This week Microsoft hosts Inspire, its major partner conference, in Las Vegas. Last week they seemed to be heading for a PR disaster with the decision to remove several benefits from partners. Vegas would have been an unhappy place for Microsoft executives forced to explain and justify the inexplicable. Hardly the kind of atmosphere prescribed to get partners all pumped up for a new year’s selling.
Last Friday, Microsoft saved the day by hitting CRTL-Z to reverse the proposed changes. The decision is both pragmatic and welcome. Frank, honest, and blunt feedback from partners (including several rude words) about the prospect of losing access to internal use rights (IURs), support calls, and so on convinced Microsoft management to decide to nix the proposals and keep partner benefits intact. At least for now.
But change is likely in the future. In the past, Microsoft could print software licenses for almost free (a matter of putting a sixteen-character alphanumeric code on glossy paper, complete with a nice hologram). The partner paid for the hardware, network, and ongoing operating costs. It was an easy and low-cost system for Microsoft to manage.
In the cloud, things are different, and a more nuanced picture emerges. In an article on the topic, Mary-Jo Foley reported that one of her Microsoft contacts told her that about $200 million annually is consumed to deliver IURs to partners.
I imagine that most of this cost comes from Microsoft’s datacenter operations. Office 365 accounts can consume lots of storage (enterprise mailboxes have a 100 GB mailbox, for instance), power, network, and so on and that’s funded by the huge investment Microsoft has made in building out datacenters around the world, like the recent datacenters launched to deliver Office 365 and Azure services in the Middle East.
Accounting practices vary across companies, but it’s a safe bet to say that the Microsoft delivery entity (who run the datacenters) will come with a bill to the funding entity (the partner organization) and expect to be paid. $200 million is a big chunk of change, but Microsoft has lots of partners and the IURs made available to partners cover many software products.
Partners don’t see the internal accounting arrangements and funds flow within Microsoft. What they saw last week was a threat to the benefits they receive as a Microsoft partner that might affect their business. The news was badly communicated and went down like the proverbial lead balloon.
Given that an increasing percentage of Microsoft’s business is moving to the cloud, it’s reasonable to assume that Microsoft’s partner organization will try to limit the swelling bill for cloud datacenter services. No organization can simply accept that costs will grow and grow, especially when they are being asked to deliver other services, like go-to-market initiatives.
I suspect that change will come to the partner program. Microsoft might try and rebalance the benefits to align them with the areas that partners work in. For instance, should a partner that focuses on solutions and projects based on SharePoint Online have free access to Dynamics 365 licenses except when building demos or for knowledge acquisition? A partner might say “of course” because they don’t know what their customers need or will need in the immediate future, but I think it reasonable for Microsoft to ask their partners to help prioritize the available budget by only using services that they absolutely need.
Change is fine if it is worked through with partners rather than being presented as what seemed to be a penny-pinching fait accompli. I hope Microsoft will learn from this fiasco and work the details with partners before announcing future changes. If they do, the changes will likely be positive. If not, we might have another car crash that leads to partners questioning if Microsoft has a commitment to their success and if they should invest as much in the Microsoft ecosystem.