Executive Briefing: Microsoft Azure

Updated: Mar 27

The marketplace for public cloud services is pretty much a two-horse race comprised of AWS (67%) and Microsoft Azure (15%). Both provide mature, enterprise-ready cloud offerings. Google is running in a distant third place with 3%, and all other vendors combined hold the remaining 15%.


Azure earned $3.4B to AWS’ $15.5 billion in 2017 but is expected to grow by a factor of more that 6X to $22B by 2023 and lay claim to 21% of the market, while AWS is projected to grow 4X during the same period to $64B.


Though Microsoft does not not publish exact revenue figures for Azure, they do report quarterly revenue growth, which has sustained an average growth rate of a whopping 94% over the last two years, with no end in sight.


In terms of pricing, Azure rates (unlike AWS’) are standard and published, with no negotiated commit. You can visit Azure’s website and look up a virtual machine and see exactly what you’d pay under standard pay-as-you-go (PAYG) rates on a one- or three-year reserved instance. Azure commits are typically incorporated as an amendment to your existing EA/SCE. And although 1- and 3-year terms are most common, we’ve seen contract with up to 7-year terms.


The primary benefit of a negotiated commit is the base commitment discount: a blanket discount off the standard PAYG rates across all Azure service and products. Microsoft is much more willing than AWS to negotiate discounts.  In addition to their standard, we’ve also seen Microsoft propose what they call “Target SKU discounts” of up to 40% off list, typically offered as an incentive to move off an incumbent or competing vendor’s solution.


Microsoft also offers a variety of credits, usually 10% or less of your total commit value.  Secondary credits are offered to cover things like consulting and support services, or for cloud architects on larger deals. The vendor is also open to different commitment ramp options.


In 2018, over 60% of the commit reviewed by ClearEdge were under $1M/yr. However, the single most common commit level was $1M-$3M/year, which is also the point where Microsoft starts negotiating things like discounts and credits.


SUPPORT 

Customers need not sign a separate support agreement specific to Azure – you’re covered under your existing premier or unified support agreement. Under premier support you pre-purchase a bucket of service hours and use them over the course of your annual contract. With the new “unified Support” option it’s an all-you-can-eat type model and pricing is set at a percentage of your annual EA spend. These options stand in contrast to AWS deals, which require you to purchase enterprise support when you enter into a commit.


BEST PRACTICES

When negotiating a commit with Microsoft, it is essential to start early and allow time for multiple rounds of negotiation. We recommend beginning with a low dollar amount and a conservative forecast. If you exceed your committed spend for a given year, Microsoft will charge you what they call “overage charges”, meaning you simply revert to standard PAYG rates and forego your discount on the excess consumption.


We also recommend running Azure negotiations in parallel with your EA renewal; we’ve seen the vendor offer additional discounts on the EA products to close the Azure deal.

It’s always wise to leverage competition – AWS or others – which often prompts Microsoft to offer those Target SKU discounts of up to 40% off list. It’s also worth pushing for credits/investments funds if you can make a business case for them (e.g., you need them to facilitate new workloads or to roll out large test/migration projects). We’ve also seen clients successfully leverage customer references for an additional deal sweetener with Microsoft.


A final note: customers are advised to carefully consider the financial impact of making an all upfront vs. an annual upfront commit.  The difference is, an all upfront commit means any unused commitment dollars will roll over year-to-year. In an annual commit, it’s a “use it or lose it” model; these dollars do not roll over. To learn more about this subject, click here to download our recent Executive briefing webinar, or contact a ClearEdge representative for a discussion.