Microsoft price hikes prompt bumper December for partners

Bytes claims December sales up by two thirds annually as savvy customers lock in low prices

Channel firms enjoyed bumper December sales as thrifty customers brought deals forward to lock in low pricing ahead of Brexit-fuelled price hikes, but some worry it could eat into this year's sales.

From 1 January, Microsoft bumped prices of its cloud services by 22 per cent, and on-premise licences by 13 per cent, thanks to the impact of the Brexit vote on the value of the pound.

Neil Murphy, managing director of Bytes - a big Microsoft partner - said his firm had an excellent December, with overall sales in the month reaching £45m, up two thirds from £27m the year before.

"Microsoft price rises that are now in effect certainly had a big impact on our revenues in December," he said. "A very significant part of that growth was Microsoft bringing forward their Microsoft spend to avoid the 22 per cent price hikes."

Stuart Fenton, CEO of Microsoft partner Quantiq, said the services nature of his business means it is not as strongly affected by the price hikes, but said he understands that some of the big Microsoft LSPs had a fantastic December.

"With a pricing increase of the magnitude of 22 per cent and 13 per cent, it is inevitably going to bring larger deals forward from the next two quarters, and will encourage spend that maybe wasn't there [otherwise]," he said. "Back in my day at Insight [when he ran its EMEA business], I'd have expected a rise of about 15 to 20 per cent in normal run rate with that kind of stuff."

Murphy said he remains cautiously optimistic that the December hike won't be at the detriment of this year's performance.

"We've also got a significant backlog of orders for January and February," he said. "I would expect it to have some knock-on at some point this year, but because the market is so vast, I am hoping we will be inoculated from it. We will have to wait and see."

Although Microsoft's own pricing rose at the start of this year, some resellers stocked up in order to remain as competitive as they can for as long as possible.

Nick Glynne, managing director of e-tailer Buy IT Direct, said his firm thought ahead.

"We are partly shielded because we bought a lot of stock at the old dollar prices, so we are very competitive at the moment," he said. "So February and March is the time we will be able to see [the impact]. Our big concern from a Brexit point of view is when Theresa May triggers Article 50, and I think that's going to be a jolt."

Aside from eating into this year's sales, the December boom might cause a headache for publicly listed channel firms, according to Quocirca analyst Clive Longbottom.

"Any publicly listed company selling Microsoft is going to have a massive blip of 'hey we are doing really well', then they're going to look really bad a year on," he warned. "Our dear friends in the financial analyst market can't see further than the end of their nose and think [the annual comparison to December 2016] is bad, but on average the profits will be the same. The figures in 2017 are going to look bad because of that completely abnormal calendar quarter.

"It's down to the channel to be able to deal with that and message correctly to the financial market. Overall, it's not as if their market is now gone; it has just shifted purchasing to a different time of the year."

A similar issue arose in 2015, a year after Microsoft ended support for Windows XP. In the year-long migration campaign to April 2014, many companies reported a positive uptick in sales as worried customers looked to upgrade, creating the "XP effect", which a year later was blamed by many for tough annual sales comparisons.

Longbottom said that many customers decided to rush through their Microsoft deals in December because they had no other alternative.

"This is people trying to jump before they're pushed because they know exactly what the rise will be and the reasons behind it," he said. "There is no option - even if they go elsewhere, they are going to see price rises. So now they are not going to buy any time soon in 2017 until the renewals come around."