Microsoft Office 365 Open Lets VARs Control Billing, Revenue

The waiting game for Microsoft Office 365 Open is over.

Microsoft is ready to make Office 365 Open available to solution providers, allowing them to bill customers directly for annual subscriptions of the cloud-based suite for the first time.

Until now, solution providers had to sell Office 365 through Microsoft's Advisor model, which provided VARs a fee for handing the sale over to Microsoft. That model created consternation and frustration among many VARs that wanted to keep the Office revenue on their books. Now those partners can recognize the sale of Office 365, one of Microsoft's fastest-growing products, said Jon Roskill, corporate vice president of Microsoft's Worldwide Partner Group.

"This complements the other channel mechanisms for going to market with cloud. They can become the partner of record and get credits for future sales," Roskill said. "Since I arrived, two and a half years ago, we've had a set of partners tell us they want to recognize the top-line revenue and control margin and package our cloud services with their own offerings. Office 365 through Open allows them to do all of that."

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Although more than 50,000 partners have been "involved" in Office 365, Roskill said, doing services, support and training around Office 365, less than half of that number, about 20,000 partners, have been selling Office 365 through the Advisor model, along with a number of telcos and other providers bundling it with high-speed broadband and other services through a syndication model.

Overall, that's a small percentage of the overall Microsoft partner community, and the Redmond, Wash.-based company hopes that many VARs will now look to add Office 365 Open to their portfolio because they can control the sale and billing.

"We believe that right now we are more than 10 times bigger than the next biggest cloud software competitor in terms of the channel. This is going to take us up to a whole other level. Fundamentally, it establishes leadership in the cloud for Microsoft in the channel for what we expect to be years to come."

Microsoft first announced Office 365 Open was in development at its Worldwide Partner Conference last July.

Thus far, about 90 percent of Office 365 commercial customers are SMBs with 50 or less employees, Roskill said, which makes the product a good fit for partners selling into that market.

"It's taken us a bit longer to get this out than we would have liked, but the core thing in the world of cloud business model components and how we run transactions requires technical components in the product itself," Roskill said. "We wanted to make sure that was all right. We've been testing for some months now, and we feel it's ready to go."

Microsoft has spent the last couple of months training distributors including Ingram Micro, Synnex and Tech Data to arm those companies with the resources necessary to ramp VARs up quickly to sell Office 365 Open, Roskill said.

NEXT: VAR's Waiting Game Is Over

Microsoft also plans to push VARs to sell Office 365 within their own organizations. "If they use it, they will be better at promoting it and selling it. We like to say 'You have to use the cloud to sell the cloud,'" Microsoft's Roskill said.

Rob Moyer, vice president of Synnex's Microsoft global business unit and cloud computing, said the ability for VARs to take title to sell Office 365 Open should appease many VARs hesitant to sell Microsoft's cloud solutions.

"Go back to the early days of the Advisor program, and a lot of people complained about losing billing to customers. While it took a while, Microsoft did what channel was asking of them. The people that will benefit most is the traditional channel. This is a huge positive," Moyer said.

Microsoft expects some partners to view the Open program as a stepping stone to drive more sales through the Advisor program, but the two programs will sit side by side, Roskill said.

"The goal is not to drive the Advisor channel to Open. We think they're quite complementary," he said.

Microsoft wouldn't detail channel discounts or incentives, but Roskill said they would be volume based and that they would be "some of the richest if not the richest rebates ever" offered to partners.

"We're doing that to send a clear message. Our biggest competitor is not somebody like Google. It's our on-premise products. A lot of partners have made a lot of money selling on premise. We want to make sure they can make just as much if not more selling cloud," he said.

Don MacNeil, Managing Partner at Strategic SaaS, a three and a half year-old VAR based in Austin, Texas, has registered nearly 200 Office 365 users under the Advisor program but plans to leverage the Open model going forward.

"We'll be doing the end SKU every time we can. Absolutely. From a capitalization perspective, and so many other perspectives, we like to control that," MacNeil said. "We spend an enormous amount of time helping customer evaluate the benefits of cloud; we help them migrate to cloud, [and] then we hand it over to Microsoft and [customers] wonder who their partner is. If we can maintain a billing relationship, that's a much longer-term strategy for us to service accounts and overall help them in their migration to cloud services."

In addition, the Open program provides incentive for Strategic SaaS to target smaller customers for Office 365 Open, MacNeil said. "It has a ceiling of 350 users. That's our average prospect today. My value proposition is helping customers make a comfortable transition to cloud, and a primary step is moving into Office 365," he said.

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Another benefit, no less important to Strategic SaaS' MacNeil, is the expected increased profitability that the Open program brings to long-term relationships.

"The first year will be slightly lower, but subsequent years will be higher. That's very good for us. Our business model is designed to have recurring revenue. In the current model, there's very little opportunity for long-term support for partners," he said. "We've been waiting for this for a long time. This is where we needed to be two years ago. We're excited to see how it plays out in the market."

Microsoft hopes to double the number of VARs selling Office 365 to 40,000 by July, when its Worldwide Partner Conference takes place in Houston, Microsoft's Roskill said.

"We're at a point where we are ready to scale this. The data centers are ready to scale. The distribution mechanisms are ready to scale," he said.

"Very clearly a set of partners are saying they want to control billing and recognize top-line revenue and do a single bill. We don't know what number it is, but a number of partners have said 'We're not selling Microsoft cloud offerings until you give us that capability.' The Advisor model has done quite well, so [resistance] has not been a monumental blocker, but we want to fit into a partner's business model, not the other way around.

Many VARs were reluctant to sell Office 365 because it didn't fit well into the compensation models they have for their sales force, Synnex's Moyer said.

"Now it's very aligned to Open licensing. You have a one-year SKU and it gives you more flexibility. It's not quite monthly [billing] but it's not a huge leap to understand it. It's a slight business model change," Synnex's Moyer said. "I applaud Microsoft. This was a tough one for them I know. It took time, but they did listen to the channel."