Microsoft partners weigh in on how O365 billing shake up will impact the channel

Resellers say CSP billing shake up would require them to take on financial responsibility of customers if they can no longer pay

Microsoft partners say they will have to become more financially prudent if they are to carry on selling CSP licenses after the vendor revealed billing changes last week that put more financial risk on the channel.

Other partners told CRN the move will also force smaller resellers and MSPs to work instead with larger resellers or with Microsoft directly.

Several of the vendor's partners have told CRN that, under its new commerce experience (NCE), resellers and MSPs will have to take on the financial responsibility for CSP licenses, such as Office 365, if their customers are no longer able to pay for these licenses due to insolvency, or for another reason.

As part of the NCE agreement, resellers told CRN that customers wanting to maintain the flexibility of rolling monthly licensing will have to pay roughly 20 per cent more for licenses, potentially making one and three-year commitments more preferable.

Announcing price rises to O365 commercial products in August, Microsoft said the decision reflected the "increased value" it has delivered through its suite of products over the last 10 years.

CRN reached out to Microsoft for further comment on the proposed billing changes but was told that the vendor would not be commenting at this time.

Jack Watson, managing director of Bytes Software Services, said that the changes could have more of an impact on smaller resellers in Microsoft's channel.

"Microsoft is effectively changing the rules to say if a customer wants to continue to have the flexibility to buy their 365 licences per month and flex it up and down as they see fit, they'll basically have to pay a 20 per cent premium on that," he explained.

"But if you were to purchase it annually, which most customers tend to do, then in effect the reseller will take on the risk associated with that transaction.

"The main thing it means for partners is you've just got to be a lot more careful in terms of due diligence to customers in passing credit checks.

"You need to be more rigorous in allowing customers to have that annualised model, whereby they can avoid the price premium, maintain a degree of flexibility, but ultimately if things go pop you as the partner are going to take on that credit risk.

"For a smaller CSP that might represent too much risk for you. So inevitably what we'll see is, those smaller CSPs will go from being a direct CSP to becoming an indirect reseller of CSP and they'll work with an indirect provider like Bytes, for example, that has got a greater degree of scale and operational expertise in managing these types of things.

Kelvin Kirby, CEO of Technology Associates, a Microsoft partner for business project management, believes the changes may push some resellers and MSPs to not only work with larger resellers, but also with Microsoft directly.

"It's going to be an issue because there won't be any incentive going forward for partners to sell licences directly because there's no margin in it for them," he said.

"It means they will encourage you to encourage customers to pay for licences directly with Microsoft. And the problem with that, then, is that all the support will need to go through Microsoft."

Microsoft's NCE operating guide sent out to its partners says subscriptions will be available on monthly terms "at a premium price". It also informs partners that there will be no cancellation option for licenses after the first 72 hours of purchase, adding that partners "will be billed for remainder of annual term if monthly billing was chosen".

The vendor also published a blog post earlier this month announcing that it would give partners until January to implement the changes required for NCE.

One partner echoed Kirby's thoughts, claiming that they will not be able to "make enough margin" on CSP licensing for the "amount of risk" that comes with the changes, adding: "If we had a customer and we thought they were in a risk sector like restaurants or retail, then we would probably have to say ‘you've got to pay all three years upfront'."

Though one MSP boss believes the changes could provide additional benefits despite some "operational and administration changes" that will need to be made.

"We will be able to offer pricing offers to our customers in line with our managed services contracts. Transacting via the partner adding value on the cloud solution, as opposed to having to use an LSP for an EA just for pricing, will be a viable commercial option for customers," they said.

Another reseller boss identified working with specialist CSP providers to help them "de-risk" as one way they could cope with the proposed changes, something Michael Frisby, CEO of Vuzion - an indirect CSP provider - said the business has been doing, and also highlighted some other potential options for resellers.

"Ultimately, Microsoft are enforcing the rules that have always been there," he said.

"Microsoft's position is, as channel resellers, you should be credit checking your customers, you should be understanding the position that they're in and if you think somebody is not credit worthy, you put them on the month-to-month and charge them 20 per cent more, or you put them onto an annual payment and you get paid up front before you provision the service.

"The other options we're investigating are services we could bring into market to help customers. Most bad debt insurance today only covers the invoices that have already been issued. So your bad debt insurance would cover you for the three months they've not paid, but it doesn't cover for future invoices.

"So we're looking at talking with insurance companies asking if there is a model where we can have an insurance product which covers that scenario. And then the other one is just classic financing and actually saying, as the channel partner, ‘if you don't believe in the credit worthiness of a customer, that's absolutely fine, we've got a credit business over here that we partner with.'"

"It is a very significant change and, from a business perspective, a lot of IT resellers in this country are relatively small businesses. They don't have big finance teams that can go and credit check every customer and make sure that that customer is credit worthy. It's putting that credit risk onto the channel more so than it ever has."