Choosing the Right Microsoft License Agreement: A Comprehensive Guide

Software license agreements are specialized contracts that govern the relationship between a software buyer or the user group and the software vendor. As software costs have increased and the software itself has become both pervasive within organizations and expensive for organizations. Software license agreements have become more complex and morphed to include:

• Reducing costs
• Licensing metrics
• Usage limitations
• Reviewing clauses
• Service level agreements,
• Support or maintenance definitions

In the last ten years, reporting requirements have also entered the contracts as a way for software vendors to ensure their rights to reliable utilization data and deployment reports.

While a single agreement template per vendor would be ideal, software vendors have instead offered different types of agreements depending on the license type, software type, and client type. One such vendor, Microsoft, has at least 8 agreements and several sub-agreements to govern the various aspects of software purchasing and in turn support. The number of permutations is dizzying and the license complexity of Microsoft can easily lead to the wrong agreement. These mistakes can leave clients unprotected when it comes to one of the most expensive purchases organizations will make.

What are the most common agreements, what are the most common clauses to ensure are included, and what do best-in-class companies do to protect themselves?

The most common Microsoft products are the Office brand which includes Word, Excel, and Outlook. These include older on-premises solutions and current subscription-based offerings such as Office 365 and Microsoft 365. Of course, each is further complicated by levels of offerings that include additional applications, security, operating systems, and support. Microsoft has stratified these products around the 500-user level.

• More than 500 users or devices and the organization must use an Enterprise Agreement (MEA). This is a transaction-based, committed agreement over a period of years. For government organizations, the user level is set at 250 and higher. This agreement includes Enterprise Enrollment, Subscription Enrollment, and Server and Cloud Enrollment. MEAs offer the best discounts for organizations that qualify as noted above. In addition to Office and other desktop products, the MEA also includes Server and Cloud Enrollments (SCE) for families of products that qualify. These may include SQL Server, CIS Suites, and SharePoint. A unique aspect of the MEA and specifically the SCE is that software purchased using these agreements is required to carry Software Assurance, a service that provides upgrades and other benefits, but carries an additional charge.
• For organizations with less than 500 users (250 for government organizations), the Microsoft Online Subscription Agreement (MOSA) is the applicable agreement. This is a transactional, directly procured agreement for applicable cloud services. This is a non-negotiated agreement that is better known as a ‘shrink-wrap’ agreement or a ‘click-through’ agreement. Since this applies to cloud-based offerings that require pre-payment or up-front payment, such things as audits are less of a concern for clients and for Microsoft. Better known as pay-to-play, if the client no longer pays for the acquired software (monthly or annually) the applications will cease to operate.

Other common Microsoft agreements for organizations that qualify include:

• Select Plus which is a transactional committed agreement for government and educational organizations of 250 users or more. The big difference from the MEA is that select plus does not require a commitment level nor does it require Software Assurance. For organizations that qualify and want to use perpetual licenses without a long-term commitment, the Select Plus agreement may be the right agreement.
• Microsoft Products and Services Agreement (MPSA) is a transactional agreement for most organizations with about 250 users. This agreement can be used for non-committed purchases of on-premises software and cloud services. A commitment is not required nor is Software Assurance required.
• Open agreements are subscription and volume agreements for small organizations that may include discounts, depending on volume.

For MEAs, organizations should focus on audit and true-up clauses. A nice-to-have clause is also a true-down if an organization may see seasonal reductions. The audit should include requirements for non-disclosure, audit scope, and audit timing. The scope will limit the products, and potentially the organizations, that can be reviewed. Audit timing will include such things as notice requirements and commitment requirements. Both should be as long as possible.

Best-in-class companies ensure that they are getting the best deal possible by benchmarking and engaging competent negotiation support. They ensure they are protected as much as possible from audits through implemented SAM practices that include audit response and reliable effective license positions that are built and tested regularly.

The following chart summarizes the types of agreements that are available for various organizations and the one that is best. Competent independent license and negotiation support should always be engaged whenever there is a Microsoft contract question.