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Israeli government says no to cloud & doubled Microsoft licensing costs

Reuters report that the Israeli government is preparing not to renew their Microsoft licensing agreement for “Office, Windows, and server software”.

According to the Israeli Finance Ministry, “Microsoft is trying to shift Israel…to a subscription system that is similar to renting” and that “moving data to the cloud does not meet the government’s needs”.

Although we don’t have visibility of the details, this is probably a proposed switch to Microsoft 365.

The Cloud

The above quote regarding the cloud not meeting their needs is interesting as, in March 2016, Microsoft produced a blog post titled “Israeli government turns to Microsoft Azure”. This article talks about how the Knesset (Israeli parliament) has been live streaming proceedings via Azure, “saving money” and offering a better service to citizens, as well as Israeli Railways being “reassured by [Microsoft’s] industry-leading commitment to protect[ing]…customer data”.

If they are already happy Azure customers, what is causing the concern around cloud in this instance?

The renewal

Israel say the proposed renewal would double their existing $27 million per year costs; it would be very interesting to see exactly what is included in the offer.

I imagine the new proposal includes Microsoft 365 (either E3 or E5) and that Israel are currently licensed for the Professional Desktop (Office Professional Plus, Windows 10 E3, and Core CAL suite) – I’m not sure how the costs have risen so dramatically. Have other products been added in? Have other factors been included in the higher price – migration costs, training costs etc.?

Things to consider

I do wonder if Israel have looked at some of the rights they will lose by dropping Software Assurance, particularly on the server software side, and how this may impact them.

Depending on their estate, this could mean losing things such as passive failover rights and license mobility rights – especially key for a virtualised SQL environment for example – as well as training vouchers etc.

Dropping Software Assurance is often seen as a quick way of reducing Microsoft licensing costs, but it can also lead to increased other costs and non-compliance, particularly in the datacentre. To avoid the latter, re-architecting of systems and solutions is typically necessary.

That said, a 100% increase in annual licensing costs is huge, and not something an organisation should accept to keep a vendor happy or because it’s easier than not renewing. If the Israeli government can’t see the value in the additional features and products, refusing to make the switch looks like a sensible decision. Even if architectural re-design is necessary, it will most likely come in under the cost of the licensing increase.

Going forwards

The Israeli Finance Ministry say they plan to remain on their existing perpetual licenses after the agreement expires and have hinted they may “switch to other technology alternatives”.

Is this simply a negotiating tactic by the Israeli Finance Ministry to drive a better price, or will the two parties let the agreement lapse? Who has got the most to lose in this negotiation – the supplier or the customer?

There have been several governments/councils that have moved/say they will move from Microsoft to Open Source alternatives including:

And there are more. However, they are not always successful, one high profile reversal is that of Munich city council. Once a poster child for the Open Source movement, they are now in the midst of moving everything back to Microsoft software – citing unhappy users and software incompatibilities as main reasons for the reversal.

Will Microsoft be worried about losing another public sector customer to open source software, will they assume the Israeli government is bluffing, or will they decide that losing the revenue for a few years is worth it on the basis the Israeli government will return to the fold having realised the grass isn’t greener?

Update

According to Reuters, the Israeli government have decided to renew the agreement after all.

No financial details were disclosed but it has been said that “much of the current contract was left intact” – as the main sticking point was Microsoft looking to move them to a more cloud based agreement, it seems perhaps that push has been put on hold for a while.

Further reading

Reuters article: https://mobile.reuters.com/article/amp/idUSKCN1L61DX

Israeli government turn to Azure – https://cloudblogs.microsoft.com/industry-blog/industry/government/israeli-government-turns-to-microsoft-azure/

Israel’s government renew agreement – https://ca.news.yahoo.com/israel-renews-licensing-agreement-microsoft-150105936–finance.html

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About Rich Gibbons

Rich has been in the world of IT and software licensing since 2003, having been a software sales manager for a VAR, a Microsoft licensing endorsed trainer, and now an ITAM analyst looking at software licensing and cloud.

A Northerner renowned for his shirts, Rich is a big Hip-Hop head, and loves travel, football in general (specifically MUFC), baseball, Marvel, and reading as many books as possible. Finding ways to combine all of these with ITAM & software licensing is always fun!

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