Microsoft Unveils Online Services Pricing; VARs Want More

Microsoft has finally come to the table with detailed information on pricing and commissions for partners that sell its hosted services. But for solution providers who've grown used to controlling all aspects of their customer relationships, the numbers aren't very enticing.

In a Tuesday keynote at Microsoft's Worldwide Partner Conference in Houston, Stephen Elop, in his first public speech as president of Microsoft's Business Division, said Microsoft will give 12 percent of the first year's subscription value and 6 percent of the ongoing monthly subscription fee to partners that sell its Online portfolio of hosted business productivity services, which includes Exchange, SharePoint, Office Communications Server and Office LiveMeeting.

As expected, Microsoft is pricing its Online services aggressively. Currently in beta and due to launch sometime later this year, Exchange Online will be priced at $10 per user/month; SharePoint Online will be $7.25 per user/month; Office Communications Server Online will be $2.50 per user/month; and LiveMeeting will be $4.50 per user/month. Microsoft will offer these services in one-year automatically renewing agreements.

Microsoft is also selling a bundle of Exchange and SharePoint services with basic functionality for $3 per user/month, to meet the needs of workers who only spend a fraction of the day in front of a PC.

For Online services, Microsoft said it will share ownership of the customer with the channel partner of record, and that partners will administer and manage the services on behalf of the customer. Customers will buy services and sign agreements with Microsoft for the services, but they'll also sign agreements with their partners, according to Microsoft.

Eron Kelly, director of product management in Microsoft's Business Online Services group, said the ability for partners to generate recurring revenue is the key channel opportunity in what Microsoft is billing as Software Plus Services, its term for software as a service it delivers in conjunction with partners.

"We are providing partners with an ongoing recurring revenue foundation so that our incentives are aligned," Kelly said in an interview prior to WPC. "There's an opportunity for co-ownership here. This helps with partners' transition from the break/fix model to an ongoing revenue stream that includes interacting with the customer."

Channel Backlash

Microsoft spooked the channel earlier this year when it announced plans to sell hosted Exchange and SharePoint to companies of all sizes, including the sub-5,000-seat space that it previously left to partners. At the time, Microsoft insisted that it would involve the channel in these deals, and today's announcement is the fulfillment of that pledge.

For now at least, Microsoft said the software-as-a-service offerings provide alternative options to customers. Both solution providers and customers can still opt for on-premise versions of the software or hosted software from Microsoft hosting partners. And many solution providers say they will do just that.

Despite Microsoft's insistence that the channel will still make money from its software-as-a-service offerings, many solution providers told ChannelWeb they have no intention of giving up control of billing, branding, pricing and service delivery to Microsoft, especially since Microsoft won't allow partners to offer private-label services. Basically, partners said they feel they should getting more for doing the sales legwork for Microsoft.

"Twelve percent is not enough," said one partner, who asked to remain anonymous. "To give partners a real incentive to resell these services, the margins on services has to be huge. Why? Because we're spending all this money to locate and qualify leads, and with no support or other middleman revenue. Basically, we're just handing the customer to Microsoft."

Dave Sobel, CEO of Evolve Technologies, a Fairfax, Va.-based Microsoft Gold partner, agreed that the 12 percent commission isn't enough to make up for losing control over the relationships he has built with customers. "There are tons of hosting providers I can partner with and do private-label work—but it would be nice to have that partner be Microsoft," said Sobel.

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