Microsoft .NETMicrosoft Solution Case Study

Microsoft Expects to Cut Time-to-MarketFor New License Offerings by 67

OverviewCountry or Region: United StatesIndustry: Manufacturing—High tech

Customer ProfileBased in Redmond, Washington, Microsoft is the worldwide leader in software, services, and Internet technologies for personal and business computing.

Business SituationThe Microsoft Commercial Volume Licensing organization maintained more than 8 million price points in a static pricing model that was inhibiting the rapid adoption of new prices and pricing programs.

SolutionMicrosoft is moving to a dynamic pricing model that centralizes pricing in the SAP enterprise resource planning system and distributes prices to hundreds of pricing applications using a service-oriented architecture and Web services.

Benefits Cuts time-to-market up to 67

percent

“We’ve been limited in our ability to create offerings that are tailored to specific market conditions. The dynamic pricing model … [gives] us much greater price point flexibility.”

Patrick O’Brien, Principal Solution Manager, Microsoft IT

Microsoft faces the unenviable task of maintaining more than 8 million price points, given the variety of programs, quantities, countries, currencies, and other variables by which it licenses its products. Its system for doing so has constrained the company’s ability to bring new pricing programs to market quickly and to manage the increasing scope and scale of the price points. So Microsoft is moving from a decentralized, static pricing model to a centralized, dynamic pricing model based on a service-oriented architecture. The new model provides Web service interfaces between a central pricing engine and the many pricing applications and portals serving the company’s sales force, channel partners, and direct customers. The dynamic pricing model is expected to cut time-to-market by two-thirds for new pricing programs, ensure scalability, improve accuracy, and help reduce IT costs.

SituationIt may be a simple matter to look at a newspaper ad and find a price for a Microsoft Office 2007 suite. It may be just as simple to go online and compare prices from several vendors. But for channel partners and large commercial customers of Microsoft software—those subscribing to volume licensing and software-plus-services business models—pricing can be a far more complex matter.

The Microsoft Commercial Volume Licensing organization has traditionally worked from a fixed-price-list model in which it posts all prices to Internet sites each month. The company’s channel partners download all prices to their enterprise resource planning (ERP) systems to be factored into their own business models. “All prices” is more encompassing than one might think, with prices for each Microsoft product license varying according to the licensing program through which it’s offered, the number of units being licensed, the destination and currency of the transaction, and other factors. Taken together, Commercial Volume Licensing calculates more than 8 million price points per month. Despite its complexity, the value of this system for Microsoft and its customers is that it offers an effective way to navigate many licensing offerings.

Pricing has traditionally been managed in a highly decentralized way, with prices maintained in independent databases, Microsoft

Office Excel worksheets, and custom tools, and then posted to partner Web sites and used in applications by partners and the Microsoft sales force. This pricing system has made it possible for inaccurate or inconsistent data to exist across databases and Web sites. The accuracy rate for Commercial Volume Licensing pricing in 2003 was about 93 percent; that equaled approximately 560,000 incorrect price points, representing missed revenue opportunities as well as missed chances to improve customer satisfaction.

Establishing accurate pricing was neither easy nor quick. Implementing new pricing could take from 3 to 12 months, based on the launch of new products, new licensing programs, and other factors. Most of that time was consumed by updating and test-ing the hundreds of applications and portals that held pricing logic and would be affected by any pricing change. Once a change was thoroughly tested and ready for rollout, it then could take days for it to be distributed to all downstream pricing applications.

The length of time that it took to implement new pricing was becoming a limiting factor in the company’s ability to initiate new pricing programs—as was the lack of scalability in the system. One analysis of the static pricing model revealed that adding a new price variable, or lever, to differentiate pricing based on when customers paid for their software would increase the number

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“The traditional pricing model has impeded our ability to respond quickly to competitive changes in the marketplace.”

Patrick O'Brien, Principal Solution Manager,

Microsoft IT

of price points by a factor of 25,000. Given that the current pricing infrastructure and model could scale to handle only 50 million price points, the new price lever could not be incorporated. Likewise, it would be impractical for channel partners to download price lists of that size.

With Microsoft continuing to introduce new products—and becoming increasingly active in delivering online software, which represents yet a new pricing arena—a more scalable, more flexible, and faster pricing model was needed.

SolutionMicrosoft is moving to adopt a dynamic pricing model, called the Dynamic Pricing Interface, as an alternative to the traditional, static pricing model. In the dynamic model, prices aren’t created once a month; they’re created whenever they’re needed. A Microsoft channel partner needing a price list inputs the specifics of its request into the pricing application that it uses, which initiates a Web service call to the centralized Microsoft pricing service, or engine, in the company’s SAP ERP system. The application then receives the calculated prices directly from the pricing engine. (The company’s single instance of SAP runs on the Microsoft SQL Server 2008 R2 Enterprise community technology preview and the Windows Server 2008 R2 Enterprise operating system.)

The Dynamic Pricing Interface is a software layer based on Windows

Communication Foundation Web services and a service-oriented architecture (SOA). To ensure an optimal SOA, the developers identified and strove to address underlying IT and business needs, such as the needs to gain:

Business efficiency Business agility A flexible user interface (UI) Lower development costs through

reusability Back-end business logic that’s truly

separated from the display and transactional systems

Tangible business benefits, such as lowering training costs by making it easier for users to access a complicated central system

With these IT and business needs in mind, the development team worked to implement an SOA that delivers both core IT cost containment and business benefit.

The developers’ implementation principles and methods included the following:

Measuring the pain points in Six Sigma and other business process scenarios

Moving the master set of pricing rules to the SAP system and optimizing those rules—in conjunction with the business superusers responsible for them—before developing the dynamic solution

Adding a service-enabled dynamic solution on top of SAP, while

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“The dynamic pricing model removes the 50 million price point limit, giving us much greater price point flexibility.”

Patrick O'Brien, Principal Solution Manager,

Microsoft IT

keeping business logic out of the user interface as much as possible

Implementing in PhasesIn the first step toward the new solution, many of the pain points associated with existing processes were measured. Some measures were apparent and easy to quantify, such as time to complete monthly pricing and time to create new product offerings. Others were subtle, such as counting the number of mouse clicks in inefficient processes for creating rules, and estimating how many clicks could be saved by efficient, centralized rule creation. This first step spanned about eight months.

Once these measures and business requirements were collected, two implementation phases were set. The first phase, which centralized the system, took two years, but with some Microsoft businesses getting benefit in the first year. The second phase, which adds the dynamic pricing model and is currently underway, is estimated to take two years as well, again with some Microsoft businesses getting benefit in the first year.

In the centralization phase, the business superusers moved from the decentralized pricing structures to one that centralized pricing in SAP. The project focus at this point was to optimize price points for as much of the enterprise as possible. The move to centralize price points helped boost the accuracy and consistency of prices, but it did not accelerate the

system or make it more flexible. The static price list was still generated periodically, and downstream applications still had to be updated and tested to accommodate changes in pricing rules.

The current phase augments the static pricing model with a dynamic pricing model. In this phase, the business rules, as well as the pricing data, are centralized in SAP. Instead of SAP generating a full price list each month, the system generates prices in real time in response to requests from the downstream applications.

Because those applications have their pricing logic centralized in SAP, they no longer need to be updated to accommodate pricing changes. Applications accept the prices from SAP. Superusers responsible for the master

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Figure 1: Because the pricing engine in SAP (bottom left) doesn’t natively interoperate with the pricing applications (top), an enterprise service abstraction layer (center) translates between them. Eventually, the same abstraction layer could support other central systems, such as Microsoft Dynamics AX, line-of-business (LOB) systems, and

“

pricing data perform fixed sets of tests to validate the service for all downstream users. Instead of testing the accuracy of every price point—which is impossible, given the amount of change each month—the superusers test the rules that create the price points. This makes for an accurate and scalable way to manage endless instances of price calculations.

Achieving InteroperabilityThe key to making the dynamic pricing interface work is interoperability between SAP and the downstream applications that use the prices that it generates—applications that are based on the Microsoft .NET Framework and its Windows Communication Foundation. The company’s first generation of Web servicesfor this solution used the SAP .NET Connector to convert SAP function modules into .NET Framework–based function modules. Then those function modules were converted into Microsoft ASP.NET Web services. However, the elements of the pricing information—such as data type and naming conventions—were still SAP-centric. Thus the Web services provided pricing information but exposed it in a way that could not easily be consumed by the downstream applications.

To address this challenge, Microsoft created a new abstraction layer between the SAP system and the downstream applications (see Figure 1). This new abstraction layer is based on the Microsoft BizTalk

Adapter Pack adapter for SAP and a third-party service composition tool.

The abstraction layer not only converts the remote function calls between the SAP system and the .NET Framework–based environment, but also translates between the SAP-centric semantics and the way that the downstream .NET Framework–based applications request and expect to receive pricing information. Because the information is exposed as a Windows Communication Foundation service, it can be created once and reused, regardless of the application requesting the information.

Business Process OrchestrationOnce services are composed, they are exposed as Windows Communication

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“The dynamic pricing model will cut new-offering introduction time by up to 67 percent, increasing our competitiveness and helping us to maximize revenue.”

Patrick ObrienPrincipal Solution Manager,

Microsoft IT

Foundation endpoints that can be used either directly or as part of a business process orchestration. Microsoft uses BizTalk Server 2006 R2 to create the long-running asynchronous processes, scheduled bulk data transformations, and message queuing. Messages are sent to and received from external partners and customers through this standards-based messaging. The business process orchestration layer allows messages to be queued, so schedules for sending and receiving messages can be easily coordinated to specific line-of-business systems, and to customer and partner needs.

Looking ahead, Microsoft sees the opportunity to use the same interface strategy to deliver other data and services from centralized locations to a variety of downstream applications.

BenefitsCentralizing pricing logic and supporting the new dynamic pricing model will vastly reduce the amount of pricing logic that has to be written, tested, maintained, and updated throughout the enterprise. That, in turn, will make it possible for Microsoft to bring new prices and new pricing programs to market faster, increase the total number of such prices and pricing programs that can be supported, ensure the accuracy of prices—and save millions of dollars a year in IT and operational costs.

Cuts Time-to-Market for New Offerings by up to 67 Percent

In contrast to the traditional static pricing model, which required months to launch and deploy new pricing offerings, the Dynamic Pricing Interface will make it possible for Microsoft to launch and deploy such offerings in days, depending on the sales channel and associated price preview policies.

“The traditional pricing model has impeded our ability to respond quickly to competitive changes in the marketplace and, ultimately, puts revenue at risk,” says Patrick O’Brien, Principal Solution Manager, Microsoft IT. “In contrast, the dynamic pricing model will cut new-offering introduction time by up to 67 percent, increasing our competitiveness and helping us to maximize revenue.”

Increases Price-Point Flexibility and ScalabilityMicrosoft will gain increased flexibility and scalability from its pricing system with the move to the dynamic pricing model, whereas the traditional pricing model constrained the types of new offerings that could be introduced.

“We’ve been limited in our ability to create offerings that are tailored to specific market conditions,” says O’Brien. “The dynamic pricing model removes the 50 million price point limit, giving us much greater price point flexibility. Technology will no longer stand in the way of maximizing our program offerings. Our customers will benefit by taking advantage of our offerings without having to sort

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“Technology will no longer stand in the way of maximizing our program offerings.”

Patrick O'Brien, Principal Solution Manager,

Microsoft IT

through or understand the complexity behind them.”

Boosts Accuracy to 98 Percent or BetterThe accuracy of Microsoft pricing increased from 93 percent in 2003 to more than 98 percent in 2009, with a goal of 99 percent for 2010, upon the centralization of pricing in the SAP system. Microsoft estimates that with dynamic pricing, even as the total number of price points continues to grow past 8 million, pricing accuracy levels of more than 99 percent will be maintained.

“Pricing quality is a primary driver of channel and customer satisfaction. Because if the pricing isn’t accurate, it requires our partners to rework deals, sometimes resulting in them losing a deal or absorbing costs because they’ve given an inaccurate quote to a customer. And our direct customers are naturally dissatisfied when an invoice has to be reworked because of a wrong price,” says O’Brien. “Getting it right the first time is the way to keep customers happy and attract new customers. It’s particularly impressive that we can confidently anticipate maintaining more than 99 percent accuracy levels even as we increase the number of price points and the speed with which we deliver them.”

Saves Millions of DollarsUnder the traditional pricing system, Microsoft spent millions of dollars each year maintaining, testing, and updating business logic in all of its

pricing applications to accommodate new prices and new program offerings. That’s money the company will save as it moves to include those applications in its dynamic pricing model.

“Moving from decentralized, static pricing to centralized, dynamic pricing is critical in ensuring that our pricing processes and systems continue to support the company’s need for greater flexibility and speedier time-to-market for new price offerings,” says O’Brien. “At the same time, we are able to decrease overall operational and IT change management costs associated with pricing.”

Microsoft .NETMicrosoft .NET is software that connects people, information, systems, and devices through the use of Web services. Web services are a combination of protocols that enable computers to work together by exchanging messages. Web services are based on the standard protocols of XML, SOAP, and WSDL, which allow them to interoperate across platforms and programming languages.

.NET is integrated across Microsoft products and services, providing the ability to quickly build, deploy, manage, and use connected, secure solutions with Web services. These solutions provide agile business integration and the promise of information anytime, anywhere, on any device.

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For More InformationFor more information about Microsoft products and services, call the Microsoft Sales Information Center at (800) 426-9400. In Canada, call the Microsoft Canada Information Centre at (877) 568-2495. Customers in the United States and Canada who are deaf or hard-of-hearing can reach Microsoft text telephone (TTY/TDD) services at (800) 892-5234. Outside the 50 United States and Canada, please contact your local Microsoft subsidiary. To access information using the World Wide Web, go to:www.microsoft.com

This case study is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN THIS SUMMARY.

For more information about Microsoft .NET and Web services, please visit these Web sites: www.microsoft.com/netmsdn.microsoft.com/webservices

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Software and Services Microsoft Server Product Portfolio

− Windows Server 2008 R2 Enterprise

− Microsoft BizTalk Server 2006 R2− Microsoft SQL Server 2008 R2

Enterprise

Technologies− Microsoft BizTalk Adapter Pack− Microsoft .NET Framework 3.5− Windows Communication

Foundation