Microsoft Cloud can create unforeseen financial exposure
I can recall a conversation with a large service provider of Microsoft services in 2015, who believed the cloud would eliminate the need for software asset management. This is also a posture I have seen many customers adopt as there is a sense that ‘cloud equals license compliance’ and if I don’t have a license then I can’t use the service.
But what if you have a license for a cloud service that you don’t need and what about unknown license complexity that can create unforeseen operational and financial risk? With the rise of Microsoft Cloud services like Microsoft 365, Dynamics 365 and Azure, the way in which organisations acquire and manage Microsoft software has changed. Managing unforeseen financial exposure associated with the Microsoft Cloud requires continual management.
In this blog, we will explore the key points surrounding unforeseen financial risks in the Microsoft Cloud and discuss strategies to manage them effectively.
The FinOps Imperative — Many organisations have failed to embrace Software Asset Management (SAM) on a formal basis. At best, many organisations may assess their license position in advance of a compelling event or on a random periodic basis. Embracing a framework like FinOps, which combines finance and cloud operations, is crucial for optimising Microsoft cloud costs. Failing to proactively manage Microsoft licenses and promote collaboration between finance, operations, and IT teams leads to bad cost management habits and an increased risk of non-compliance.
Hidden License Compliance Risk — Microsoft gates many of the traditional root causes associated with the generation of software license non-compliance when compared to the on-premises world. However, ‘cloud does not equal license compliance’ and Microsoft does still allow for trust-based licensing in certain circumstances.
· Azure Hybrid Benefit if left unmanaged could result in a breach of software licensing terms.
· Feature bleeds between tiers of Microsoft 365 licenses are also a possibility.
· Multiplexing.
· Development and test licensing metrics could creep into production use.
There is a whole new generation of license compliance risk in the cloud that customers need to stay ahead of. Failure to do so could result in unforeseen expenditures if audited, which may also include retrospective payments to address legacy billing issues. Or Microsoft could introduce controls that create an overnight spike in consumption costs.
Zombie Services — Unused or forgotten Microsoft cloud resources, known as zombie services, continue to accumulate costs without serving any functional purpose. From underutilized SaaS applications to lingering Azure resources and expired projects, these resources can contribute to unforeseen financial waste. Regular monitoring and decommissioning are essential to prevent unnecessary costs. Don’t allow saving opportunities to accrue only to action over months or years later — this is counterproductive!
Supplementary Costs — Additional costs can arise from Microsoft licensing requirements or storage capacity. For example, leveraging Azure dev/test benefits may necessitate more licenses for Visual Studio. Certain premium features within Microsoft 365 may require add-on licenses, adding to the overall cost. Poor forecasting of Azure requirements may result in capacity-based license costs spiralling out of control. Careful management and monitoring are essential to avoid unexpected expenditures.
Poorly Executed Renewals — Organisations that neglect to develop a robust agreement renewal strategy run the risk of including unnecessary licenses in their Microsoft Enterprise Agreement or Server and Cloud renewal. Rolling over licenses without considering more advantageous metrics or failing to align license needs with business goals can result in financial waste and missed cost savings. Starting to plan early is essential along with leveraging a blend of internal skills and data driven insights at the heart of your decision making. Failure to create a Microsoft license bill of materials linked to goals and objectives of your organisations may result in missed cost savings and financial waste.
Shelfware — During Microsoft negotiations, organisations may face unexpected financial impact, mainly when discounts or previous incentives are not correctly considered. For example, obtaining a large discount on technology that may not be getting implemented until late in the agreement is going to erode the true value of discounts and incentives offered. Also, organisations need to consider the financial impact of renewing heavily discounted premium products in their next agreement term — buyers beware of ‘fiscal financial cliffs’.
Understanding the terms and conditions of multi-year agreements and negotiating advantageous pricing is essential to avoid unforeseen costs.
In conclusion, managing unforeseen financial exposure in the Microsoft Cloud requires ongoing attention and proactive strategies. By addressing hidden license compliance risks, optimising agreement renewals, embracing the FinOps framework, managing zombie services, and considering supplementary costs, organisations can mitigate financial risks and maximize cost savings in their cloud journey. Stay vigilant, collaborate across teams, and prioritize effective cloud cost management to ensure financial efficiency and compliance in the Microsoft Cloud.
Version 1’s License consultants have considerable experience in helping organisations navigate Microsoft contract renewal negotiations, optimise your Microsoft cloud cost base, reduce the risk of license exposure, and advise and guide on the implementation of FinOps models based on your business’s technology goals and ambitions.
If you require further information or are looking for advice and guidance around your Microsoft contract negotiation strategy, then go to our website or contact us directly.
About the Author:
Karl is a Principal Licensing Consultant at Version 1, providing Microsoft license expertise to organisations globally and ensuring customers get the best value from their Microsoft assets.
