Microsoft is pushing customers toward partners and partners toward distributors.
Customers and partners alike have felt the ripples of Microsoft 365 licensing changes implemented in the last half of 2025. The computing giant in November standardized its prices for enterprise agreements traditionally geared toward customers of 500 users or more.
The move eliminated the 6% and 12% discounts that enterprises enjoyed by purchasing from Microsoft directly. Thanks to the higher prices charged by buying direct, many enterprises have consequently moved to purchase their Microsoft 365 licenses through third-party cloud service providers.
Further, changes to Microsoft’s program means that some partners can no longer deal with the company directly either, challenging partners to rethink reselling strategies.
Microsoft is pushing customers toward partners, Opkalla managing partner Aaron Bock said. “We've seen a lot of customers who you would have expected in previous years to go to the EA route switch to CSP.”
At the same time, partners are facing disruption. CSPs partnering directly with Microsoft previously needed to drive about $300,000 in annual revenue; the threshold has tripled to $1 million. The company also whittled down its roster of distributors from 180 to 60, with a goal of placing smaller partners with large distributors that take on the brunt of enablement and support.
“If you're not a CSP of volume right now, you have to get to a certain volume just to work with Microsoft now versus before you could just be anyone to do it. And that's a big change,” said Bock, whose company is driving more than $10 million in revenue with Microsoft.
All of these changes signal the steady demise of pure cloud reseller business, said Josh Morganthall, Blue Mantis’ Practice Manager for Microsoft technologies
“I don't think there is a large play for pure play, licensing, transaction-only. I think there is a down-select motion happening that expects Microsoft partners to look at CSP as a financial layer amongst a much broader ecosystem play,” Morganthall said.
The sense was palpable at the November Microsoft Ignite conference, Morganthall said.
“Some of the largest pure play CSPs weren't talking about their growth in the same terms. We weren't hearing 'scale and efficiency.' We started hearing more urgency,” he said.
Morganthall said those large CSPs are attaching managed services, consulting and cybersecurity to their licenses. The recent pricing changes have driven many of those expansions.
Pure license resale is already unsustainable on its own, said Michael Slater, Microsoft and Security Lead at Sherweb.
“The few businesses that still succeed in that model rely on high‑volume sales at the top end of SMB and what Microsoft calls ‘corporate’ accounts. Margins are tighter, compliance requirements are higher, and partners are being pushed to add real value on top of Microsoft licensing,” Slater said. “For many MSPs, especially smaller ones, the move to a two‑tier distribution model has become less about convenience and more about survival.”
Microsoft’s disruptive move borrows a common playbook in the IT channel. VMware by Broadcom has similarly reduced its partner rolls and moved smaller partners underneath distributors.
Finding a partner
Smaller partners have turned to a variety of tier-two Microsoft distributors.
That’s in part because they are required to, but it’s also to reduce their operational burdens, AppDirect COO Renée Bergeron said.
Infinite IT has leaned on Sherweb for years, counting on the cloud distributor to provide consolidated billing and keep the MSP informed of the latest Microsoft changes.
Blue Mantis uses Ingram Micro, leveraging the broadline distributor’s heavy investment in partner designations and specializations. Duncan Robinson, VP of Global Cloud for Ingram Micro, said the distributor intends to “operationalize Microsoft at scale” with financing, engineering and billing automation. The distributor also sees an opportunity to train partners on Copilot use cases — a category in which Blue Mantis has excelled.
Many technology advisors sell licenses through Blue Mantis and other VARs, counting on those resellers to fulfill the services component. Other TAs are increasingly tapping marketplaces AppDirect, Pax8 and Intelisys Channel Exchange to get closer to Microsoft. Opkalla, which is part-TA and part-VAR, is a rare TA that runs its own agreement with Microsoft.
Licensing becomes strategic
Many customers and partners historically overlooked Microsoft licensing in the broader IT strategy.
For partners especially, Office 365 licenses paled in contrast to larger projects they were conducting in other parts of the Microsoft portfolio such as Exchange.
“We saw a lot of managed service providers look at licensing in the early days of CSP, and just sort of said, 'The margins aren't worth it. We want to focus on services and consulting,’” Morganthall said.
However, firms like Blue Mantis saw licensing as a strategic foot in the door, even if the margins weren’t sufficient on their own.
“We saw that licensing was going to be the control plane for everything else, so that was never a margin play for us,” Morganthall said. “It was about understanding how customers actually consume and interact with the Microsoft ecosystem.”
Moreover, MSPs have come to enjoy the long-term benefits of licensing resale, even if it takes a couple of years to spin up a base. The business has become something of an easy button for the Canadian MSP Infinite IT.
“It's a very profitable business for us because of the fact that it's high volume and low maintenance, and those are the good things that we like about it. It's standardized. It's simplified,” Infinite IT CEO Joe Ussia said. “ We can turn licenses on with a click of a button. Better yet, we enable certain customers to log in and do it themselves.”
Complexity emerges
Microsoft’s latest changes represent the end of what Morganthall calls “structural pricing arbitrage.”
The now-defunct enterprise agreement discount allowed businesses to overlook inefficiencies.
“A lot of those EA discounts were able to hide waste. Customers could afford some overlap between solutions, because, quite frankly, that discounting covered it. But when the discounts fade, all that erodes,” Morganthall said.
Customers need help identifying duplicate tools and underutilized entitlements to make the most of their spend, he said.
But customers leaving enterprise agreements need partners to replace the support they once received from Microsoft. That’s key for Microsoft, whose reduction of 6,000 roles last March included support staff, Bock said.
“Microsoft is clearly stating with this last adjustment, 'We don't have the capacity to support every customer calling us all the time,’” Bock said.
Partners are working to grow their self-sufficiency in handling Microsoft-related tickets, as the vendor charges a fee to partners that escalate tickets to it. As a result, partners are staffing up to support the licenses they sell. And customers who demand the lowest price may not get the service to go along with it.
“If I don't have a support team to do the work, and I'm going to pass every ticket through and pay $500 or whatever the dollar is per-ticket, I'm going to lose money on taking a customer at a price comparison if I can't provide the support that I'm expected to provide,” Bock said.
Mastering that balance is a fine art for Opkalla, which has its roots as TA rather than an MSP. The company does not charge a per-user managed fee for managing the entire IT state, but it packages Microsoft-focused services that customers find affordable.
“There's this gray line of, we want to provide good support, but we're not going to charge an MSP rate, which is strategic for us,” Bock said.
Swim lanes converge
Microsoft has fundamentally reshaped competition between its partners, Bergeron said.
The select group of large partners that were eligible to sell enterprise agreements are finding themselves in competition with direct-bill CSPs and partners that sell through indirect providers.
“By reducing the deep discounting that historically favored larger EA‑driven motions, Microsoft has effectively leveled the playing field in the mid‑market,” Bergeron said.
The top partners distinguish themselves beyond price, ensuring smooth provisioning, integration and consulting.
“With the mid‑market now accessible to all partner types, value, not margin engineering, is where the real competition is happening,” Bergeron said.
Some partners are asleep at the wheel. Opkalla has displaced VARs that sold licenses and didn’t keep their customers updated on changing Microsoft policies. The wins come when a partner persuades a customer that it can find more value in its licenses.
“It's not a pricing competition. It's not typically a service bake-off. It's usually that someone has had licensing and they didn't see it as a strategic or a big line item,” he said.
