Microsoft Rebate Cut Irks LARs

Sources told CRN that the Redmond, Wash.-based software giant has enacted a deep cut, effective July 1, on back-end rebates that LARs receive for selling those volume licenses to 1 point. While rebates have never been guaranteed, LARs have seen rebates of between 3.5 and 6 points of margin, depending on the volume and value of Select Agreements sold.

Microsoft is offering new incentives to its 22 LARs in the United States to push server software and solutions more heavily than Select Agreements, but those incentives may not prove to be as lucrative as rebates in the past, some sources say.

“The rebate structure is changing, and the guaranteed [rebate] portion is going down. There are supposed to be ways to make up for the shortfall, but I&'m not sure that&'s realistic,” said one LAR executive who requested anonymity.

“What they want to do is sell you to push certain products, such as the operating-system platforms [and] server-side products, which is okay, but it&'s harder to track and [the rebates] are not guaranteed,” the source added. “Before, [rebates] were based on revenue from the licensing program.”

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Microsoft declined to comment directly on the change, but the company said in a statement that it “periodically reviews its incentive programs for resellers to ensure that they support overall business strategies and long-term growth opportunities for partners.”

The new policy represents a major shift in how resellers are compensated for selling Microsoft software. In 2001, Microsoft took control over Enterprise Agreements (EAs) from LARs. While LARs continue to receive healthy fees for handling EA transaction services and remain authorized to sell Select Agreements, some fear the change signals that Microsoft may take Select Agreements direct.

But others view it as positive for customers. “Microsoft is clearly migrating its channel programs to compensate the channel for true value delivery vs. just licensing management,” said Rich Fennessey, CEO of Insight Enterprises, a solution provider in Tempe, Ariz. “Their intent is to interest resellers in deployment and not just selling licensing.”

To that end, Microsoft plans announce in September enhancements to Software Assurance that gives customers free vouchers for deploying software they license, other sources noted.

Peter Ells, director of VARAssist for Software One, New Berlin, Wis., declined to comment on such a “touchy” subject but noted that Microsoft is offering new incentives to resellers such as midmarket server promotion that his firm is pushing.

Lynne Frankel, general manager of U.S. Reseller Sales, Small and Midmarket Solutions and Partners at Microsoft, said the company crafts programs for partners in each subsidiary and geography and has alerted resellers to the changes. “Our practice has always been to put a formal communication in place whenever we revise our programs,” she said. “Affected partners are aware of these changes.”

Yet the rebate cut has already caused stress for some LARs. “It tends to be a problem because [we] dip into the rebate to sell product,” one source said. “We&'re still scrambling to make ends meet on that.”