Microsoft, in the document, says the partner fee cuts do not mean it is cutting back on its investment in the channel.
"Microsoft is committed to continuing partner investment on Cloud with a significant growth in Cloud Incentives this fiscal year," Microsoft says in the document. The partner fee cuts "reflect the underlying changes in the product pricing and product mix and do not reduce partner opportunity to build a profitable business on Microsoft Cloud Services."
The spokesperson told CRN that Microsoft reviews the Advisor EA Deploy program terms every quarter to decide if fees should be increased or decreased and gives partners 30 days' notice of any changes.
Microsoft held off on making the changes until now to minimize disruption to partners' business, according to the spokesperson.
"Microsoft delayed implementation of these adjustments until the second half of its fiscal year in order for partners to continue earning Incentives at prior rates during the period between August 2013 and January 2014," the spokesperson said in an email.
Nonetheless, partners remain puzzled as to why Microsoft is changing its Online Services Advisor Incentives in the middle of its fiscal year, which ends June 30, 2014. The spokesperson declined to comment on whether Microsoft has previously made mid-fiscal year cuts to partners' Office 365 fees, but partners told CRN this is the first they've seen it happen.
Other Factors Coming Into Play
Office 365 fee cuts aren't the only issue Microsoft partners are grappling with these days. Microsoft is also cutting fees for large account resellers (LARs) by 1 to 2 percent in fiscal 2014, and that's having a trickle-down effect on other Microsoft partners, sources told CRN.
LARs are responding to their fee cuts by going after other partners' cloud deals, sources said. And since only LARs can sell EAs, smaller Microsoft partners don't have much recourse when this happens.
"When Microsoft squeezes LARs, they come to me and say they're going to take our partner incentives because Microsoft cut their fees," one partner told CRN. "At some point, if you take all the profit out of this, people are going to stop selling your stuff."
Asked to comment on the LAR fee cuts, the Microsoft spokesperson said LARs -- which Microsoft now calls Licensing Solution Providers (LSPs) -- can earn money from EA sales in a variety of ways.
"As Microsoft continues to invest and reward for both cloud-enabled and traditional EAs, LSPs that capture and grow both types of revenue will see the benefits. LSPs that are slower in capturing those opportunities will likely experience a change in their earnings," the Microsoft spokesperson said.
With LARs swooping on deals that have previously been handled by systems integrators and the Office 365 fee cuts going into effect later this month, the competition for dollars in the Microsoft channel is as fierce as it's ever been, sources said.
NEXT: Who Is Driving The Partner Fee Cuts At Microsoft?