SAM

Conclusion:

When considering the level of Microsoft/Office and licensing, the biggest conundrum is generally around E3 versus E5 licensing. E3 licensing is closest to the capabilities organisations have had with perpetual licensing for the Office Pro suite. E5 licensing adds a slew of new services, including security, analytics, and advanced e-discovery and enterprise voice.

The Latest

19 August 2021: Microsoft has announced pricing increases for its Office 365 and Microsoft 365 offerings, which has resulted in a great deal of media coverage.Microsoft is at pains to point out that it has not increased its prices on 365 for a decade, and during that time has added a great deal of functionality (20+ applications) to the portfolio.

The Specifics

Microsoft is still working through how the new pricing will be applied in the Australian market and an announcement is expected soon. IBRS will perform a detailed cost analysis at this time. However, Microsoft has confirmed that any changes to local pricing will mimic the North American price changes. 

Based on the US data, enterprise and business plans will see increases in March 2021. Based on US$, the dollar amounts range from US$1 to US$4 per user per month, or US$12 to US$48 per user per year, with the percentage increases running from a low of 9% to a high of 25%. Microsoft F-series licences for frontline workers and Microsoft 365 E5 are not subject to price increases. Consumer and education-specific plans (the A-series) are also unaffected by the price increases.

The new pricing structures will disproportionately impact small businesses and those with the lower levels of the Microsoft suite, while enterprises with E5 licences will be left unscathed. That in itself reveals Microsoft’s clear intent to nudge the market towards its E5 offerings. It is estimated that only 8% of Microsoft customers globally opt for E5 licensing, though IBRS has seen strong interest among Australian organisations to at least explore the more expansive capabilities found in E5.

At this time, we believe the majority of IBRS clients will see price increases in the lower range. However, given that Australia has been one of the fastest adopters of Office 365, and has for decades suffered from ‘the Australia tax’ of software vendors, the increases will still be felt deeply across the industry.

Why it’s Important.

For many IBRS clients, the immediate impact is the need to set aside extra budget for its existing 365 environment. 

Something that is not gaining attention is that the new pricing also increases the cost of Microsoft’s Unified support, since it is calculated as a percentage (10-12%) of the overall Microsoft spend. IBRS recommends that organisations set aside a budget for this increase as well.

However, the price increase is not the full story. A closer look at how the new pricing is structured, plus other less publicised changes, suggests it is geared towards making E5 licences more attractive to mid-sized organisations. 

The increases came shortly after Microsoft announced that its perpetual-licence Office would see a 10% increase and that its service for Office would drop from 7 years (it was previously 10) to just 5. Even more telling is that Microsoft has effectively engineered a one year ‘gap’ in N-2 support for Office (with the persistent licensing model), which forces organisations with older Office Pro licences to either purchase an upgrade sometime before 2023, or migrate to Office 365. 

In summary, Microsoft’s recent changes to Office licensing are a strategy that makes the price difference from E3 to E5 licensing less imposing and makes sweating perpetual Office licences far less attractive, if not unworkable. The savings from sweating Office licences over a five-year period are still there, but they are significantly lower than with seven-year cycles.

IBRS has long stated that Microsoft’s goal is not necessarily to drive up ICT budgets. A closer look at the additional capabilities found in E5 licensing reveals that most are aimed at moving Microsoft into adjacent product sets. For example, the additional security capabilities that become available with E5 licensing are clearly aimed at security incumbents, such as Symantec. Microsoft’s E5 strategy is to pull ICT budget away from competitors and into its own coffers. It is about carving out competition.

Who’s impacted

  • CIO
  • CFO & procurement
  • Digital workspace teams

What’s Next?

In the Australian market, IBRS sees few enterprises still on persistent licensing for Office. Globally, Australia has been an early adopter of E3 licensing, though until the mass push to work from home in 2020, many organisations did not take full advantage of the additional features and collaboration capabilities of the 365 platform. Furthermore, Google Workspaces is only making marginal increases in the local market, meaning Microsoft has little real local competitive forces working to temper it in the office productivity space (though this is not the case in other markets in the Asian region).

Therefore, the question for organisations is, is this strategy to push customers from existing E3 licences to E5 licences a trigger to start re-evaluate ways to leverage more value from the Microsoft ecosystem (that is, double-down on Microsoft).  

Organisations may respond to this price increase and Microsoft’s strategy to push customers from existing E3 licences to E5 licences as a trigger to:

  1. Re-evaluate ways to leverage more value from the Microsoft ecosystem (that is, double-down on Microsoft).  Just prior to this announcement, IBRS had drafted a paper on how to decide between E3 and E5 licensing. It is due for publishing in the coming month. However, if you wish an advance (draft) copy, please request it from nbowman@ibrs.com.au. It is focused on how to evaluate the additional benefits of E5 in the context of your existing software ecosystem.
  2. Set up a ‘plan b’ for enterprise collaboration. In a practical sense, this would likely be a shift to Google Workspace for part of the organisation, coupled with a percentage (generally 20-30%) of the organisation also having Office software, though not necessarily Office 365.  
  3. Set aside 12-15% extra budget for the existing E3 environment, plus a similar increase for support of the Office environment, and re-evaluate the situation in 2-3 years

IBRS also recommends considering what will happen in another 10 years, when many organisations have migrated to E5 (which is likely). What new business risks will emerge from this? Migrating from Office 365 E3 to a competitive product (e.g. Google or Zoho) is hard enough. When E5 features are fully leveraged, the lock-in is significant, but so too is the value. At the end of the day, the ultimate risk factor is trust in Microsoft not to engage in rent-seeking behaviour.

Related IBRS Advisory

  1. Pros and Cons of Going All-In With Microsoft
  2. Special report: Options for Microsoft support - Key findings from the peer roundtable: August 2020
  3. The journey to Office 365 Part 6: Mixing up Microsoft’s 365 licensing and future compliance risks
  4. DXC Technology and Microsoft collaborate on workplace experience
  5. AIP Should be Essential to Any O365 and Workforce Transformation Strategy
  6. AIS and Power BI Initiatives
  7. Microsoft Pivots to Target Verticals

The Latest

20 March 2021: GorillaStack has released capabilities that allows it to monitor and apply governance rules to any external service that communicates with AWS EventBridge.

Why it’s Important

GorillaStack is one of the earliest vendors to address the complexities of Cloud cost management, having started in Australia in 2015 and moved to having strong growth in the international market. In May 2020, GorillaStack was acquired by the switzerland-based SoftwareOne.

Like its international competitors, GorillaStack moved from helping organisations monitor and optimise their Cloud spend, to monitoring the Cloud ecosystems for performance and security concerns. This recent announcement suggests that the next phase of growth for organisations in the Cloud cost optimisation space is not only to detect events in Cloud infrastructure, but also external services, and then apply rules to perform specific actions on those events. Such rules can not only automatically help reduce Cloud spend by enforcing financial governance directly into the Cloud infrastructure, but also helping to enforce security rules.

Who’s Impacted

  • CIO
  • Development team leads
  • Business analysts

What’s Next?

Cloud cost optimisation is already an important discipline for organisations with mature Cloud teams. Like software asset management (SAM), tools alone will not see organisations optimise their expenditure on Cloud services. An understanding of the disciplines required and setting up appropriate rules is needed. In addition, IBRS notes that many less-mature organisations have a ‘sprawl’ of Cloud services that need to first be identified and then reigned in before cost optimisations products can be fully effective. 

Related IBRS Advisory

  1. New Generation IT Service Management Tools Part 2: Multi-Cloud Management
  2. How to Get on Top of Cloud Billing
  3. Sourcing Monthly April 2020 – May 2020

Background: The federal government has finally unveiled its cyber security strategy. The Australia’s Cyber Security Strategy 2020, released on 6th August will see $1.67 billion invested in a number of already-known initiatives aimed at enhancing Australia's cyber security over the next decade. IBRS provides their key takeaways from the strategy.


Most of the funding for the Strategy 2020 is from July’s announced $1.35 billion cyber enhanced situational awareness and response (CESAR) package much of the Strategy details will be contained in legislation to be put before parliament.

"There is more security work to go round than there are resources. So I don't think the market is that crowded. It's important to remember that security is not something you buy and then it's done; it is an ongoing evolution within any organisation and requires constant care and feeding," IBRS adviser Peter Sandilands said.

"The big four has done a lot of their security work using fresh grads. They can use the tools but don't necessarily understand the real world implications."

Full Story.

Conclusion: Choosing to simplify the SAP migration project by removing irrelevant KPIs could increase adoption. This is the common thread for organisations that have successfully undertaken the SAP migration from on-premise to the Cloud.

Choosing an SAP certified practitioner with S/4HANA migration expertise helps reduce migration risk and enables a simpler migration strategy. SAP design for the S/4HANA suite replaces the extensive tables structures of the ECC series with a new digital core, in memory processing and reduces data storage costs.

Project risk can be minimised by considering these during the planning stage:

  1. An experienced SAP S/4HANA project team.
  2. Fully engaged executive sponsors and users.
  3. Early user engagement and user training.
  4. Allow testing to increase user confidence and reduce fear of data loss.
  5. Not underestimating the impact organisational issues will have on the project timeline.

Conclusion: Reimagining the ERP strategy will require IT and business collaboration to ensure requirements are clear. Retaining the 5–10 year old ERP system1 may serve back office functions but this may impede innovation. ERP customisation is being replaced by vendors who deliver regular updates to their SaaS ERP model. This provides innovation which could reduce the need for complex business cases.

ERP vendors have signalled sunset on support for older ERP systems to challenge organisations to embrace modernisation in the next five years2. This seems far away but experience suggests laggards could see skills shortages and higher costs as the deadline approaches.

ROI measures successful ERP migrations but SaaS models will challenge this. Organisations will need to hold regular conversations to understand these competing parameters. Business leaders will question business requirements; however, innovation should not be ignored during the development of the new ERP strategy.

Conclusion: The options for processing ERP (Enterprise Resource Planning) range from on premises to managed services to public Cloud to SaaS (Software as a Service). The attributes of all the solutions, including the risks, costs and benefits, can appear overwhelming and may persuade risk averse senior management to make an expedient decision and keep the status quo.

IT managers must engage their risk averse peers and force them to think through the issues and make a strategic, rather than an expedient, decision as whatever they decide will have long-term ramifications.

IBRS iQ is a database of Client inquiries and is designed to get you talking to our Advisors about these topics in the context of your organisation in order to provide tailored advice for your needs.

Conclusion: While many IT organisations believe that using public IaaS (e.g. AWS, Microsoft Azure, Google) to host business applications is a cost-effective strategy, they still require to manage the hosted environment themselves or select an external service provider to manage it for them. Towards this, it is critical to understand the current service management maturity level prior to choosing an in-house or outsourced solution. This note provides a self-assessment service management maturity model to create a solid foundation for selecting sourcing options. IBRS recommend that IT organisations with maturity level 3 or higher retain the service management function in-house, whereas, IT organisations below maturity level 3 should outsource the service management function.

Conclusion: There is ample evidence from industry studies 1 that the IT systems environment is becoming more complex to manage and this is unlikely to change. Reasons for extra complexity vary from the need to offer enhanced services to clients to legislative compliance to the need to manage an increasing number of interactions between people in today’s workplace.

Unless the impact is addressed systems support costs will increase, availability of enhanced client services with a systems component will become slower and cost competitiveness adversely impacted.

Put simply, IT management’s challenge is to minimise the increasing cost of systems complexity, while ensuring the organisation’s information systems deliver quality solutions. Business managers for their part must minimise exception processing and include realistic systems life cycle support costs in their evaluation of enhanced client services.

Conclusion: Organisations, which enable customers to transact business over the phone must continually re-evaluate the effectiveness of their business model and exploit emerging technologies to enhance the customer’s experience. Failure to do so will put them at a competitive disadvantage.