Microsoft Channel Chief Rodney Clark: ‘Unintended Business Models’ Led To NCE

‘The 20 percent is not meant to penalize anyone or to shift and change business models,’ Microsoft Channel Chief Rodney Clark says at CRN parent The Channel Company’s XChange 2022 event. ‘The reality is that we had a program in CSP that actually created some unintended business models for us – and one of which was this notion of monthly.’

Microsoft Channel Chief Rodney Clark said Tuesday that changes his company is implementing under its “New Commerce Experience” platform seek to address “some unintended business models” created from the company’s Cloud Solution Provider program.

Clark’s comments came during a question-and-answer session with an audience at CRN parent The Channel Company’s XChange 2022 event in Grapevine, Texas. A Microsoft partner used the time to tell Clark that a 20 percent premium on monthly contracts for popular Microsoft packages such as Microsoft 365 – which includes Word, Excel and Teams – would negatively affect partners.

As the partner explained, the monthly premium could push customers into an annual contract. While annual contracts create more foresight – the partner has an expectation of revenue coming in – it also creates more risk that a partner is on the hook for paying Microsoft license terms if a customer goes out of business, gets acquired or has a major change in headcount.

[RELATED: Microsoft 365 Price Change Deadline Extended]

If partners keep customers on monthly contracts and accept a 20 percent increase to costs, it could make some partners unprofitable.

Clark told the audience that the 20 percent is not meant as a penalty. But under the current version of New Commerce Experience (NCE), licenses aren’t transferable.

“The 20 percent is not meant to penalize anyone or to shift and change business models,” Clark told the audience. “The reality is that we had a program in CSP that actually created some unintended business models for us – and one of which was this notion of monthly.”

He continued: “Each of you as partners have to assess the risk of your customers. And that‘s for you to decide, as opposed to Microsoft or your indirect provider. If you assess the risk to be high, this is where our monthly agreement becomes the path.”

Clark also told the audience that Microsoft has an internal credit organization that can review situations when a partner is on the hook for a license.

“If there are circumstances that are – to a point – where that’s untenable, then we have a group within Microsoft that can review those situations in cases,” Clark said. “Now, it’s not intended to be every single one. But we do have a credit organization that can review those.”

He continued: “The credit organization is intended to work through scenarios to help balance the risk, if you will. So it‘s not an appeals process. It literally is a team of people that will assess what is the ultimate and overall business model. It’s been a group that we‘ve had in place for many, many years. And I think that given the change and shift, that it’s appropriate for us to talk about that being a resource that‘s available to you.”

Clark also recommended partners that work with distributors contact them with customer risk questions.

Michael Goldstein, CEO of LAN Infotech – a Fort Lauderdale, Fla.-based Microsoft partner of 20-plus years and member of CRN’s 2022 Managed Service Provider 500 – told Clark during the Q-and-A that Microsoft hasn’t been flexible in the initial phases of NCE and that the vendor has increased risk for partners.

“As a 20-plus year partner, I feel that you‘re putting that risk back on our hands on these customers,” Goldstein said. “Yes, we could sign for a year. But you have other programs like Azure reservations where we go out there, and I can cancel that reservation and pay a penalty. So when these initial pieces that we see come out, we feel that Microsoft is really not being flexible. And this is the first out of all the times that I’ve been at events and hearing that there is at least a place that we can go … if a customer goes out of business.”

In an interview after the event, Goldstein told CRN that he appreciates Clark talking to partners in person. But he remains concerned about what happens when a customer moves to another MSP or goes out of business, leaving the partner on the hook.

“I’m not sure why that can’t be transferred,” Goldstein said. “Microsoft wins either way.”

He continued: “I do feel there are better ways to handle this.”

Zac Paulson, CEO of TrueIT — a Fargo, N.D.-based Microsoft partner and member of CRN’s 2022 MSP 500 — told CRN in an interview after the event that if Microsoft changed its rules on annual terms, “I think we all could get behind NCE without any issues.”

However, Paulson sees any NCE changes as unlikely. “Rodney’s comments all but assured that nothing would be changing,” he said.