Brace yourself, Microsoft partners. A major change to the way many of you make money selling Office 365, Azure, Dynamics CRM, and other Microsoft cloud solutions is coming up fast.
In a significant but widely overlooked change first disclosed last month, Microsoft will stop paying commissions on sales of new Microsoft cloud service subscriptions to members of its Online Services Advisor (OSA) program effective October 1st. OSA members will no longer receive commissions for ongoing management of Microsoft cloud subscriptions as well beginning July 1st of next year.
The changes affect “tens of thousands” of partners worldwide, according to a written statement to ChannelPro from a Microsoft spokesperson.
OSA is the oldest, and traditionally simplest, way for resellers to earn revenue from Microsoft cloud solutions. Under the so-called “Advisor model,” end users purchase licenses directly from Microsoft, and get their invoices and frontline technical support from Microsoft as well. Resellers identified as the “partner of record” during the signup process receive a portion of the customer’s subscription fees.
“Microsoft’s long-term strategy prioritizes through-partner sales motions and we remain committed to helping partners transform their business to capitalize on new opportunities,” said Microsoft in its written statement. “The changes made are in-line with this strategy and move toward more modern offers,” including the Microsoft Cloud Solution Provider (CSP) program. Introduced in July 2014, CSP shifts responsibility for billing and support to partners, and pays them higher fees in return.
Microsoft says that information about cloud sales incentives for its 2017 fiscal year, including notification that OSA commissions are ending, have been available on the Microsoft Partner Network web portal since July 1st, and that partners were sent an announcement directing them to that information the same day. Those that have yet to read the relevant documents, however, may be in for a surprise when the new OSA policies go into effect a little over five weeks from now.
“For those that have not received the news, that’s going to catch them off guard,” predicts Dave Seibert, a longtime Microsoft partner and CIO of IT Innovators Inc., a solution provider and MSP based in Irvine, Calif.
Not that anyone should be surprised to see OSA incentives disappear, he continues, as the writing has been on the wall about that for a while. Microsoft has been lowering OSA commissions and talking up CSP’s advantages ever since the latter program’s debut. Without explicitly calling out that OSA commissions would soon be eliminated altogether, moreover, Microsoft has been aggressively prodding partners to make the switch from OSA to CSP and other licensing models soon for at least the last six months.
“Microsoft has been telling us this is coming,” says Seibert. The many partners who don’t pay close attention to Microsoft emails, speak regularly with Microsoft employees, or attend Microsoft events, however, may not have gotten the word.
“By percentile, I think there’s more partners that don’t know” than do, Seibert says.
Marked Improvements
Their ranks include experienced members of Microsoft’s channel, too. “I did not know,” says John Krikke, vice president of Burlington, Ont.-based technology provider Onward Computer Systems Inc. and a veteran member of Microsoft’s partner program. On the other hand, he continues, the news doesn’t disturb him much either.
“We got out of that program as soon as the Cloud Solution Provider program came out,” Krikke says of OSA. “As far as I’m concerned, margins have been about zero in [OSA] for about a year and a half now.”
Indeed, Krikke is one of many Microsoft partners who regard CSP as a marked improvement over OSA, and not just because it’s more profitable.
“Our biggest beef since day one was we don’t want our clients being billed by Microsoft,” he says of OSA. CSP offers partners full control over their customer accounts, something they lobbied Microsoft to provide for years.
Seibert points to another important advantage for CSP: Unlike OSA, which requires end users to buy the same products in the same way at the same prices, CSP frees channel pros to differentiate themselves and boost margins by building Microsoft cloud solutions into broader offerings that include maintenance, security, backup, and other services.
“Now I can offer the client my unique bundled solution that doesn’t look the same as the other partner sitting at the table,” he says.
Still, CSP has its drawbacks relative to the Advisor model as well. Taking control over billing and support means taking accountability when something goes wrong too, even though partners have no say in how Microsoft manages its cloud data centers and can do little more than phone in complaints when services are unavailable. Some partners worry about the legal risk that issue exposes them to.
“When Microsoft was doing all the billing themselves they had 100 percent liability,” observes Vince Tinnirello, CEO of Anchor Network Solutions Inc., a managed service provider in Lone Tree, Colo. Under CSP, Microsoft’s partners assume at least some of that exposure, which is why Tinnirello is working with the legal services arm of Downers Grove, Ill.-based IT membership organization CompTIA on a new Office 365 service agreement that indemnifies his company from the financial effects of downtime and data loss.
Transitioning customers from OSA to CSP isn’t an overnight process either. Partners must spend time explaining the shift and preparing customers for the billing and support changes involved—not to mention the dry, official email they’ll receive from Microsoft informing them with little explanation that their OSA licenses are about to expire and the second message they’ll get telling them that new CSP licenses go into effect soon.
“You just don’t do it all in one day,” Tinnirello says. “There is some disruption for clients.” In fact, his firm has been moving customers into CSP for months and is still at it. Partners that begin that process now are unlikely to complete it in time to avoid going commission-free for a while.
Distributors Step in Where Microsoft Steps Out
Growing awareness of that fact has more and more OSA members finally investigating the CSP program, which includes two tiered options. “1-Tier” resellers can buy cloud licenses straight from Microsoft, but only after verifying that they have suitably sophisticated tools and processes for handling invoicing and support themselves. “2-Tier” resellers purchase licensing through distribution partners, and therefore face lighter membership requirements.
Microsoft expects most of its cloud partners to choose the 2-Tier route, and so do companies like Ingram Micro, SYNNEX, Tech Data, and most recently Rackspace, which are among the relatively select set of vendors authorized to sell Microsoft cloud products to 2-Tier CSP resellers. Those firms are free to share revenue with partners however they wish as well, and Tinnirello is one of many in Microsoft’s channel who sees that potentially working to their advantage.
“We’re hoping that margins will get bigger, not smaller, because everyone is getting competitive with it,” he says.
Ingram Micro, meanwhile, is hoping that the demise of the Advisor model will attract Microsoft partners to its Cloud Referral Program in larger numbers. Introduced in April, that offering, which lets VARs outsource billing and support on CSP products to Ingram Micro but still collect income on those subscriptions, hasn’t gotten much traction so far, according to Jason Bystrak, executive director for Ingram Micro Cloud in the Americas.
“I think we expected a bit more, honestly,” he says. With OSA commissions vanishing soon though, he adds, interest has been picking up lately. “Just the last couple of weeks alone have been pretty hectic for us,” he says. Cloud Referral Program partners receive 7 percent margins, Bystrak continues, and twice that through the end of September under a special, temporary promotion.
“[It’s] actually a pretty lucrative program for them,” he states.
Seibert counsels OSA members who have yet to begin moving customers into the CSP program to align that process with their customers’ subscription anniversaries.
“If you were to lay out of all your clientele, those anniversary dates are going to be spread across the calendar, and that helps you transition much smoother because you’re not trying to deal with everyone all at the same time,” he says.
Handling the process gradually also gives you time to help customers understand not only what will soon change but how it benefits them. Rolling Microsoft cloud licensing into the same invoice that covers their managed services, for example, simplifies their billing. The key, Seibert notes, is to begin having conversations like that with clients soon.
