8 sure-fire ways to screw up a cloud contract

Read these tips before you sign anything

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"Many customers have bought Office 365, but when I ask how they use it they say they don't," DeGroot says. There's no price benefit to buying the service early, and if it's rolled into a three-year renewal contract you're stuck paying for it for the entire contract term.

"If you're going to use it next year, buy it next year," he says.

In DeGroot's experience, only about 40% of businesses try to negotiate on new contract proposals from Microsoft. One reason may be the confusion businesses face when contemplating Microsoft's myriad licensing options. Three years ago Microsoft offered 46 choices for enterprise agreements. Since then that number has ballooned to more than 178, and most of the increase is cloud related. "It's insanely complex," he says.

But pushing back has another benefit: Microsoft has been willing to cut deals. One Pica client demanded that Microsoft remove a Yammer component worth $50,000 from a proposal, but later relented when the salesperson offered a $78,000 discount on something else.

"The customer has no intention of using Yammer, but the Microsoft rep got credit for selling it to him, and the client knocked $28,000 off his licensing bill," he says.

In another case a global Fortune 500 client refused a seven-figure proposal that included Office 365, but accepted the deal after Microsoft offered a discount on the rest of the contract that added up to three times what the vendor would charge him to add Office 365. "Microsoft is buying some of these agreements," especially for large firms that can serve as marquee customers, DeGroot says. "We have customers paying $1 a seat for Office 365 Enterprise E3, which is normally $20 a seat."

Microsoft licenses may not be the most expensive thing in the IT budget, so some large businesses may not give them as much scrutiny as they deserve. "Even if it's only 1% of the IT budget, that could be $1 million," DeGroot says. "Isn't it worth taking a closer look to save $1 million?"

7. Keep your on-premises systems running in parallel with the new cloud service

One of the biggest benefits of moving to the cloud comes from the reduction in on-premises management costs. For example, if you move to Office 365 you no longer need an Exchange administrator. But many organizations are slow to shut down the on-premises systems, or choose to migrate only a small subset of users, such as those in a remote office, to the cloud.

That's usually a mistake, says DeGroot. "I see a lot of companies with small amounts of Office 365, but it doesn't work in a small way."

Setting up just 25 people with Office 365 and then configuring those users to use Exchange email is quite a bit of work. And if you use SharePoint and Office 365, will you synch the Office 365 version of SharePoint with the on-premises SharePoint server? "That is not a trivial project," he says. If you choose to do the syncing, at that point you're duplicating costs and then some. "You're paying a premium to Microsoft to manage the servers and you haven't reduced your on-premises management costs at all."

If you're planning a transition to the cloud, scrutinize the licensing for the on-premises servers you'll be phasing out while negotiating on the cloud service. Do you really need Software Assurance for your on-premises software, which gives you access to the next upgrade, if you'll be off the platform within three years? Cancelling can save a lot of money, DeGroot says.

One client on its way to the cloud, a business with 10,000 employees, saved over $1 million by cancelling its Software Assurance contract.

Another client went even further. A global investment firm with 200 offices decided to run Office 365 in its smaller offices, and then refused to continue to pay Microsoft for maintenance on the on-premises servers that were supporting those users. "They said, 'We're not going to pay for the perpetual licenses and pay maintenance on those products when we're moving the whole thing to the cloud.'" If you're going big on cloud, cutting back on on-premises support makes good business sense.

8. Don't negotiate a volume pricing agreement that accommodates the best- and worst-case changes in your seat count

You may have 50 users on that CRM platform today, but what happens if you grow -- or suffer substantial layoffs? How much does each incremental user add -- or subtract -- from what you'll pay?

Chances are, if you haven't negotiated that into the contract, you will end up paying far more than you should. You may not enjoy volume discounts as you grow, you might have to pay for empty seats and you could even end up paying more to add a new user if the provider's offerings change. For example, Salesforce.com discontinued its unlimited edition, which gave the user full access to all features and services. Now you may have to pay extra to give that user access to some features, such as Premier Support or mobile access.

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