Microsoft keeps Copilot prices flying high using your EA

As Microsoft continues to build out Copilot, their productized artificial intelligence (AI), they are pushing customers to acquire one or more of its many offerings. Copilot is a hot topic as it promises increased productivity and automation, which has customers eager to give it a try, so they play right into Microsoft’s hands.

Rather than discounting Copilot in their flagship volume licensing program, the Enterprise Agreement (EA), Microsoft appears to be incenting customers with reduced or no cost concessions on established offerings. This is driving adoption numbers higher, which is great for sales and marketing. It also keeps Copilot price points near list price, which is great for product category margins.

But is it great for customers?

To answer that question, let’s take a look at how Microsoft is threading Copilot into the renewal process. Before accepting Microsoft’s “generous offer” to add Copilot to their EA, sometimes without asking, a customer should consider the impact it will have on their existing EA and other purchases.

EA Renewals

This is the first opportunity for Microsoft sellers to plug Copilot into the typical end-of-fiscal-year sales cycle. Assuming 70-80% of Microsoft’s customers have contract anniversary dates in calendar Q2/Microsoft’s fiscal Q4, we can estimate that roughly 20-25% of customers will have EA renewals in 2024.

This positions those customers as ideal test subjects in Microsoft’s go-to-market approach. It appears that Microsoft is placing its current customers into two categories to accomplish this:

• Customers with little to no interest: At little or no cost, customers with little to no interest in Copilot are being asked to add a few subscriptions. This is to let their employees “test” features and potential benefits. In turn, adding Copilot to the EA triggers an entry in the “future pricing” table of an EA. For instance, if Copilot is acquired at the list price of $30 per user per month, then future purchases in the EA will also be at list price. If a sizable organization wants to expand Copilot significantly later on, having Copilot in the future pricing table may preclude a negotiated acquisition, even with a large up-front commitment. Instead, customers may want to leverage non-EA programs for a 1-year Copilot purchase while also asking Microsoft to discount their EA to create a “no cost” evaluation.

• Customers with high interest and quantities: Customers with significant interest and scope for Copilot may be incentivized to add a number of subscriptions to secure better contract discounting and obtain services for deployment and integration of AI-related services. If the discounting supports adding Copilot while also securing reasonable price points for core licensing, this is a viable option. However, some additional asks may make a commitment unnerving, including press participation, minimum quantities throughout the contract or having to use a Microsoft partner for services funds.

The key is to know your rebuttals before engaging, including your walk-away thresholds.

Non-Renewal Acquisitions

Organizations without EA contract renewals in 2024 have different opportunities and challenges. If Copilot was acquired through a supplemental customer price sheet (CPS) which became available in late 2023, the pricing may be set for the term in the future pricing table. In these cases, customers with a potentially large acquisition can either try to re-negotiate pricing or perhaps postpone purchases until the next contract renewal.

If an organization hasn’t yet acquired Copilot, there are three primary options to consider:

1. Negotiated acquisition through a Supplemental CPS: If the purchase is large enough to warrant negotiated pricing, a Supplemental CPS can be used both for the acquisition and to set future pricing through the contract term. As with typical EA renewals, various pricing and payment options can be incorporated to accommodate the deployment schedule, budget limitations and other non-standard terms.
2. Purchase one, then reserve and pay for additional quantities later at list price: Purchasing a few licenses on your EA through your reseller, and avoiding a Supplemental CPS, enables a customer to use the reservation process — use now, pay later — and avoid a licensing minimum quantity. While the price is non-negotiated and no future pricing is set, new licenses should reflect the updated price point if pricing decreases. Conversely, if pricing increases, then a customer may consider a Supplemental CPS prior to the price change to avoid the change.
3. Use a different volume licensing vehicle: If organizations would like to test Copilot without an annual commitment, they can use a month-to-month program, which is typically 20% higher than annual commitment pricing. Organizations can also acquire Copilot with other non-EA contract types at list price. Organizations that want to avoid using the EA reservation process due to business, accounting or other reasons may find non-EA programs most interesting.

Summary

Microsoft continues to drive customer adoption of Copilot in its many current and future forms (i.e. everything but the kitchen sink) primarily through their EA contracts. Beware of establishing future pricing at list price or making pricing trade-offs that result in evaporating or non-existent cost savings.

If no discounts and services are offered, consider using non-EA programs for purchases and incrementally adding quantities rather than making an up-front commitment.

Finally, the speed of technology innovation must be considered relative to the crawl of technology adoption. Microsoft may be rapidly adding features to existing services through Copilot integration, but if the challenges to implement, adopt and change behavior are great, then the value diminishes. It’s like grass seed in the Sahara — good potential lost in all the hot air.

Remend can guide you through the considerations and integrations of Copilot to your EA.

Contact us today!