At least one Microsoft licensing expert believes the unprecedented fee cuts, which come in the middle of the company's fiscal year, are the first step in what will be a steady erosion of partner sales commissions on Microsoft cloud services.
"Microsoft wants to shift as much of its sales as possible to a direct relationship with the end customer, who will order everything online, and partners are eliminated as a sales channel," Paul DeGroot, principal analyst at Pica Communications, a Camano Island, Wash.-based Microsoft licensing consultancy, told CRN.
"They will still have a role as integrators and enablers of the technology, but no one should expect a business built on licensing sales only to be a clear shot for the next 10 years."
Microsoft has been urging partners to embrace the cloud for the past few years. But at Microsoft's Worldwide Partner Conference in July, then-Microsoft channel chief Jon Roskill told CRN just 25 percent of Microsoft's 600,000-plus partners worldwide had joined its cloud channel programs.
Microsoft COO Kevin Turner, in his annual keynote to partners at WPC, made it clear that he thinks this number is unacceptably low. "I want all 600,000-plus [partners] selling and transacting in the cloud," Turner said at WPC.
If that's the case, cutting the amount of money partners get from selling Microsoft cloud services is an odd way to go about it. Many partners rely on Office 365 incentive fees to train their staff on cloud skills and compensation models.
Without this revenue, moving to the cloud model will become more difficult, sources said.
"If I am moving to the recurring revenue model, and I don't get the advisor incentives, then how am I going to transition my business?" one Microsoft partner told CRN, speaking on condition of anonymity. "Bottom line: It's getting harder to make money with Microsoft."
A Microsoft spokesperson said in an email that Microsoft is cutting Office 365 fees for a couple of reasons.
First, Microsoft cut pricing for Office 365 volume licensing plans by 15 percent in August, and it is now aligning partner fees to match the lower rates. Second, Microsoft in August launched Office 365 Add-Ons, which lets customers add Office 365 subscriptions to an existing Enterprise Agreement and get discounted pricing.
Because the add-ons cost less than the full Office 365 subscriptions, Microsoft "created the blended rate to keep Incentives calculations simple and continue to adequately compensate partners regardless of the deployed product," according to a Microsoft document sent to partners recently, which was viewed by CRN.
Licensing experts, incidentally, have criticized Office 365 Add-Ons as a way for Microsoft to get customers to pay twice for Office: once for the on-premise software in the EA, and again for the cloud subscription.
DeGroot doesn't see Microsoft's Office 365 Add-Ons as a good thing for partners. "They continue to announce changes to their volume licensing programs, which, if you look at the actual contracts, are takeaways pitched as positive and beneficial," he said of Microsoft.
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