Microsoft Adopts Agent Model

Also new small-business option

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Microsoft's new SMB licensing option and new channel model, which recasts the role of midsize resellers as agents, received mixed reactions from channel partners.

Last week, the software giant began briefing partners about a new SMB licensing option, called Open Value, that allows SMB customers to purchase a companywide license and spread out payments over a three-year term. The current program is a two-year program and requires up-front payments.

The program, which Microsoft has been mulling for more than a year, is similar to the Enterprise Agreement (EA) option offered to large accounts. Microsoft currently offers Open Business and Open Volume deals to SMB customers. With the Open Value option, however, SMB customers with up to 750 seats can enjoy the benefits of annuity payments, software savings and upgrade rights via Software Assurance, Microsoft said.

Many say the new annuity model will please SMB customers, who were unhappy with the provisions and deadlines for Licensing 6.0.

Also last week, the company unveiled a new agent model for SMB channel partners that is similar to one enacted two years ago for large-account resellers. With the change, Microsoft reassigns the role of software distributors as Authorized License Providers and billing agents, while VARs, direct marketers and other solution providers selling licensing deals will become Microsoft Software Advisors and will receive a payment from the vendor for influencing IT purchasing decisions.

The new SMB licensing option and new channel role will take effect in March, Microsoft executives said.

Some resellers believe the licensing option and channel structure could drive more Microsoft technology into the growing SMB market.

"Annuity payments and low interest-rate financing are hot sales topics in the SMB market," said Reginald Howatson, vice president of business development at Integra e-business/JBM Logic, Longueuil, Quebec. "[This option leaves distribution to specialize on licensing, clients to focus on their business and partners to focus on their true added value."

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Other resellers said Microsoft wants to take them out of the revenue loop and go direct with SMB customers.

"Microsoft's sales pitch is that we as resellers can do less and still make money," said Jeffrey Sherman, president of Warever Computing, Los Angeles. "We no longer need to handle collections, we no longer need to put up the money, we no longer need to deal with tracking orders, etc. %85 But what happens at the end of the contract term? Is Microsoft going to go back to the reseller for renewals, or are they simply going to take the customer information they already have as part of the license sale and sell the renewals directly without involving the reseller? My speculation is they'll simply go straight to the end user and sell directly."

Others wonder whether Microsoft Software Advisors will find themselves competing with Enterprise Software Advisors (ESAs), since there is no established cap on the number of seats they can represent.

"Will EA resellers be able to offer better pricing to midsize businesses, or will this now make that moot? Time will tell," said Todd Barrett, networking sales manager at CPU Sales and Service, Waltham, Mass.

Rebecca LaBrunerie, program manager for Microsoft's Worldwide Pricing and Licensing group, said the new option can save SMB customers as much as 29 percent on desktop software costs and 25 percent on server software costs over a three-year period.

Some analysts said they expect the referral fee for VARs will fall between 5 percent and 10 percent.

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