Enterprise Agreement Model

Purpose

The Enterprise Agreement (EA) is Microsoft's licensing model for large organizations. It transforms software from a capital expenditure (one-time purchase) into an operational expenditure (annual subscription), creating predictable recurring revenue.

The Problem Solved

Before Enterprise Agreements

1. Upgrade pricing collapse — Once a company bought Office 95, why buy Office 97?
2. Administrative chaos — IT departments tracked individual licenses per seat
3. Piracy risk — Employees installed software on unauthorized machines
4. Unpredictable revenue — Boom/bust around major version releases

Steve Ballmer's Innovation

Bundle everything. Charge per machine per year. Simplify procurement. Increase switching costs.

Agreement Structure

Standard Enterprise Agreement

flowchart LR
    Y1[Year 1<br/>Full payment<br/>or 1/3 upfront] --> Y2[Year 2<br/>True-up for<br/>added machines]
    Y2 --> Y3[Year 3<br/>True-up +<br/>renewal negotiation]

Components

Pricing Tiers

Process Flow

Initial Sale

1. Account Planning — Enterprise sales rep identifies opportunity
2. Needs Assessment — Current license audit, growth projections
3. Proposal — Custom bundle based on infrastructure
4. Negotiation — Pricing, terms, deployment timeline
5. Legal Review — Contract finalization
6. Signature — Executive approval both sides
7. Deployment — Software delivery and activation

Annual Cycle

flowchart LR
    Q1[Q1<br/>Anniversary<br/>planning] --> Q2[Q2<br/>True-up<br/>reporting]
    Q2 --> Q3[Q3<br/>True-up<br/>payment]
    Q3 --> Q4[Q4<br/>Renewal<br/>negotiation]

Strategic Benefits

For Microsoft

1. Predictable revenue — Multi-year commitments smooth quarterly results
2. Higher lifetime value — Bundling increases total spend
3. Reduced churn — 3-year contracts lock in customers
4. Upsell opportunities — Annual reviews surface new needs

For Customers

1. Simplified procurement — One agreement covers everything
2. Budget predictability — Known annual expense
3. Latest versions — Automatic upgrade rights
4. Volume discounts — Better pricing than retail

Lock-in Mechanics

The EA creates multiple layers of switching cost:

1. Financial — Prepaid multi-year commitments
2. Technical — Deep integration across Microsoft stack
3. Process — IT workflows built around Microsoft tools
4. Training — Workforce skilled on Microsoft products
5. Data — Documents, emails, databases in Microsoft formats

Metrics

Evolution to Microsoft 365

The EA model evolved into Microsoft 365 subscriptions:

The subscription model extends EA principles to smaller organizations, creating "EA-like" recurring revenue at scale.

Roles & Responsibilities

This process is the operational heart of STR-002's enterprise flywheel strategy.