Why Buying Office 365 as Volume Licenses Is a Bad Idea

​June 2018

This open letter was written in response to several inquiries that have come in over the past year in which customers are seeking quotes for Office 365 through MS Open, Open Value, or other Volume License programs from Microsoft.

In our previous open letter, Who Buys Office These Days? we addressed the different channels for licensing Office 2016 both conventionally and as a subscription.

Similarly, Microsoft seems to have staked out a position for Office 365 that creates heavy advantages for purchasing it via the Cloud Solution Provider channel rather than the traditional Volume License channels that most IT folks responsible for managing and purchasing licenses are accustomed to.

What Options Are Available?

Let us first give a quick overview of what your choices are:

1. Buy Office 365 Directly from Microsoft
2. Negotiate an Enterprise Agreement and Buy through a LAR (Large Account Reseller)
3. Purchase Annual Licenses for Office 365 via MS Open, Open Value, or other Volume License (VLSC) program
4. Buy Office 365 from a Cloud Solution Provider (CSP)
   

Direct from Microsoft

On the Cloud Services section of our website, we make a pretty good case for why purchasing directly from Microsoft probably isn't your best option. So, we won't go into detail about that here, except to say that if you go this route, your support resources and options for reducing the number of users will be substantially limited compared to CSP.

Enterprise Agreements

Enterprise Agreements are often the preferred method for Microsoft customers who have over 300 users. However, they do come with their fair share of headaches. These include the fact they can take a long time to negotiate, "sleeper licenses" (services that Microsoft has thrown into the agreement but that customers aren't making use of), and the need to re-negotiate and true-up the agreement every three years or so.

Therefore, it's not a big surprise to even hear Microsoft's folks telling us that they see customers transitioning into other channels as their EA deals come up for renewal. And Microsoft keeps making this easier by increasing the number and types of licenses that are made available through CSP. These days, MSDN and Windows 10 Enterprise are now available on a subscription basis.

Comparing VL to CSP

With the background information out of the way, let's compare traditional Volume License programs to Cloud Solution Provider.

Talking about the maturity of each program, it's important to understand that VL has been around a lot longer than CSP. In fact, for a long time VL was the go-to option for anyone buying more than a handful of Microsoft products.

By contrast, CSP was rolled out in 2016 and to be completely honest, Microsoft is still making adjustments to the program to try and strike a balance that works for everyone. This includes changing the rules for indirect vs. direct resellers (those who go through a distributor like Ingram Micro vs. those who buy direct from Microsoft), adding more options for licenses like Windows or MSDN, and extending into special programs like academic licenses and Government Community Cloud (GCC).

However, VL's stability and maturity are something of a double-edged sword, since the established ways of doing business have often proved to be difficult to adapt to a cloud-based world.

So, while CSP may not allow you to buy every Microsoft product you may need, it still comes out ahead in many ways and should be your go-to option whenever a Microsoft product is available through both channels.

For starters, all cloud licenses purchased via MS Open or Open Value are going to be for one year. These are delivered to the customer using product keys, which are then copied into the Office 365 Administration Portal. Once the license key is activated, it can't be used anywhere else. The license is good for 12 months, and that's that. You can't transfer it to another tenant, change the number of users, or redeem it for an upgrade to a better plan.

Compared to CSP, these limitations of VL licenses are stark.

When you purchase a license from a CSP partner, the number of users for that license can be increased or decreased as needed at any time. While it's possible for the CSP partner to set up an annual license that can't be changed for a year, there are many reasons why it's usually better to set these up as monthly plans on the back-end regardless of whether the customer chooses to pay monthly or yearly - the most important benefit being the flexibility to credit the customer for pro-rated months in the case that the license needs to be upgraded to a different plan later on.

One thing that really frustrates us as a Microsoft partner is the amount of time it takes to help a customer get set up in VLSC (Volume License Service Center) portal. Typically, we'll start the process from the point where a company thinks they may have had VL licenses a few years ago, and often they do not know or remember their login for the portal. Sometimes, this will be their first VL purchase, and in that case it can take Microsoft over a week to process the request from the distributor and get things in place. That's a long time to go without product that you've already paid for.

By contrast, CSP licenses can generally be provisioned the same day or next-day when the order is placed.

Another benefit to CSP is that the Microsoft partner maintains a lot more flexibility regarding the price you'll pay for licenses than they otherwise would through the VL program. While partners are equally free to sell you either type of license, our experience is that margins on CSP licenses are sometimes slightly better than the same products through MS Open or Open Value. In fact, MSRP on VL licenses is sometimes higher than the equivalent CSP license. Therefore, all other things being equal, we would generally recommend CSP.

The flexibility also allows the Microsoft partner to work with you to make payment arrangements that are best for your business. With VL, all the money is due up-front. CSP can be billed in a variety of ways, typically monthly, but also quarterly and yearly arrangements are also common. Some of our customers have asked us to arrange the billing to match their fiscal year; this is absolutely no problem with CSP. These accommodations can help you manage cash flow, the impact of costs on your financial statements, and the balance between OPEX and CAPEX.

While it doesn't necessarily follow that the customer will be offered a better price, partners do have this freedom. Our philosophy has always been that Microsoft sets the bar on prices for Office 365, since these are available publicly on Microsoft's site, and that partners should be selling with those prices in mind as a ceiling - though our observation is the many resellers are going above the Microsoft retail price due to the high costs associated with managing and supporting clients.

Here's our advice. It's probably not productive to look for deep discounts on Office 365 licenses. The prices are well established, and the margins are pretty slim, with Microsoft keeping most of the money (rightfully, we might add). If you want to get some leverage from your vendor, go after the price of so-called "value-adds", which are typically services added to Office 365 that the partner will have better margins and more control over costs.

In fact, most Microsoft partners need to sell services, third-party products, or their own IP just to ensure that selling Office 365 is a sustainable business model. You'll get the best responses if you make it clear that you're willing to pay the "street price" for Office 365 and engage in buying these value-adds provided that the partner offers you some incentive. If the partner is charging more than MSRP, ask them to spell out exactly what you'll be getting for a few extra bucks a month per user. Better yet, have it broken out into a separate line item, so you can hold them accountable for it later.

As a final note, let's talk about support. CSP agreements with Microsoft require the partner to maintain a certain level of support for the end user for as long as the Office 365 license is under their control. This typically means providing a first tier 24/7/365 help desk, and some partners offer quite a bit of support before taking the most significant issues back to Microsoft. VL licenses have no such requirement, which means you're at the mercy of the Microsoft partner to decide how they want to support you - if they promise any support at all. If you purchase Office 365 via MS Open or Open Value, get a copy of your vendor's SLA in writing ahead of time and be sure to get a signed commitment to support the plans for the full year term.

So, we've talked about all the ways that CSP program is superior to VL, specifically:

For all these reasons, we advise our customers to choose CSP over VL whenever that's a realistic option. We think you'll agree that the deck is stacked against the old ways of doing business.

The Definitive Microsoft License Channel Cheat Sheet

Having been through the pros and cons of VL vs. CSP, we'll end by stacking all the different channel options side-by-side so you can decide which is right for you. Once you know the correct path for your organization, feel free to reach out to us for a quote.