Gen AI-powered Chatbots and Agent Knowledge Base Use Cases Have the Highest Impact | Market Insights™
January 31, 2024
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As we enter 2024, enterprises are under immense pressure to optimize their budgets and uncover potential cost savings. Over the past three years, businesses across the globe have struggled to stay within their budgets. In 2021 and 2022, we saw a sharp increase in pricing, and then budgets were slashed in 2023.
We face a strong likelihood of an economic slowdown in 2024 and an uphill battle to deliver savings. Watch this webinar to learn current pricing trends and how enterprises can find greater value and lower costs in their outsourcing, cloud, and SaaS contracts in the new year.
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Price Benchmarking
To prevent the pitfall of aggressively pursuing discounts on cloud platforms without other considerations, enterprises should implement a holistic procurement and negotiation strategy that takes into account four key factors. In this blog, we share our analysis of a Salesforce contract for a major customer. Continue reading to uncover tactics for negotiating enterprise software agreements.
The webinar, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists, also explores how enterprises can drive more savings from their outsourcing contracts.
In the intricate landscape of negotiating enterprise software agreements, securing the best possible discounts often requires a delicate balancing act. We recently witnessed the interplay of aggressive discounting and product portfolio when helping a multi-billion-dollar brand optimize its contract with Salesforce. The process of obtaining discounts on different Salesforce Cloud platforms (Core Cloud, Marketing Cloud, and Commerce Cloud) proved to be both intriguing and complex. It led us to consider: Does achieving best-in-class discounts on one cloud come at the expense of suboptimal discounts on others?
Assessing the large Salesforce customer’s existing contract with Salesforce presented a fascinating dichotomy. Price benchmarking of their contract for two Salesforce cloud platforms revealed their current prices were very competitive, and the discounts on most of the products were in the highest tier Salesforce offers. It seemed like a sweet victory for the client, securing substantial savings that underscore the power of negotiation and the value Salesforce attributes to retaining a significant customer.
However, as we progressed with our analysis, the third Salesforce cloud platform revealed a huge gap in their existing prices and the prices offered to organizations of a similar size and total spend with Salesforce. Through our rigorous normalization and benchmarking process, we identified a savings potential of up to 35% on their current annual spend on the platform.
Our analysis presented a very interesting and intriguing scenario. The best-in-class discounts Salesforce offered to the client for two cloud platforms indicated that their spend with Salesforce was optimized. But closer inspection indicated they might not be getting the best deal from Salesforce after all.
Is this a tactic used by large SaaS companies to ensure that the overall revenue from an account remains intact? While this is an important question that enterprises must strive to answer, the scenario also prompts a critical reflection on the intricate dance of negotiation within enterprise software agreements. Does the pursuit of extraordinary discounts in one arena inadvertently lead to less favorable terms in others? The answer, it seems, lies in the complex interplay of perceived value, strategic importance, and Salesforce’s bottom line.
Salesforce, like many enterprise software providers, employs a nuanced strategy where discounts are tailored based on the perceived value of each cloud service. In this approach, a particular cloud platform becomes the focal point for driving loyalty and retaining major clients, justifying the high discount percentages. Meanwhile, other cloud platforms, though integral, might be subject to a different calculus.
To avoid the pitfalls of a purely discount-centric approach, organizations should adopt a holistic procurement and negotiation strategy that considers the following factors:
The above case on enterprise software negotiations often echoes a cautionary sentiment – the importance of a holistic approach. Striking a balance between the immediate gains in one segment and the long-term relationship across the entire suite of services is paramount. It prompts organizations to assess not just the magnitude of discounts but the overall value proposition, ensuring each SaaS cloud or module’s role and strategic importance are properly valued.
Achieving best-in-class discounts in one domain may indeed come with trade-offs in others, emphasizing the need for a comprehensive understanding of the software landscape and strategic collaboration between enterprises and their software providers. The dance of discounts is delicate, requiring astute negotiation skills and a keen awareness of the broader software ecosystem.
To discuss software contract negotiation and for a detailed analysis of your software contracts, please reach out to [email protected]. Explore more about Everest Group’s contract benchmarking offerings.
Microsoft’s recent rollout of its Artificial Intelligence (AI)-enabled productivity tool Microsoft 365 Copilot for enterprise customers has generated a lot of buzz. Its steep US$30 monthly charge per user has ignited debate about how its cost will impact IT spend, the Return on Investment (ROI), and the expected benefits for employees. Continue reading for recommendations on successful software contract negotiation for Microsoft 365 Copilot. The webinar, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists, also explores how enterprises can drive more savings from their outsourcing contracts.
Microsoft 365 Copilot is a productivity enhancement tool backed by generative AI and integrates with the Office 365 Suite (Word, PowerPoint, Excel, Outlook, Teams, etc.). It aims to transform employees’ daily tasks by unlocking creativity, boosting productivity, and enhancing skills.
By leveraging Large Language Models (LLMs) content in Microsoft Graph (emails, chats, attachments, documents, etc.) to generate contextualized human-like responses, and touted by Microsoft as the “most powerful productivity tool on the planet,” the tool boasts numerous applications and use cases.
Copilot is available for Microsoft 365 E3, E5, Business Standard, and Business Premium customers. It is an add-on license on top of these M365 editions and isn’t available as part of any bundle.
Microsoft 365 Copilot comes with a hefty price tag of US$30 per user per month. The following table summarizes the additional costs that enterprises are looking at when considering buying Microsoft 365 Copilot licenses. (Based on list prices.)
| M365 Bundle | M365 List price (per user per month) | Cost uplift |
| M365 E3 | US$36 | 83% |
| M365 E5 | US$57 | 52% |
| M365 Business Standard | US$12.50 | 240% |
| M365 Business Premium | US$22 | 136% |
This does not paint a very attractive picture for IT and procurement departments as the cost increase can be greater than a company’s current spend on the M365 suite.
Adding to the complexity, Microsoft has yet to reveal how they will apply the contracted volume discount on the Copilot licenses an enterprise purchases.
Everest Group helps clients across geographies and industries with software contract negotiation techniques to optimize their software spend. Almost all our enterprise customers have large deals with Microsoft. We help them navigate price increases at contract renewal, negotiate best-in-class discounts, and optimize key contractual terms like price protection clauses, etc.
Below are some measures enterprises can take to mitigate this significant cost increase and assure a robust ROI when adopting Microsoft 365 Copilot in their organizations:
Even for existing M365 E3 customers (many of whom settled for this lower-cost option compared to E5 licenses), the total cost of M365 E3 plus Copilot ($66/user/month) is more than the M365 E5 license ($57/user/month). As a result, justifying investing in this new tool is financially difficult. Enterprises looking to buy Copilot licenses should ask Microsoft to improve their overall cost to make it easier to seek budget approvals and drive Copilot adoption
Microsoft Copilot is undoubtedly a futuristic tool aimed at streamlining daily operations and helping employees focus on tasks that add real value. Nonetheless, understanding its licensing, pricing strategy, and the value it can generate for an enterprise is imperative.
To discuss software contract negotiation and for a detailed analysis of your software contracts, please reach out to [email protected]. Explore more about Everest Group’s contract benchmarking offerings.
To learn current pricing trends and how enterprises can find greater value and lower costs in their outsourcing, cloud, and SaaS contracts in the new year, Adapting to Change: Boost Value in Outsourcing and Software Contracts When Uncertainty Persists.
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