Microsoft to Partners, “The Free Rides are Over!”


The news media and investor market is certainly embracing the “Softer” side of Microsoft introduced since the appointment of Satya Nadela as CEO. While the company’s stock is at an all-time high, it seems Microsoft’s network of Partners are being gradually introduced to a new “Harder” side.

Partners Pummeled

In recent months, partners have seen a continuous barrage of changes that are catching most off-guard. Many have described some of these changes as types of “Partner Taxes”. For example:

  • Mandatory, but unnecessary, requirements to purchase Advanced Support for Direct CSP Partners (Minimum $15K/yr)
  • 10%-20% of ISV’s Revenue to now be shared with Microsoft
  • The elimination of Internal Use Rights licenses (IUR), as I was the first to tweet about last week.

Add to these, recent changes to the Competency Requirements, tripling the number of certified individuals. It all has a lot of partners wondering… WTF! Let’s break it down.

The Purge

What most of these things will have as a common result, is a reduction in the number of partners. Fewer Direct CSP Partners, fewer Gold Partners, fewer Silver Partners, fewer ISV Partners… fewer partners across the board. It seems that Microsoft is struggling with how to achieve a new goal: dramatically increase the “Quality” of partners in their channel. One part of reaching that goal, is reducing the “Quantity”.

Quality Partners

Ask 20 partners what defines a “Quality Partner”, and you’ll get 20 answers. But none of them matter, because the definition of a “Quality Partner” is determined by Microsoft, and always has been. Over the years, Microsoft’s own definition has evolved, along with changes in technologies. A “Quality Partner” ten years ago, may well be an irrelevant partner to Microsoft today. Irrelevant partners aren’t removed from the program, they’re just ignored.

This is not on Microsoft, this result sits squarely on the shoulders of the partner who did not evolve. Over the years Microsoft has increased the number of their partners significantly, but today they actually see many of them as irrelevant, serving only to boost numbers on brag slides. So why not just remove them from the program? Re-read the first paragraph if you don’t already realize that’s what’s happening.

Beauty is in the Eye of the Beholder

So what is a “Quality Partner” to Microsoft… today anyway. This will vary significantly from one internal group to another, but it does seem that there are some common themes. The first is that they are usually big. Big partners sell big deals, small partners sell small deals, simple. There are exceptions, small partners that somehow sell big deals, or small partners that sell big logos. Microsoft’s only interest in small partners is whether they have the potential to become big partners… soon… and most do not.

This is not Microsoft’s fault, they are not a charity organization. With success on Wall Street, comes extreme pressure to increase that success, this is all new to Microsoft, but clearly small partners won’t cut it. Big is not the only metric, in addition to that, the partners have to be selling the right things, like Azure. If you are not selling Azure today, your relevance to Microsoft is significantly diminished. Again, Microsoft’s Azure Powered Cloud is the force-multiplier on their stock value, and there will be no re-trenching.

Irrelevance?

So, if big Azure selling partners are the holy grail, are all others irrelevant? Not “irrelevant”, just “less relevant”. Out of Microsoft’s 120,000+/- employees, a percentage of them do not have Azure as their highest priority. Although, if you followed the string connected to whatever their priority is, it often eventually leads to Azure, down the road or behind the scenes. If you look at the intentional “culling” efforts underway, it is fairly clear that Big Azure partners are immune.

Second to the last Partner Standing

If you are not a big Azure selling partner, and you are not able to become one, what is your next best option to remaining or becoming relevant to Microsoft today? You better follow the bouncing balls. Today, it is not important “how” good you are, what is important is “what” you are good at. On my side of the Microsoft house (Business Applications), you better be good at verticals, and migrating customers off of competing solutions. And, if you’re not racing towards the Power Platform, you’re racing towards irrelevancy. Whatever part of Microsoft’s business you’re in, you better be listening to their signals. Your agreement with the directions they take is not relevant.

Effects of Motions

Let’s look at what I think the effects will be of some of these recent motions:

  1. Increasing the number of required Certified individuals for a Competency. This will dramatically reduce the total number of partners with competencies. Many Gold Partners will become Silver Partners, and many Silver Partners will simply fall off. Is it fair that Microsoft has decreed that your “Competency” with a product (which the dictionary defines as “the ability to do something successfully or efficiently“), is specifically proven by the quantity of certified people you have?
  2. Advanced Support Requirement for CSP Partners. Clearly this is Microsoft fixing their own mistake. In their zeal to grow this program initially, they lowered the bar to entry for Direct CSP partners. The predictable result was too many partners who were not qualified or capable of managing and supporting the Direct CSP arrangement. Coincidentally, the vast majority of those were small partners, and what’s the best way to shake off a bunch of small partners? Add a significant new cost. It has the added benefit of not appearing like Microsoft took anything away… small partners removed themselves!
  3. ISV Revenue Sharing. I already wrote at length about both sides of this coin here and here.
  4. Elimination of IUR benefits. This will primarily impact smaller partners, who we have already determined are less relevant anyway. I expect there will be a lot of noise from those small partners, but if a tree falls in the woods… Microsoft won’t hear it. This one has some fairly clear motivation behind it. Back in the day, IUR meant giving you a license key to on-premise or desktop software. It may have been foregone revenue, but at least there was no cost to Microsoft. Today, most of the IUR benefits are not free to Microsoft… they have a cost. Imagining the number of IUR services activated across their huge network, this cost is significant. Eliminating this benefit will have the dual effect of reducing costs, and increasing revenue… and who doesn’t want that?

What does it all mean?

If you thought, with the dramatic and rapid evolution of Microsoft from near irrelevance, to the most valuable company in the world, that your life as a partner would remain unaffected… well then you’re just a moron. Like Microsoft, you also have to let go of the past. All the old “favors” you racked up, have no value today. The cronies that protected you, are all gone. All of your storied history with Microsoft… pfft!

What have you done for Microsoft lately? That is all that matters, and frankly, all that should matter. Microsoft is “Culling the Herd”, which by definition means “Literally, to separate or remove (and usually kill) inferior animals out of a herd so as to reduce numbers or remove undesirable traits from the group as a whole.

To me, this sounds like exactly what’s happening…

 

 

Steve Mordue MVP

Steve Mordue, a Microsoft Business Applications MVP, is the CEO of Forceworks, a 2014 Microsoft Partner of the Year. Steve started his CRM consulting career in 2001, originally supporting Salesforce.com as a Certified Consultant. Steve transitioned his consulting practice to Dynamics CRM, (now Dynamics 365) in 2011. Steve has been engaged in hundreds of CRM deployments over the course of his career. As one of the leading Dynamics 365 Consultants, recognized by Microsoft as an expert, Steve has provided training, on behalf of Microsoft, to other Microsoft Partners globally on how to launch and build successful Dynamics 365 practices. Steve is a member of the Worldwide Dynamics Partner Advisory Council, and is a frequent presenter and panelist at global Microsoft events. The opinions shared in this blog are Steve's alone. If you are looking for Microsoft confidential information, you will not find any here.

17 Responses

  1. Kerry Burn says:

    Hi Steve I wrote about this on LinkedIn and CRN picked it up, I totally understand the reasoning, the method feels incredibly arbitrary. we hold 10 gold competencies and a workforce of 40 staff, we do a LOT of work for larger partners like Deloitte and Ricoh and the competencies are a qualifying gate that helps us get through the door. The removal of IUR seems short sighted, we are good at what we do because we use their software (we will pay for it regardless) and I saw the badges as a measure of capability. to attach revenue targets to these badges is very short sighted as the larger resellers (who have the EA agreements and similar) can meet the targets with their cost minus strategy and MS do nothing about it.

    The CSP tax was also a terrible idea after a terrible implementation and one we are still weighing up.

    I think my question to you is that if the competencies are to mean anything should they have such a dependency on revenue? I ask this as a partner who if I could attach myself to some of the end clients via the URL injection then that might help, but that is a very very difficult sell and one that most clients would balk against

    Great read regardless

  2. Chuck Kiessling says:

    I think this is a great read. In all honesty, I totally get it. If you invest enough time, effort and energy in the partnership, there are plenty of other benefits to gain in being a partner with Microsoft, just no longer with IUR. I have seen many small “partners” that do the absolute minimum to gain access to a platform that they know and love.. for free while doing business in other areas. I am interested to see other changes, and looking forward to Inspire.

  3. Pierre Calder says:

    My guess is the IUR licensing being pulled back is for on prem software only and the action pack for 365 licensing will remain. This would be consistent with Microsoft’s stated strategy of moving to the cloud. The same is happening to NAV, GP, SL,Exchange and other on prem software. In each disruption there is opportunity. An entrepreneur will find the oppurtunities and the rest will complain.

  4. martin olsen says:

    Thanks Steve for the post. Microsoft have every right to make the decisions that they think are best for them. An unbalanced focus on Azure revenue will undoubtedly have negative impacts on other parts of the extensive breadth of Microsoft Business.

    Partners need to watch for and predict the future for each business unit based on Microsoft’s focus. The partner then makes the decisions about direction that are in their own best interest. Their best interest may or may not include Microsoft.

  5. Krishna Jacques says:

    My question is what does that mean for the customers who may have had license agreement (grandfathered in) through a partner that my no longer be a partner?

    Also what does that mean for Individuals wanting to become a partner and do not have certified employees to fit the mold of a quality partner??

    • Steve Mordue MVP says:

      I’m not sure the first scenario you described is related to this. For the second, nothing keeping individuals from become partners that I am aware of, they just won’t get any free software to use for their own business needs anymore.

  6. Feridun Kadir says:

    Great write up. I totally get that the partner program is a Microsoft organized “club” and Microsoft can change the rules as it sees fit. However, what I don’t get, is what is the value for a business reamining in the partner program after these latest changes. Do you have any thoughts on that?

  7. Neil Benson (@customery) says:

    While I can understand your theory, Steve, doesn’t it conflict with the direction that Hayden Stafford provided on your recent podcast? Hayden said that the Business Applications Group is re-investing in mid-market customers and in mid-market partners. Mid-market partners (with 10 to 100 billable consultants) rely on a mutually beneficial partner program with Microsoft, and especially on benefits such as IUR that provides Microsoft software to everyone in their company. How do small partners grow, if they have to pay Microsoft more for software, more for competencies, more for support and more for certification, more for AppSource? Is Microsoft going to reward those partners with larger margins?

    • Steve Mordue MVP says:

      Both Hayden and Alysa talked about significant investments this year for the Business Applications Group, but this IUR decision is coming from the Partner Organization.

  8. Johan Adenmark says:

    Very good post, as partners we have to step up or leave.

    • Steve Mordue MVP says:

      Indeed

    • Dick Hoelscher says:

      Leave is a good option. Microsoft does not realize that they’ve the ones who’ve been getting a free ride all along. They can sell their own products and services for a change. After all, it worked out so well for Windows Phone and the Microsoft Store.

      • Johan Adenmark says:

        True, being a Microsoft Partner is not for everyone. If IUR is what´s tipping over for being a partner, it is probably the right decision to leave. If, as I do, see a greater value, this is not a game changer.

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