Five key takeaways after Microsoft's Internal Use Rights bombshell

Microsoft caused uproar last week by quietly announcing plans to remove Internal Use Rights from its Gold and Silver partners. CRN sister title CPI breaks down five key talking points

Last week, Microsoft announced plans to remove Internal Use Rights for all MPN partners. The change will mean that partners will no longer be able to use Microsoft's software free of charge except for development and test scenarios.

CRN sister publication Channel Partner Insight breaks down five key talking points for partners.

It hurts big partners as much as smaller ones

Many of Microsoft's partner programme changes have followed a consistent pattern in which its most invested partners are set to benefit the most. Last year, Microsoft announced changes to its CSP programme. With the changes, partners were required to provide at least one managed service, IP service or customer solution application to retain their status as a direct partner. They would also need to purchase support software from Microsoft costing $15,000.

The change was to the detriment of many Microsoft partners at risk of being relegated to an indirect partner. At the time several partners applauded the move, claiming that the bar of entry for direct partners was too low.

Many saw the logic behind the CSP update: Microsoft was encouraging partners to invest in high-value areas which would result in a better service for its customers.

But Microsoft's sudden decision to remove internal use rights (IUR) for partners will, if anything, hurt its most invested partners the most - those that are running hundreds of free licences that they will now have to purchase.

"It's been a long time since I've seen this many Microsoft partners this angry about the same thing. Usually it's a case of only some partners being impacted. If you're a partner that's been doing exactly what Microsoft has been telling you to do, then their changes tend to be better for you. But this change doesn't seem to be better for anyone," said Rich Gibbons, software licensing analyst for The ITAM Review.

"The bigger you are, the more you're going to get from Internal Use Rights. So percentage wise, the bigger partners will have a bigger bill to keep on using those licences. And equally for the small partners, who may be quite niche, it's going to add a significant bill for them as well.

"If you've suddenly got to start paying a few thousand pounds a month for something that was free, it's money you're not expecting to spend. But I think there's something more than the financial impact; what does this say about Microsoft's attitude towards partners?"

Partners will make the money back by increasing their prices

For Vancis, a Netherlands-based Microsoft managed services and cloud partner, the removal of IURs will mean an additional cost of around €4,000 every month according to its product owner Tom van der Horst.

He told CPI that Vancis' customers in the education and healthcare markets rely heavily on Microsoft software.

"This would affect Vancis since we run our internal automation on the IUR basis. This would imply that there will be another raise in cost for our company since we would have to licence the software in use at present day," said van der Horst.

"In order to get these costs back, the customers will get an additional price increase on their monthly services."

Is there any point in being a Silver or Gold partner anymore?

Microsoft Gold partners in the US have to pay a $4,730 annual fee to retain their status at the top of the MPN while Silver partners have to pay $1,670 every month.

Some partners have suggested that, in light of Microsoft scrapping IURs, it might be more profitable for partners to not renew their Gold and Silver memberships, and instead put that money towards licensing costs.

"Microsoft is actively pushing away its partners in this way," said van der Horst.

"It devalues the effort and cost a partner invests in Microsoft in order to qualify for a competency or to attain a Silver or Gold membership. It would be wiser to let these partnership levels expire and to invest the cost for those into additional licensing costs Microsoft is forcing upon us."

Other UK partners have expressed a similar sentiment and questioned the advantages of being a Gold or Silver partner after the IURs are removed.

Could it be reversed?

Gibbons said there is a precedent for Microsoft backtracking on controversial decisions that have negatively affected its partner community.

"Historically with Microsoft there have been a few cases where they've announced something significant, and then rolled it back based on feedback. A couple of years ago they announced some Office 365 changes at their Ignite conference and everyone kicked off, and they didn't do it," he said.

"When you've got 15,000 partners saying they think it's a bad idea, maybe that will stop it from happening. But I would say that maybe some of the damage is already done."

Adding to the possibility of a reversal from Microsoft, a petition against the tech giant's decision has received more than 2,500 signatures since it was started on 7 July.

Will all be revealed at Microsoft Inspire next week?

Partners have not ruled out a potential announcement of a new improved IUR benefit at Microsoft's annual Inspire conference in Las Vegas next week.

Either way, the choice of timing from Microsoft left many in the channel scratching their heads.

The initial announcement on Thursday came with no explanation as to why Microsoft has decided to remove the IUR benefit.

But the vendor released a statement this week explaining the rationale behind the decision:

"Like any business, we need to prioritise where we are going to commit funds. In this case, we made the decision to invest more heavily in programmes and resources that support business growth, helping partners connect with more customers, other partners, and Microsoft sales teams," Microsoft said in a statement.

"One of the trade-offs is changing our approach to providing product licences for internal use. We will continue to offer product licences for dev/test scenarios and to win business, and the internal use rights won't change until 1 July 2020 to allow time for partners to plan.

"While we understand this may be an adjustment for our partners, we believe the evolution of our partner business investments will allow partners to better capitalise on the cloud opportunity."

Microsoft's response seems to suggest that the decision is final, and that it's going to stick to its guns despite the backlash from the partner community.

"If they announce something amazing at Inspire, then this just becomes a poor communication strategy," said Gibbons. "If they don't then it's something more significant."

"The feedback [at Inspire] is going to be so completely against it, so it would be sensible for them to roll back on it. On the other hand, they must have known this was going to go down like a lead balloon, so maybe they expected this and they're going to carry on with it anyway."

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