Released into the real world
Are Microsoft's LARs ready for the first major facelift in their ts and cs for a decade?
In four weeks, Microsoft will cut the apron strings from its brood of large account resellers (LARs) and send them out into what it sees as a predominantly untapped mid-market.
The first major "reshaping" of LAR terms and conditions for more than a decade will see the vendor slash or eliminate the fees and rebates it
pays its volume licensing partners on its top 200 accounts in each country.
Instead, they must stand on their own two feet and earn their keep slightly lower down the market.
At the same time, LARs will now be obliged to become T-36 certified, to help Microsoft ensure contracts are properly managed throughout their life cycle. Deal registration is also being introduced for the first time to protect LARs' investment in the sales cycle, although this is now not expected to go live until December.
Microsoft channel director Edward Hyde argued that the changes - which have been more than two years in the making - are long overdue.
"We had a rebate model that dated back to the 1990s and a fee model for direct agreements that was more than a decade old," he said. "As we reviewed the business, we concluded that there was a big opportunity for us and our channel partners to drive more solutions and licensing business with corporate and mid-market accounts."
The majority of mid-market customers do not have enterprise agreements, Hyde stressed.
LAR backing
After some initial tantrums - both in public and behind closed doors - most LARs appear to have fallen in line with the changes, which are designed to be net neutral to their overall Microsoft pay packet.
Justin Griffiths, EMEA vice president of partner management at LAR Insight, claimed the 24-month consultation process had been "very inclusive and thoughtful".
"Naturally, there are one or two downsides offset by several positives in the new programme," he said. "Broadly, we think they are good for the LAR channel, good for Microsoft and, most importantly, will provide more attention to the end user.
"The changes in the programme mean that corporate and mid-market clients get a great deal more focus, not just for licensing agreements but for technical and services engagements and solutions."
Zak Virdi, managing director UK, Ireland and Nordics at SoftwareOne, agreed change was necessary.
"Some of the LAR community offer ‘soft discounting' and non-related hardware products," he said. "This has devalued the purpose of the fees available and prompted behaviour that has not driven value to either the customer or Microsoft.
"Hence, the most recent changes have driven service components on delivery and also brought in a new concept around deal registration."
Not all LARs are equal under the new system, with only some retaining rebates and fees on Microsoft's major accounts, albeit at a reduced level.
Major account status was originally limited to LARs that could demonstrate a physical presence in multiple geographic theatres until Microsoft widened the criteria.
"Where the major customers were in government we adjusted the requirements as [these accounts] do not require international billing," explained Hyde, who confirmed that "just over half" of the UK's 18 LARs have major-account status.
"We are investing in our own ability to drive and support solutions into the top 200 accounts in each territory with our own account teams, and therefore do not need the same support from the LAR channel there," he added.
"We will expect our own account teams to do more in the way of strategy, advice and guidance regarding the use of our technologies. But we will still provide incentives for LARs to drive software assurance benefits and help customers with true-ups. We are asking them to do less [in major accounts] and are paying accordingly."
LARs have had more than a year to absorb the fundamental changes, Hyde said.
Some 85 per cent of the total incentive allocation for the new scheme was in place by September last year, with a further five to 10 per cent added this spring, depending on the country.
Hyde said that figure is now in the high 90s and that - barring a few last-minute tweaks - the programme is ready to go.
It will provide a framework for Microsoft's interaction with LARs for years to come, while allowing the vendor to make "tuning adjustments" annually, he added.
He explained: "If you look at the move to cloud, growth of virtualisation, the need for increased systems management and the consumerisation of IT, we want to provide the opportunity to our LARs to do profitable business in those areas and this framework gives us the ability to adjust incentives accordingly."
LARs can earn additional payments for gaining Microsoft competencies and Tom Greed, Microsoft alliance manager at Trustmarque, claimed the new regime plays into the LAR's hands.
"For LARs and SIs investing in technical resources to qualify, sell and deliver those services, additional margin is available, which we see as a good thing."
Richard Best, general manager for partner and cloud services at Bytes, agreed: "Those that are agile and can move with the changes will do well. We have in the past and will in this scenario. I know some LARs are upset but we don't see that - while it reduces revenue in one area, it opens it up in another."
Insight's Griffiths said the new scheme would force every LAR to stand on their own two feet.
"There is an end to the notion of being merely a transactional LAR - the changes reward those technology partners that have a broader IT services focus, which we feel is appropriate today and for the future," he said. "If you are merely performing a transaction, it is no longer enough for the client or for Microsoft."