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Enterprise Agreement Refresh – What You Need to Know About EA 2011’s Significant Changes
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By John Cullen, Directions on Microsoft
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In mid-2011, Microsoft rolled out noteworthy changes to its Enterprise Agreement (EA) contracts. A tighter true-up reporting timeline, changes to how discount levels are determined, and other contract modifications will impact both new customers and customers coming up for renewal. Although the new contracts themselves are not likely to materially alter an organization’s overall licensing costs, they do affect procurement professionals by changing the scope and the timing of certain Enterprise Agreement (EA) administration tasks. Furthermore, changes to the EA contract structure and the timing for customer licensing inventory report submissions could require attention from legal and finance departments.
What Is an EA?
An EA lets organizations with 250 or more PCs license almost any Microsoft business software or services offering. EAs typically offer the best unit pricing, including significant discounts on server software. However, some licenses must be purchased organization-wide or in certain combinations, and all new purchases commit customers to annual maintenance payments. This can lead to over-licensing (purchase of licenses and rights that an organization does not use). Consequently, other licensing programs are often used to supplement, and occasionally as an alternative to, an EA.
The most widespread form of EA is most commonly referred to as a desktop EA, but the official Microsoft name is Enterprise Enrollment. With a desktop EA, an organization can license all its client PCs and users for Microsoft’s most important software at a predictable annual cost, thereby simplifying budgeting, procurement, and compliance.
Desktop EAs require organizations to license at least one enterprise product company-wide. The Windows Professional upgrade (licensed per-device), Office Professional Plus (licensed per-device), and the Core and Enterprise CAL Suites (licensed per-device or per-user) are considered enterprise products. Microsoft recently introduced the concept of enterprise online services—namely Office 365 Plans E1-E4 (Suites) and Windows Intune—which can now be used to help satisfy the desktop EA company-wide requirements. Other products available through an EA are known as additional products and can be purchased on their own, in any quantity and at any time during the EA term.
As is the case with several other volume licensing programs, desktop EAs categorize products into three distinct silos known as pools: the systems pool, the applications pool, and the servers pool. Volume pricing discount levels are typically determined by enterprise product/enterprise online services purchases within a particular pool rather than by the customer’s total overall purchases. This discount level also applies to additional product purchases within the same pool. EAs have four discount levels—designated Level A, B, C, or D—with Level B providing a 7% discount over A, C a 14% discount over A, and D a 21% discount over Level A.
2011 Version of EA Changes Basic Terms
Microsoft modifies EA contracts annually, usually each October. However, this year the changes were rolled out in July, mainly to coincide with the launch of Office 365.
The new version of the EA contracts, called 2011 EA in this article, modifies basic terms for EA customers, including what devices count for licensing purposes, how prices are set, when annual payments are required, and how agreements will be renewed. The 2011 EA also incorporates online services terms and conditions that previously were spelled out in an addendum that customers needed to sign prior to ordering online services. (These related items will be discussed in a future article.)
Qualified Desktops Changed to Qualified Devices
Since inception, a key element of desktop EA enrollments is a client device count that often determines both the minimum quantity of enterprise product license(s) that a customer must purchase as well as the discount that a customer receives for all license purchases within that pool. The 2011 EA makes a subtle but potentially important change to what must be counted and gives customers the option to include client devices that would normally be excluded.
Old rule: For purposes of Windows upgrade and Office Suite licensing, and sometimes Client Access License (CAL) Suites as well, existing desktop EAs count qualified desktops, generally defined as devices capable of running an application such as Office. They include laptops as well as desktop and workstation PCs (including Macs) but do not include servers, devices running an embedded operating system that are not used to access a virtual desktop infrastructure (VDI), or dedicated line-of-business devices such as sales terminals, order entry stations, kiosks, and dedicated financial trading workstations, to name a few.
The standard pre-2011 EA contract didn’t provide a means for customers to add devices to the qualified desktop count that did not meet the prescribed qualified desktop definition. For example, there wasn’t a programmatic way to acquire the Core CAL Suite for dedicated line-of-business devices via the EA by (voluntarily) electing to include these devices in the qualified desktop count.
New rule: In the 2011 EA, qualified desktop is replaced with a new term, qualified device, which expands what’s counted. If a non-PC device such as an iPad or smartphone is brought onto the organization’s physical premises and used to access the organization’s VDI, the devices must be included in the qualified device count. Whether the iPad or smartphone is owned by the employer, employee, or other entity is of no consequence.
The flexibility for customers to include, as a qualified device, any device which would normally be excluded by the qualified desktop definition, is also built into the 2011 EA language. Customers can use this provision to simplify their purchasing and take advantage of the EA’s better volume discounts on enterprise products (compared to Select and Select Plus).
Impact: Though not widely understood, it is a longstanding Microsoft policy that iPads and smartphones used to access VDI often need to be licensed with a Virtual Desktop Access (VDA) subscription, and if used to access Office running on a VDI host, they typically need to be assigned an Office Suite license as well. The only exceptions are devices that meet three criteria: First, the device is not organization-owned or otherwise controlled by the organization. Second, the device is used as a VDI client only when the user is roaming and is never used as a VDI client when on the organization’s physical premises (i.e., corporate campus or branch office). Third, whoever is using the device must be considered the primary user of a PC with Software Assurance (SA) on Windows or some other device already covered by a VDA subscription. If Office is being accessed over VDI, whoever uses the device must be considered the primary user of some other Office-licensed device covered by SA.
Going forward, it is clearly Microsoft’s intention to use EAs to increase compliance with these preexisting rules and to make compliance more convenient. Previously, EA customers had to purchase VDA or Office licenses for iPads (or any other device that didn’t fall under the definition of qualified desktop) separately under Select or Select Plus (typically at a higher cost and less convenience than under an EA) or arrange a special accommodation to include the devices in the qualified desktop count.
True-Up Deadline Shortened
An integral part of most types of EAs is an annual true-up process, whereby the customer takes an inventory of software use to determine the number of licenses required for compliance, compares it with last year’s figures, and pays for any increase. For enterprise products, the inventory is of qualified desktops/devices (or in some cases, qualified users); for additional products, the inventory is of actual product deployment. While the general nature of the count hasn’t changed, some of the timing has.
Old rule: The true-up order must be submitted between 60 days prior to, or 15 days following, the anniversary of the EA Enrollment. The third-year anniversary true-up order must be submitted on or before the end of the enrollment term.
New rule: Under the 2011 EA, the first and second year true-up orders must be received by Microsoft between 60 and 30 days prior to the enrollment anniversary dates. Customers may set the invoice dates for these orders to the anniversary, 30 days after which the payments are due.
Timing rules for the third year true-up remain unchanged. The third-year anniversary true-up order must be submitted during the last 30 days of the enrollment term, and payment is generally due 30 days from receipt of the invoice.
Impact: For some organizations, the alteration of the true-up schedule may require changes to their asset management and IT budgeting processes. Organizations should check their internal financial systems to see if the change will pull true-up costs forward into a different budgeting or fiscal reporting period, and prepare accordingly.
New Formula for Determining Discount Levels
In a desktop EA, the volume of enterprise product and enterprise online services purchases a customer makes determines which of four discount levels (A through D) it receives. Mainly to accommodate the inclusion of Office 365 and Windows Intune into EAs, the 2011 EA uses a more involved formula for determining discount levels for enterprise products and enterprise online services. For customers who don’t purchase online services, the changes will rarely affect discount levels, and when they do, the discount level will be more favorable.
Old rule: For the two enterprise products licensed per device—Windows upgrade and the Office Suite—a customer’s discount level is determined by the number of qualified desktops in a customer’s organization. Discount Level A applies if the customer licenses 250 to 2,399 qualified desktops, Level B for 2,400 to 5,999, Level C for 6,000 to14,999, and Level D for 15,000 or more qualified desktops. For example, a customer with 8,000 qualified desktops that purchases Office Professional Plus under a desktop EA gets Level C pricing for its enterprise-wide Office Suite purchase.
For Core and Enterprise CAL Suites, customers can elect a per-device or per-user licensing model. When the customer selects the per-device model, the discount level is always determined by the qualified desktop count, and when the customer selects the per-user model, the discount level is typically determined by the qualifying user count. (Level breaks for the qualified user count are the same as for qualified desktops, so, for example, Level B is for 2,400 to 5,999 qualified users.) The only exception is if the customer licenses all three enterprise products under the desktop EA; in that case, the discount level for Core/Enterprise CAL Suite licenses are determined by the qualified desktop count regardless of licensing model chosen for CAL Suites.
When purchasing additional products within a specific pool, a customer receives the same discount level as for its enterprise product purchases within that pool. For pools from which no enterprise product is purchased, the Level is A is used. For example, if a customer licenses 15,000 Core CAL Suites (Servers Pool), the Level D pricing it achieves for this enterprise product will apply to additional product purchases in the Servers Pool, such as SQL Server licenses.
New rule: With the 2011 EA, the enterprise products and enterprise online services are logically grouped into four price groups that map to Microsoft’s three product pools. Rather than count the number of qualified desktops/users, a customer counts how many licenses it has ordered from each of these four price groups. The price group with the largest quantity of licenses is used to determine a common discount level for all ordered enterprise products and enterprise online services. (For an example, see the chart “Discount Level Calculation under 2011 EA.”) The quantity ranges associated with each discount level remain unchanged.
Similar to before, the discount level for additional product purchases within a pool is determined by the customer’s enterprise product and related enterprise online services purchases within the related price group, with Level A being the default if no enterprise product was purchased from that price group.
Impact: The new discount formula provides incentives for purchasing online services within an EA. First, customers get to purchase online services at a discount level established by the largest volume of enterprise product and enterprise online purchases across the four price groups. Second, purchasing online services on top of the enterprise products the customer already has can improve the company’s existing discount levels. Furthermore, the decision to provide a common discount level across purchases in all four price groups is simpler than alternative approaches that Microsoft could have used.
Customers who skip online services might also benefit. A customer licensing the Core/Enterprise CAL Suite per user, along with the Windows upgrade or Office Suite (but not both) per device, could benefit from the new rules if the respective user and device quantities straddle different price levels. For example, consider a customer with 2,000 qualified users and 3,000 qualified devices. Under the old rules, when it purchased 2,000 per-user Core CAL Suite licenses and 3,000 per-device Office Professional Plus licenses under a desktop EA, it received Level A for the Core CAL Suite and Level B for Office Professional Plus. Under the new system, both the Core CAL Suite and Office Professional Plus receive the better Level B discount.
Discount Re-Leveling Introduced
What a customer pays for a license purchased via an EA is determined by applying its discount level to the base license price, which in most cases remains fixed throughout the entire EA term. (The base price is always fixed for enterprise products and typically is for additional products, depending on the timing of the initial additional product license purchase.)
Old rule: A customer’s discount level for each pool remains the same throughout the EA term. Because the base price the discount is applied to remains fixed under all circumstances, the price a customer pays for any enterprise product license covered under an EA remains constant for the entire EA term. (These fees are published on the price sheet each customer gets at the beginning of a new EA and at an EA renewal.) The price lock applies to the cost of the underlying product license as well as the annual fee for Software Assurance (SA), a subscription program offering new version rights and other benefits. However, the price lock also means that a customer won’t get a better price if an annual true-up pushes the overall qualified desktop count to a higher (better) discount level.
New rule: With the 2011 EA, the customer’s discount level may be changed during the course of the EA, but the base price the discount is applied to remains fixed. For instance, if a customer meets a better discount level with additional purchases made in a true-up, the customer may request that the better discount apply to the additional purchases (it doesn’t happen automatically). Microsoft may also re-level a customer’s discount if it determines that the customer is no longer qualified for such discount (for instance, through a corporate divestiture where the customer decreases the number of PCs in its organization). Such re-leveling would require a new customer price sheet to reflect the new discounts, and Microsoft specifies that re-leveling applies only to future orders.
Impact: Because it is now possible for a customer’s discount level to change during the course of an EA, licensing costs may be somewhat less predictable. However, more often than not, this could work in the customer’s favor. For example, the purchase of online services—such as Office 365 E-level Suites or Windows Intune—through an EA could push the customer into a better discount level, improving the discount level in time for the next annual true-up.
One-Year Renewal Option Removed
EA enrollments have an initial three-year term and a one-time extension clause that gives the customer some renewal options.
Old rule: The renewal term can be for one year or for three years. The one-year renewal option may be attractive to a customer whose business is in transition and who needs some time to reassess IT needs. The one-year option also could interest customers waiting for a major product upgrade that they expect to become available during a one-year EA extension. On renewal, the customer is issued a new price sheet that reflects any changes Microsoft has made to its base license prices; otherwise, the same terms and conditions continue for the one-year renewal period. A customer choosing a one-year renewal must maintain the same quantities of products and same enterprise products selected in the initial purchase.
New rule: With the 2011 EA, the one-year renewal option is removed, and customers may renew their EAs for a three-year period only.
Impact: Under the 2011 EA, customers won’t have the flexibility to extend the terms of their EA for 12 months to give them more time to reevaluate their IT needs or to gain new version rights to a product set to release in the coming year (and thereby be in a better position to potentially drop the EA at the next anniversary). Because all renewal decision will have long-term implications, organizations may need to start their deliberations earlier than in the past.
Renewals Allow Changes to Enterprise Product Mix
When a customer approaches the end of its EA term, it may desire to change the mix of enterprise products and enterprise online services covered under the contract.
Old rule: By definition, exercising the EA renewal clause meant keeping the enterprise product selection unchanged. If a customer wished to change the mix, a new EA enrollment was required.
New rule: A customer may now renew its EA for another three-year term and change the mix of products. It is no longer required to start a new EA enrollment to make changes.
Impact: With the ability now to add or remove enterprise products in a renewal, the customer doesn’t have to run a new enrollment contract through its legal department. There will be less paperwork and administration, thereby streamlining the procurement process.
Training License Rules Clarified
The EA program provides customers with complementary licenses for training purposes. Under this provision, customers are entitled to use multiple Microsoft products simultaneously, and up to 20 free copies are provided for each product.
Old rule: The training licenses were restricted to an on-premises training facility.
New rule: With the version 2011 EA, the training licenses are restricted to an on-premises training facility and may be used only for purposes of training on that particular product. Microsoft positions the new contract language as a clarification rather than a rule change.
Impact: The new clarification means that, for instance, Forefront Endpoint Protection licenses may not be used on the training PCs for purposes of securing and protecting such devices; they may be used on the PCs only to train on Forefront. It can also mean that a customer doesn’t receive free licenses for Windows if the PCs are for training users on Office.
Renewing Could Mean Signing New Contracts
With the text of current and past EAs, Microsoft reserves the right to make program changes that require a customer to sign new contracts at the time of a renewal. For new EA customers, and for those renewing their EA after July 2011 and purchasing or planning to purchase online services, the version 2011 contracts will be required. For purchase of online services in older EAs, a separate addendum was required. The terms of this addendum have been updated and consolidated under the 2011 EA in order to simplify the EA contract structure.
At the end of an initial three-year EA term, the customer previously had the option to renew and extend the same terms and conditions for a one-year or another three-year term. When maintaining the same set of enterprise products in the same quantities, new contracts were not required, which meant that internal legal department review was sometimes unnecessary. If a customer with a pre-2011 EA wants to renew and is not planning to purchase online services, exercising the available one-year or three-year renewal clause is still possible.
Customers requiring the version 2011 contracts will need to perform an additional internal legal review. The 2011 EA has a new contract structure (many sections are moved from the EA to the EA Enrollment), so a point-to-point comparison won’t be as simple as in the past. Customers will have to understand the impact of these contract changes and ensure that any custom terms in the old agreement are incorporated into the new agreement.
2011 EA Discount Level Summary and Calculation
The 2011 Enterprise Agreement (EA) introduces a new formula for determining discount levels for enterprise products and enterprise online services. EAs have four pricing tiers—Level A, B, C, and D—with the Level D discount being the best.
In the new scheme, enterprise products and enterprise online services are grouped into four price groups (see the chart below). At the start of an EA, a customer specifies how many licenses it is ordering from each price group. A discount level is determined using the largest price group quantities specified. Discount Level A applies for a license count of 250 to 2,399, Level B for 2,400 to 5,999, Level C for 6,000 to 14,999, and Level D for 15,000 or more. This discount level is then applied to all enterprise products and enterprise online services purchases made within the EA.
For example: A customer orders 250 licenses from price group 1, 0 licenses from price group 2, 6,000 licenses from price group 3, and 15,000 licenses from price group 4. Because the largest license count is price group 4, the customer receives the Level D discount for all enterprise products and enterprise online services.
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|Price Group||Licenses Types Included in Price Group Count|
|1||Office Professional Plus and
Office 365 (Plans E2-E4)
|2||Core/Enterprise CAL Suites and
Office 365 (Plans E1-E4)
|3||Core/Enterprise CAL Suites and
Windows Intune Add-on and
|4||Windows Desktop Upgrade and
Windows VDA and