Partner Conference Blockbuster: Microsoft Opens Licensing Floodgates For Cloud Solution Providers

Microsoft will introduce a licensing structure change at its Inspire conference next week that should deliver more mid-market accounts to Cloud Solution Provider (CSPs) partners by raising the threshold for deals that qualify for volume licensing.

The major licensing change lifts the floor for Enterprise Agreements from 500-seat to 1,000-seat deals, putting midsize accounts further from reach for Microsoft Licensing Solutions Partners (LSPs) selling cloud software on those three-year volume licenses.

"Microsoft is moving from an organization that compensated its sales teams and partners on selling enterprise licensing agreements, that were never fully deployed, to an organization laser-focused on cloud consumption usage and metering," said one solution provider who asked not to be identified. "Partners are going to be the key to whether that cloud consumption model is effective."

Enterprise Agreements come with discounts that give LSPs a competitive advantage over CSPs. By eliminating those contracts from eligibility for 500-seat to 1,000-seat deals, the "CSP will become more and more the standard buying motion," another Microsoft partner told CRN.

[Related: Microsoft Partners Expect More Emphasis On The Channel Following Round Of Layoffs]

CSP partners, of which there are tens of thousands globally, expect the change to create many more opportunities to sell Office 365 and other Microsoft cloud services to small and midsized businesses and small enterprises on monthly subscription basis.

Microsoft has also tweaked the compensation structure for its sales reps, who in the past sometimes had an incentive to see mid-market deals converted through the EA license.

That incentive came in the form of reps, when looking to retire sales quotas, preferring the one-year upfront payments mandated by an EA, rather than recording monthly revenue from a CSP deal.

"It’s a big shift in the licensing model," that partner said. "Microsoft reps didn't always want to sell through a CSP. Now it will be comp[ensation]-neutral."

Microsoft did not comment on the EA structure changes, but partners tell CRN they expect the announcement at the Inspire partner conference in Washington D.C. next week.

While the EA changes are expected to create opportunities for CSPs, another Microsoft licensing vehicle that's been ramping in prevalence, the MPSA, could undermine some of those gains for smaller partners, according to another CSP.

The Microsoft Products & Services Agreement (MPSA) provides Microsoft LSPs – more than a dozen of the largest Microsoft resellers in the U.S. – another avenue for attacking smaller accounts.

"This MPSA is like a mini enterprise agreement that allows a customer to buy stuff. It’s not as strict or encompassing as an enterprise agreement, it's easier to transact, but it still has to be done by one of those LSPs," said that partner, who has seen first-hand complications resulting from the MPSA.

"In concept, I totally agree and endorse the notion that raising the bar on enterprise agreements should force more business into the hands of people like me," he said. But "now LSPs have a license type that works for businesses smaller than 100 seats and I can't sell it."

While the MPSA threshold is officially 250 seats, the partner told CRN he recently talked to a potential customer that had already purchased Microsoft software for far fewer users under that type of contract.

The MPSA originally was intended for volume licensing of on-premises software. But the contract morphed about a year ago to also encompass online services, he said.

Before then, the playing field was more level for all partners, both for CSPs and advisors buying straight from Microsoft, on all deals that couldn't be wrapped in an EA contract, he said.

Microsoft did not respond to requests for comment on its MPSAs.

The EA threshold was last raised from 250 to 500 seats in February of 2016.

The vast majority of Microsoft sales are through EAs, the partner said, because so many accounts in the past qualified for those types of deals.

-- Steve Burke contributed to this story.