. That's not a licensing decision, that's a technology architecture decision being made impulsively in the checkout line. And most CIOs aren't aware that you're even making it. So by year five when you'd want to push back on price, all your alternatives are gone. The CrowdStrike relationship is cold. Your identity and access management team hasn't touched a non Microsoft identity provider in 3 years. Your in house skill set has gotten Microsoft shaped. And that's the trap closing. Yeah. Your next renewal is again here. And your E5 discount is now zero. But here comes E7 multiple equivalent offer to the E5 year prices.
- [08:30]
A
Right?
- [08:30]
B
And the play is run all over again.
- [08:32]
A
Can you say lock in? Yes, you can. All right, let's, let's take a break here so I can talk for a minute about something we've been Very quiet about here at Directions, but we're about to get public about it. Our Atlas AI Assistant right now we're testing it with select directions on Microsoft.com 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 that you need. And it's based on the insights of our team of experts who've been developing and curating all this information over the past several years. Once we launch the AI Assistant this July, it will be available only to Directions on Microsoft members. So if you're not already a member, you should check out the different ways you can join by going to directions on Microsoft.com and you can see all the membership benefits there that you could be making use of right now. All right, let's go back to Steve and the wild and crazy world of meo. So we've been discussing so far that there are a lot of hidden and not so hidden traps in the MEO process. But do not despair listeners. There are ideas that Steve has for you regarding what your org can do to make things a little better during these kinds of negotiations. So Steve, let's start with your advice about knowing your Personas. By which you mean understand which users in your org need which licenses. Talk about that a little more.
- [10:12]
B
Yeah, this is the unglamorous one, but it's the foundation for everything else. Most enterprises haven't done a serious license mix assessment of their actual user population in years. Other priorities? Never enough time. The EA was easier to just re up. The problem is the MEO works partly because of that gap, right? The account team can sell you a uniform bundle because you can't articulate why a uniform bundle is wrong for you, or at least for a segment of your user population. So if you actually define your requirements, your power users, your knowledge workers, your supervisory and frontline workers, your developers, your contractors, you almost always find that a meaningful chunk of your users are paying for features they'll never touch. It's interesting. I just got off a call with a client this last hour and they were asking about moving up to E5. Is that a possibility for them? Does it make sense? And we looked at one of the components in E5, which is Power BI Pro licenses. When companies use Fabric F, skus and Azure, those things are largely worthless. And so you're talking about 18% of the E5 step up right there. That provides no value to the majority of your users. And yet Microsoft wants to spread that like peanut butter across your entire enterprise. E5 for everyone. Right. So once you can show that and you've got leverage to say no to the enterprise wide upstack bundle, you can show the CFO in real numbers what the inefficiency costs you. And this has to be done well before the MEO lands on your desk. Ideally started a year out, nine months to a year out. Once you're in the negotiation, it's too late to do that work. You're just trying to defend against the offer in front of you. So get ahead of it.
- [12:10]
A
Yeah, I've been hearing people say that Microsoft is telling them regarding E7. You know what, the easiest way to go is just license everybody for E7. That would be very expensive if a customer didn't know which of their users really needed full E7 and which do not. Right. So.
- [12:26]
B
Wow. And that comes with all kinds of other landmines that we could save for another call.
- [12:31]
A
Exactly. Exactly. Okay. Another suggestion you have in your blog post is really reset the business as usual baseline, which involves recalculating offered pricing. So it sounds like some customers need to be thinking about the effect of the elimination of volume discount pricing when they're looking at their current versus future pricing, right?
- [12:55]
B
Yeah, exactly right. So the way the MEO works, that business as usual column for your current E3 footprint, let's say, is quoted at full level A retail price. Now that the levels B through D are essentially discontinued, your exit year discount has also expired. So maybe you came out of this your level D customer. That represents a 12% discount on user subscription licenses, and you got an additional 10% off in that exit year of your customer price sheet of your contract. So that's gone now too, now without any of that in place. And then now a July price increase that's hitting customers whose EAs that are coming up for renewal, that compounds by another average 11% and results in about a 35% or more increase. So that's what Microsoft is using as the basis to compare an E5 or E7 deal. 2. Because that baseline the they're sitting next to is already seriously inflated by these three compounding factors. And so the move customers need to make is refuse that premise. Right. Demand that the business as usual column be priced fairly and don't concede your license volume. Even if your product selection form still shows the volume level you qualify for, it's still showing on all the easy the different pools that you're in and that you know your level C or level D Customer. There's just no discounts associated with those anymore. But Microsoft will tell you those volume levels don't exist yet. You know, when they of course have data centers and they're negotiating with the tax authorities or dark fiber vendors or power companies, certainly their volume earns them better discounts.
- [14:53]
A
Right, right, right.
- [14:54]
B
So come on here, let's push back demand reinstatement, you know, of your volume discount or an equivalent. Right, okay. And reset that, that business as usual so that if you are looking at an mbo, it's priced according to a better baseline premise. And so, you know, I would also say too that as you get into a renewal period, start looking at whether your EA can be translated to the cloud solution partner channel shopping, the CSP channel where discounts go as deep as 20% regardless of what E plan you're interested in renewing. You just take your business as usual bill of materials and you can shop it through the csp. Now, you may not ultimately go there, but that's a leverage for Microsoft conversation here. It's a separate subject I wrote about. You have to translate those SKUs carefully under the Microsoft customer agreement and you'll be leaving the known world of enterprise agreements for good at that point. There's no looking back if you do execute on that path. But pushing back, properly setting the baseline premise doesn't necessarily kill the MEO conversation. Microsoft can, at least in principle, pile more discount on the E5 and E7 to keep those year one columns aligned. But that often means millions in savings across all MEO options. And if they choose not to discount deeper and maintain the equivalency across the upstack options, the MEO conversation pivots back to what you should be discussing anyway, which is, you know, your roadmap and the features you actually need. Right. That value equation.
- [16:49]
A
Okay, I'm going to open the E7 Pandora's box here and say to you, okay, E7, how does this affect the whole conversation around me?
- [17:03]
B
Well, yeah, I have many thoughts on E7. E7 is what makes the Meo genuinely dangerous. And it's, you know, the, the newest piece of this. A year ago, customers were seeing a two column proposal. You know, a typical M365 E3 renewal versus a discounted E5 upsell. And now we're seeing those three columns, the inflated E3 based upon the factors we just talked about, the E5 equivalent and the E7 equivalent. And the E7 is the most aggressive of the three. The list price on E3 is, is much higher than E5, $100 per user per month versus $60 for E5 starting July. Microsoft offers a deeper year one discount on E7, sometimes 65% or more, to make that equivalency to your, say, your E3 business as usual. And that deeper discount masks the fact that you're starting from a much higher list price. The erosion is the same shape. By year five, the discount is largely gone. You've gotten the implementation Runway Microsoft will point to as evidence of value delivered, or at least the opportunity to have that value installed. And a likely price increase that has occurred during that five year forward looking EA. So expect that E7 to land somewhere north of $115. And don't be surprised if Microsoft has added new pieces to E7 by then that push it still higher. Or what we're seeing is other metric based services that surround E7.
- [18:45]
A
I'm seeing that, right? The add ons to E7, they're already starting to show up. They just introduced E7, but here come the add ons, right?
- [18:51]
B
Yeah, E7 bloat. So yeah, that math gets brutal. The E5 customer at year five is paying 58% more than the original E3, E7 paying 175% almost three times for a footprint they probably didn't request in the first place. They didn't evaluate on its merits. They weren't comparing year one totals out for the entire term and working out, as you know, in the kind of the full spectrum of the decision. And what E7 really does structurally is give Microsoft a third doorway into that trap. The customer feels like they have a real choice, three options, take your pick. And the comparison stops at year one. And that's the whole point. And that probably resonates more in the C suite when they look at some sort of a great deal Microsoft is offering. The FinOps folks will see through that, but they may not be the one making the decision. Multiple offers, singular outcome. And snap goes a trap.
- [20:00]
A
Watch out for that snapping trap. Okay, any final parting words of advice for those who are heading into an MEO discussion? Steve?
- [20:11]
B
Yeah, I'd say three things. First, don't treat the MEO as a pricing decision. I mean, it's an architecture decision with a procurement deadline stapled to it. Right? Loop in whoever owns architecture at your organization, your architecture review board, your security team, your ciso, you know, make them sign off on the five year vendor displacement plan that the company is about to commit to here. I've run into a few companies that will run crowdstrike in parallel with the Defender suite. But mostly it's making a vendor commitment to one stack. Right. So you know, if they wouldn't approve that plan in any other context, they shouldn't approve it because procurement has a signature deadline right now. Now secondly, you know, if you're signing the MEO anyway, and I get it, sometimes you are, sometimes the executive air cover just isn't there to refuse or you know, it just kind of, there's a, there's a corporate momentum that, that takes you down that path. Then negotiate two things into the contract. One, flatten out that discount erosion curve. Right. So Microsoft seem seemingly loves to do that, that five year, you know, 50, 40, 30, 20, 10 or 40, you know, all the way down to zero in your exit year. Right. So, so make sure that, that you're coming into your final year with a, a reasonable discount on exit now and demand appropriate amendments like a not to exceed cap on the renewal after this one thoughtfully written up into this contract. That NTE is the single contractual provision that neutralizes the trap. I just had a company we worked with and their NTE in their existing enterprise agreement, you know, save them from Microsoft resetting their E3 tenant at full price and then presenting that E5 Meo. Right? So hey, look, that E3 under a not to exceed clause was significantly reduced. I think they had a 25% discount on that at renewal. And that reset the premise from which the meos are based upon. Right, Right. And that's billions of dollars when you start taking that times, you know, 20, 30,000 users. So. And if Microsoft refuses to put it in writing and doesn't do an nte, I mean, look, that refusal is meaningful because an account team that won't commit to bounded pricing coming into the next renewal is telling you exactly what they intend to do to you. Right? Right. So you do have to think about what that next renewal is going to look like. And third, start early. We talked about that, right? You, you know, nine to 12 months out when we're doing the Persona auditing, if you will, to find out what licensing users really need, depending on the complexity of your firm. But you know, some of the firms we work with are multinational. They have, you know, it organizations that are around the world. So you know, only, you know, kind of what your organization looks like and how far out to maybe plan. But I would say a good solid nine to 12 months out. The MEO works on a calendar Microsoft typically sets. And the worst negotiations I see are the ones where the customer is inside 90 days. Right. And trying to land something on that short one way get ahead of that. Do the Personas and value point work. Get competitive quotes on in your back pocket in the CSP. If you can translate that that EA into CSP SKUs, you know, chart your exit cost. The customers who survived the MEO conversations are the ones that showed up with leverage, not the ones who tried to manufacture it in the final month.
- [24:04]
A
Yeah. All right. On that note, that's, that's a great way to end it. Thank you so much. This is a great topic and really good suggestions for our listeners. So thanks.
- [24:14]
B
Yeah, thanks Mary Jo. Always a pleasure. And for anyone facing a renewal in the next year, take a look at that article. You know, run that math and don't sign anything until that full 5 year meos are priced fairly against your selected architecture and your deployment velocity.
- [24:31]
A
Okay. 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 Blue Sky. 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.
- [25:19]
B
Sam.