Google Workspace partners expect big margin hit, blindsided by Gemini AI price action
Google’s decision to include Gemini AI as a standard part of its Workspace productivity suite is expected to have a negative impact on partner profits, but some firms expect a services windfall
Many Google Cloud channel partners in NORAM said they expect to take a huge profit hit from a surprise move by Google to include Gemini AI with its Workspace Business and Enterprise subscription plans, making capabilities that were previously only available as add-on purchases now available at no extra cost.
Coming on the heels of changes last spring to the margins Google partners earn on Workspace renewals, the new sales strategy for Gemini AI is a big blow to the profitability of Google partners, said the CEO of one prominent Google Workspace solution provider, who asked not to be identified.
“This is generally bad for partners,” explained the CEO.
“When Google cut our Workspace renewal margins by 40 per cent [last April], part of the story was the revenue and margin opportunities for partners with Gemini [would balance those margin losses].
“We will now lose 80 per cent to 90 per cent of the margin dollars on Gemini with this change.”
Google last Wednesday said that Gemini AI features will now be included in the price of Workspace—which consists of Gmail, Chat, Slides, Vids, Docs, Sheets and Meet—for all Google Workspace Business or Enterprise users rather than being sold separately as an add-on option.
Previously, Google Gemini cost $20 per user per month for the Gemini Business plan or $30 per user per month for Gemini Enterprise, which partners said generated margin dollars.
At the same time, however, Google also increased prices across the board for Google Workspace subscriptions.
For example, prices for annual and fixed-term Workspace Business subscriptions as well as flexible Workspace Business Standard plans increased by 17 per cent to 22 per cent.
Customers will not be able to opt out of paying for the Google Gemini AI capabilities that now come standard with the Workspace suite.
In a statement to CRN US regarding partner concerns, a Google Cloud spokesperson said: “As always, we’re in constant communication with our partner ecosystem about updates to our programme.
“It’s clear to us from observing our users that AI is foundational to the future of work and its transformative power should be accessible to every business and every employee, at an affordable price.
“We are excited about the enormous value that our simplified Workspace pricing will deliver to customers, which allows partners to focus on driving adoption for AI-powered workplace tools and creates much larger, strategic revenue opportunities for our ecosystem.”
The Gemini AI shift follows Google’s decision last year to cut channel partner margin for Workspace renewals from 20 per cent to 12 per cent, representing an approximately 40 per cent margin cut.
“Partners sacrificed Workspace margin dollars to promote Gemini and now the Gemini margin is going away,” the solution provider CEO said.
“[Google] didn’t think through the impact on the partners which I think is becoming a pattern.”
Some Google partners contacted by CRN said they were given no prior notice about the sudden change in strategy, which resulted in them fielding angry calls from customers concerned about the potential unauthorised use of AI in their businesses.
“One of my customers called up in a panic saying, ‘We’re not ready for this AI. Why is it on? And when do I have to start paying more for something I don’t want?” the CEO told CRN.
Google workspace margins hit, but it’s ‘the next logical step’
Not all Google Cloud partners feel discouraged by the new Workspace Gemini sales strategy.
John Pettit, CTO at Promevo, a Google premier partner, said injecting Gemini into Workspace is “the next logical step” and that Gemini’s add-on cost was an inhibitor for many customers.
“We’re one of the top partners in deploying Gemini AI out there for Google,” said Pettit, adding that Promevo won “hundreds” of Workspace Gemini deals in 2024.
“We saw a lot of people see real gains after six weeks of using AI technology, but the cost factor was one of the elements that was limiting their initial deployment of users,” said Pettit.
“This is great for us because it means more AI deployed into more companies and getting customers to see the tangible benefit of productivity gains they can get from it.”
Pettit said he does foresee some Workspace margin losses with the move, but he expects forthcoming innovations from Google to lead to new money-making opportunities for the channel.
“On the margin side, there’s definitely more things coming,” he said.
“What we thought was exciting in AI last year is now table stakes. That’s just what happens.
“The next thing is what Google’s pushing around the agent space and agentic AI.”
He said Google Cloud partners have to shift to the next big margin opportunity ahead.
“There’s no standing in place when you have something this transformative happening in terms of technology,” Pettit said.
“That’s going to continue to be the trend for the foreseeable future.”
The pros and cons of Google’s changes
One solution provider top executive from a national Google Cloud partner that generates millions in annual Google Workspace revenue, said Google’s unexpected Workspace changes have “totally messed up” some of his customers.
“This means companies who want to manage how they roll out the AI tools and make sure their data is properly secured before they do it—and have policies in place for how and when it’s to be used—are now facing the fact that it’s available to everyone and they can’t stop it,” said the top executive. “That’s scary.”
Brooks Borcherding, CEO of Pythian, a top Google Workspace partner, said Google Cloud made Pythian aware of its decision to add Gemini into Workspace subscriptions ahead of Google publishing its blog post last week announcing the move.
“My team was made aware in advance that the change was coming,” said Borcherding.
“We’ve seen some significant adoption of Gemini even as a standalone pricing model because of the value that customers had.
“That being said, it was inevitable it was going to be packaged together.”
Pythian has hundreds of thousands of Workspace seats under management.
Borcherding said roughly ten per cent of its Workspace user base already had converged to Gemini prior to last week.
In terms of Workspace margin loss with the renewal cuts last year and potential Gemini margin opportunities now gone, Borcherding isn’t worried.
“Theoretically, was there an addressable opportunity for me to sell the rest of the 90 per cent Gemini licenses? Potentially. But I don't think that was practical or realistic,” Pythian’s CEO said
“Customers were restricting the deployments for cost effectiveness.
“Of the total license count, that ten per cent [of Workspace customers with Gemini] is going to go to 100 per cent overnight.”
Now with all his Workspace users being able to automatically leverage Gemini, the “flood gates are now open” for Pythian to drive more AI-related services.
Google pulled the trigger after Microsoft Copilot decision
Google’s decision to stop selling Gemini as an add-on follows a similar move by AI rival Microsoft in the consumer space.
In late 2024, Microsoft announced that its own Copilot Pro AI features, which previously cost $20 per month, would become part of the standard Microsoft 365 subscription for Personal and Family plans in certain countries in APAC.
Those consumer plans are not sold through Microsoft channel partners.
“I understand why Google made the change because Microsoft just did the same thing with Copilot,” the solution provider top executive said.
“They adjusted the pricing and then they go forward. But it’s the way Google’s doing it.
“Yes, it brings benefit to the customers. But it brings headaches and issues to customers.
“The more customers are embedded with Google Workspace and the broader they use it, the bigger the issues are.
“That’s because of the capability and the potential of AI and how each business will build their own language model,” said the top executive.
For example, Google’s NotebookLM Plus AI assistant is now also integrated into Workspace.
“NotebookLM is a private language model for each tenant—that’s great. But our client customers don’t understand how to use it yet,” said the top executive.
“Google has circumvented the ability for us to help them learn, plan, test, trial, policy and procedure, security—all of that stuff.”
After Google disclosed its Workspace changes on 15 January, Microsoft the following day said in a blog post that it is “bringing Microsoft Copilot and Microsoft Designer to Microsoft 365 Personal and Family subscribers in most markets worldwide.”
The company continues to offer Microsoft 365 Copilot through the channel as a separate $30 per user per month subscription for M365 business and enterprise plans.
The details of Google Workspace changes
Whole the $20 to $30 per user per month Gemini fees are now going away for Business and Enterprise users, the overall price of Workspace subscriptions is going up.
For example, annual or fixed-term Workspace plans increased from $12 per user to $14 per user for Workspace Business Standard; while also rising from $18 per user to $22 per user for Workspace Business Plus.
Customers with flexible Workspace plans will see similar price increases.
For example, flexible Workspace Business Standard plans increased from $14.40 per user to now $16.80 per user.
The new pricing takes effect for new customers immediately, while existing customers will see changes starting on 17 March, or on a customers’ next subscription renewal date.
Google ‘turning on AI for everybody’ means customers will ‘accelerate’ AI
Promevo’s CTO Pettit, for his part, believes Google Workspace with Gemini already inside is a positive for the channel.
“Google just turning on AI for everybody essentially means you have a lot of organisations now that are going to accelerate their need to figure out how to deploy AI in their organisation,” said Pettit.
“Some people may have been sitting on the sidelines waiting to see what happens, maybe there were budgetary things.
“This sort of removes all those barriers.
“But it does present the fact that now they have an opportunity to transform their organisation with AI. And they’re going to need partners to help them with that.”
However, the solution provider CEO sees it differently.
“Google is now taking away Google Gemini margins,” said the CEO.
“It’s fine that Google decided that they’re willing to sacrifice revenue to make this change.
“That's great, but in doing so, they're taking revenue away from the partners who were following Google's strategy and plan and trusted Google that they knew what they were doing.”
This article originally appeared on CRN UK sister website CRN.