Microsoft has revamped how it bundles licenses and is pushing hard on Copilot add-ons, leaving partners looking for clarity on both fronts.
Microsoft last year cut enterprise agreement discounts and tripled revenue requirements for direct partners, but the changes have opened new doors for its cloud service provider partners.
As partners guide IT teams through increasingly complex Microsoft 365 licensing, they’re grappling with the nuances of new discounting and bundling policies. In addition, IT service providers are struggling to identify use cases for Microsoft’s prized Copilot AI offering — especially for SMB customers.
Taken together, the changes are concerning to small CSPs, who worry Microsoft’s points-based program is trying to weed them out.
“It feels like when they needed the channel, they were all over us, and now that they've gotten so big, it's like meh,” Infinite IT CEO Joe Ussia told Channel Dive.
Microsoft declined to comment and pointed Channel Dive to its licensing website.
The Copilot push
Microsoft’s AI ambitions for its channel partners are explicit.
The company knocked its per-seat Microsoft 365 Copilot Business price from $30 to $21 for SMBs in November and recently dropped it to $18 in a promotion running through March geared toward nonprofits. The promotion is not available as part of a bundle, however.
Peter Fidler, President of WCA Technologies and the International Association of Microsoft Channel Partners, said the promo has stoked conversations with nonprofits about which parts of the Microsoft 365 suite they really need. Many of those groups are cost-sensitive and worry that Copilot will unnecessarily balloon their licensing spend.
The same goes for customers outside of the sub-300-user SMB range.
“There's a lot of reconfiguring, so to speak, on how you talk to your clients,” Fidler said. “Do you really need the $30 Copilot now?”
Microsoft has evangelized the idea of frontier firms that have completely baked AI into their operations. However, not all customer segments and verticals possess such ambition for AI adoption.
“You're not going to tell an owner of a manufacturing plant they need to be a frontier organization, because they need to get product out,” Fidler said.
Ussia said his firm has run into pricing confusion with Copilot-included bundles. He said the first-year discount for bundling Copilot with Microsoft 365 Business Standard or Microsoft 365 Business Premium is strong — potentially 20% depending on a partner’s volume. However, a 20% bundle discount would drop to 5%, compared to 15% and 5% for the separate SKUs.
“They basically are charging us a 10% premium by bundling it. It makes no sense,” Ussia said.
Utilization rates
Not all customers want to use all of the products in a bundle, to the vendor’s chagrin and to partners’ detriment.
Ussia said partners are measured on how much of the Microsoft 365 suite their clients use. Selling the full subscription is not enough. Microsoft expects full usage if partners want to get the most out of rebates and competencies. “If the customer doesn't use Engage or they don't want to use Teams, that impacts my partner score, but the price and the money they're giving Microsoft isn't different. How does that make any sense?”
Once again, business segments and verticals factor into how many products a client wants to use.
“We have some nonprofits who absolutely love Zoom and will continue to use Zoom, and it doesn't matter whether Teams is out there or not; they're not going to use it for meetings,” Fidler said. Such a scenario doesn't mean that the partner has failed, Fidler noted. “You can only go so far in terms of getting somebody to use a technology. We can't twist somebody's arm,” he said.
For Ussia, the challenge of utilization rates stems from Microsoft’s growing disinclination to work with small partners.
“We're doing seven-digits-a-year business with Microsoft, and we're struggling with our certifications because of this metric,” he said.
Fidler said utilization rates have also made MSPs wary of the clients they sign contracts with, and those they move on from. Microsoft docked Fidler’s firm for a former client who moved to a different provider; Fidler hadn’t spoken to the client in years.
Infinite IT CTO Chris Stock said MSPs can be unwittingly on the hook for licenses that other partners have sold. In one case, a customer purchased Microsoft 365 licenses through Infinite but Dynamics through a different partner. When the client migrated from Dynamics to a rival platform, Microsoft took points away from Infinite.
“This is frustrating as we did nothing wrong, and the client is not a flight risk to Infinite IT or to the Microsoft solutions we’re selling. In fact, our Microsoft 365 business saw an uptick with recent upgrades from Business Standard to Premium around the time all this happened,” Stock said in an email.
The incident shone a light on a lack of transparency in the scoring system, Stock said.
“This type of measurement system by Microsoft is not only unfair to the partner; it makes it nearly impossible for us to ever get across the finish line,” he said.
Copilot enablement
The MSP community is in its Copilot growing pains, as businesses search for use cases they can repeatedly deploy.
Josh Morganthall, Blue Mantis’ practice manager for Microsoft technologies, said Microsoft has heavily pushed use cases in its channel efforts with Copilot. While Microsoft typically aims money at operationalizing a technology, the investments have gone toward activities like customer workshops.
“The earliest funding mechanisms for partners to go out and enable customers was not around turning the wrench or hands-on-keyboard. It was around building use cases. It was art-of-the possible kind of work,” Morganthall said.
Building real world use cases with new technologies is unfamiliar to CSPs that have historically used Microsoft licensing as a financial lever. Partners need to provide longer-term consulting that offers business value, Morganthall said.
He said Copilot wins typically occur in businesses that possess troves of data in Microsoft applications like SharePoint and OneDrive. Copilot is an easy button for beginning the process of AI enablement. Customers often subsequently move into use cases with Microsoft Foundry, Azure and OpenAI.
“It's almost always a gateway drug,” he said.
