Microsoft capitulates and agrees to undo planned partner product-licensing changes

Microsoft is not going to eliminate internal use rights for partners who've been using software obtained as part of Microsoft's partner-program benefits to run their businesses, following partner complaints.

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After a widespread outcry by many of its reseller partners about a decision to start charging them for using its software and services to run their businesses -- after decades of mainly looking the other way -- Microsoft is capitulating. The company is no longer going to revoke internal use rights (IURs) for its partners next year, as it announced.

Last week, Microsoft quietly published information to its partner website which made it clear that one of its program's main benefits -- IURs -- would be axed in July 2020. Since then, Microsoft's been attempting to do damage control, including by holding a webcast that meant to shed more light on the reasoning behind the move. 

In a note posted to its Microsoft Partner Network (MPN) site on July 12, Microsoft's channel chief Gavriella Schuster stated:

"Given your feedback, we have made the decision to roll back all planned changes related to internal use rights and competency timelines that were announced earlier this month. This means you will experience no material changes this coming fiscal year, and you will not be subject to reduced IUR licenses or increased costs related to those licenses next July as previously announced.

"We listened to you, and we have acted.

"Each year, we review how we engage with partners and evolve our approach to ensure we provide best-in-class support to you and stay ahead of market changes. As we move forward, we commit to providing even more advance notice and consultation with our partner community to mitigate concerns and address issues upfront. We will continue to invest in our partner program to ensure we create opportunities for all our partners.

"Our decision to rescind these changes required a thorough review, and a key determining factor was the connection and trust we have with you, our partners -- a valuable asset we do not take for granted. Together, we can continue to be a catalyst for digital transformation industry-wide.

"We appreciate your feedback, apologize for the confusion this caused some members of our partner community, and look forward to growing our partnership with you in the months and years to come."

Microsoft's about-face comes just days before the company's annual partner conference, Inspire, kicks off in Las Vegas.

Microsoft officials said earlier this week that the decision to start requiring partners to pay for the Microsoft software and services they use stemmed from a need to cut costs. Officials declined to say how much IUR is costing Microsoft. But one of my contacts inside the company said Microsoft is currently incurring about $200 million in costs annually (and growing) resulting from its services being used by partners via IUR products. A lot of this sounds like Office 365, so the costs would come from storage, compute, and other back-end services Microsoft is maintaining in its data centers.    

I admit I am very surprised. Even though partners were in an uproar over this change, I figured Microsoft officials already had decided after much consideration that the company could weather the IUR storm. Even though some partners were threatening to quit the program, I thought Microsoft execs believed the money it would save outweighed that risk. I'm happy to say I was wrong. I think the least Microsoft should have done here was give partners more notice about these changes.

I've asked Microsoft if it is undoing the other changes announced late last week, such as requiring cloud partners to obtain ten net-new tenants per year. I believe so, but I'm double-checking to be sure.

Update: Microsoft revoked the whole kit and caboodle. Free on-premises support incidents are back. The requirement for CSPs to add ten net-new tenants (instead of four) per year also has been revoked, a Microsoft spokesperson confirmed.