Microsoft defends planned partner program changes, but many aren't buying it

Microsoft's talk about priorities and a changing partner market as reasons for dropping internal use rights for its products isn't sitting well with many of its resellers.
Written by Mary Jo Foley, Senior Contributing Editor
Credit: Microsoft

Last week, Microsoft quietly published information to its partner web site which made it clear that one of its program's main benefits -- internal use rights (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. But most partners seem unconvinced about Microsoft's stated reasons, with more than a few saying they might go so far as to quit the partner program as a result.
In a 20-minute recorded Ask Me Anything (AMA) entitled "Partner Transformation and Partner Business Investments" recorded on July 10, Microsoft execs talked about the priorities and trade-offs the company is making in regard to its partner program in fiscal 2020 and beyond. More than 230 partners attended the presentation live. (Note: It looks like Microsoft has removed the video of the AMA from YouTube.)

Erez Wohl, General Manager of Business Strategy and Partner Investments in the One Commercial Partner organization, told partners that Microsoft "has the richest incentive portfolio in the industry," and that it would spend $400 million more on its partner program in fiscal 2020 (starting July 1, 2019) than it did in the previous year. He and his colleague Toby Richards, General Manager of Go-To-Market & Programs in the Microsoft One Commercial Partner organization, talked up some of the advanced specializations, new commerce capabilities and other new partner benefits that would be coming to the program this year.

But webcast attendees were largely there for one reason: To dispute Microsoft's plan to eliminate internal use rights. Yet Microsoft oficials held fast to their stance, saying the company had to make some trade-offs in order to deliver on other priorities, such as making it easier for partners to connect with more users, partners and sellers.

"In this case, we made the decision to invest more heavily in programs and resources that support  new  business growth, and helping partners connect with more customers, other partners, and Microsoft sales teams. One of the trade-offs is indeed changing our approach to providing product licenses for internal  use," Richards said.

Richards reiterated that while Microsoft will continue to provide partners with business development licenses for training, development and testing and demoing, it will no longer allow partners to use these software licenses to run their businesses as of July 1, 2020.

"Microsoft's stance is hard to understand. Issuing IURs to partners doesn't cost them anything (as software licenses never do), so there's no extra resources available to devote to helping partners to connect with more customers," said Tony Redmond, Lead Author of Office 365 for IT Pros. "All this decision does is create some small amount of extra revenue for Microsoft by charging partners extra to run their businesses. That money is almost nothing to Microsoft, but it can mean a lot to an individual partner who suddenly has to cough up $20,000 to $30,000 for Office 365 licenses. It's a strange penny-pinching insensitive decision by the world's largest software company." 

Update: For what it's worth, someone I know at Microsoft 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 own datacenters. 

Richards also told webcast attendees the "weight of the licensing" it is providing was straining its ability to provide the type of value that its cloud partners want. He said Microsoft has 9,800 new partners joining the Microsoft partner program every single month. The partner ecosystem is asking for things like more referrals, more training, more ways to connect and "at the end of the day, we are running the partner business."

A Microsoft partner who requested anonymity said Richards was mixing apples and oranges because signing up as a partner, which provides registered status, doesn't give that new partner any software; it simply gives the company access to the partner sites. They can pay for a Microsoft Action Pack subscription, which does give the company a small amount of software to use internally to run their business, but that is completely digital and partners pay for it via the subscription fee.

"Flat out - this is a money grab by Microsoft," the partner said.

But at least some partners seemingly are in agreement with Microsoft's claim that it needs to modernize the partner program by updating the rules to reflect its prioritization of the cloud.

"If you based your reason for partnership on some free software, I can see why you would be upset, but why should Microsoft care about you?" said Steve Mordue, CEO of Forceworks and a Microsoft Most Valuable Professional and Gold Partner. "Could Microsoft have messaged this better? Probably, but Microsoft has never been good at sharing bad news. For those partners assuming Microsoft will fold their hand on this, I can't see a reason why, certainly not because some marginal partners are whining about it."

Though IUR has been the lightning rod in partner push back this week, there are other changes Microsoft is making to the program which aren't sitting well with some partners. Removal of on-premises support credits is another hot spot. In addition, a new requirement by Microsoft which will require cloud partners to obtain 10 net-new Microsoft cloud tenants annually (up from four) annually also is not sitting well with some partners. (See some angry responses here.)

Microsoft's annual partner show, Inspire, kicks off next week in Las Vegas, likely with more fireworks inside than outside. The Inspire opening keynote will be webcast live on July 15 on Microsoft's site starting at 8:30 a.m. PT.

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