Why One Of Microsoft's Biggest Partners Doesn't Like The Office 365 Incentive Cuts

As Microsoft partners go, they don't get much bigger and more influential than Dimension Data, the $6 billion multinational system integrator that has been working with Microsoft for the past 15 years.

So when one of Dimension Data's top Microsoft practice directors says he's concerned about a series of recent Microsoft channel program cutbacks, it puts the magnitude of the changes into perspective.

In an interview on Wednesday, Phil Aldrich, director of Microsoft Solutions at Dimension Data Americas, said Office 365 incentive changes going into effect later this month, which stand to negatively impact partner profitability, are just one of several recent moves that have him questioning Microsoft's commitment to the channel.

[Related: Microsoft Partners In Uproar Over Cloud Sales Commission Cuts ]

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"The reality is that Microsoft is reducing fees in number of areas, not just Office 365, but also the SIP [Solutions Incentive] program and business incentive funding for a number of product groups," Aldrich told CRN. "In my opinion, they are reducing and changing focus, and I think it will consolidate the partner community. There will be less people willing to do Microsoft work."

Starting Jan. 25, some partners that sell Office 365 and other cloud services in Microsoft's Advisor Enterprise Agreement Deploy program will see their incentive payments drop as much as 40 to 50 percent.

While Microsoft gave 30-days' notice of the Office 365 incentive changes in documents posted to its partner portal in mid-December, partners told CRN last week they hadn't heard anything from the Worldwide Partner Group.

Aldrich also thinks Microsoft dropped the ball in shutting down its Solutions Incentive Program (SIP).

"These programs are critical to having a channel. When those funding mechanisms disappear, it's a clear indication the vendor is trying to back away from the channel," Aldrich said. "Microsoft's whole incentive program is a mess right now and it's the opposite of everything the rest of the industry is doing."

Microsoft couldn't be reached for comment for this story. But Microsoft has previously said it invests $2 billion annually in channel incentives, and that cloud incentives will double year-over-year in terms of dollars and as a percentage of the overall incentives mix in fiscal 2014.

NEXT: Should Microsoft Do Something About Channel Conflict?

Sources told CRN last week that Microsoft has cut incentive fees for large account resellers, which Microsoft calls Licensing Solution Providers, by 1 to 2 percent for fiscal 2014. This is causing channel conflict, as LARs that previously just handled licensing are now going after other partners' cloud services deals, to make up the lost revenue.

Stephanie Rodriguez, director of channel incentives in Microsoft's Worldwide Partner Group, told CRN last week Microsoft doesn't "want to be a referee in the market" deciding which market segments partners can play in.

But Aldrich said he thinks Microsoft has a responsibility to do something to address the issue. "It's not OK for Microsoft to act like partners should fight it out. If Microsoft doesn't play referee, the partner community that actually influences the sale [of cloud services] will be the ones that suffer," he told CRN.

For some partners, however, Microsoft's Office 365 incentive changes aren't that big of a deal. Chris Hertz, CEO of New Signature, a Washington, D.C.-based Microsoft partner whose Office 365 incentives will be dropping, told CRN he makes most of his money from providing services for Microsoft CRM Online, Office 365 and Windows Azure.

"I could see being upset if you've built your business model around incentive fees. But we don't budget or forecast those dollars into our financials," Hertz said in an interview. "These advisory fees are great icing on the cake, but they're not making or breaking my business."