The world’s largest Microsoft value-added resellers are looking downmarket as the IT giant evolves its licensing model and customers tighten their purse strings.
Microsoft’s E7 365 software bundle arrived earlier this month, offering a $99 per user annual subscription that combines productivity, Copilot, security and a new agent management tool. For some Microsoft resale and support partners, the price tag is a tough sell amid economic uncertainty. Customers are pitting resellers against each other as financial executives lean on CIOs to rein in budgets and offset software price hikes.
“It's kind of hard for the customer to really understand why it's gone up so quickly, so a lot of those customers are now shopping out their licensing very aggressively to other partners,” Sherweb Head of Sales Michael Slater told Channel Dive.
Cost anxieties have created an opportunity for Microsoft licensing solution providers — a select group of large partners with the unique privilege of selling subscriptions through Microsoft Enterprise agreements and enrollments. The LSPs can exploit their unique access, take advantage of volume discounts, and bundle other products to save SMBs money.
“It's been a challenge. We're seeing the CDWs of the world coming down into the 50-60 [seat range] trying to undercut the pricing,” Ntiva Director of Product Management Ted Brown said.
At the same time, some traditional MSPs have ambitions to move into bigger clients, setting off a midmarket free-for-all.
“It's kind of creating that channel conflict in the middle, especially on the EA piece,” Slater said.
For SHI, a $16 billion solution provider and an LSP, the trend is a natural byproduct of larger factors
“We are seeing movement in the channel, but I wouldn't characterize SHI's strategy as pushing down-market in a traditional sense,” SHI VP of Microsoft Alliances and Programs Joe Bellian said.
Changes to Microsoft’s commercial model are leading SHI to pick up small business. Last fall, the vendor eliminated key discounts businesses enjoyed when buying EAs directly from Microsoft. Microsoft is also broadly pushing customers to purchase licenses from Microsoft CSPs, driving LSPs to meet customers in that buying motion.
“Our approach hasn't really been to chase segments, but more along the lines of aligning with customers where they're at in their life cycle,” Bellian said.
Some clients are looking for a single procurement partner, rather than splitting hardware and software purchases. With E7 stressing a combination of security and AI, Bellian said it makes sense to use a single partner for strategic guidance.
“It's simplifying procurement while reducing friction between security, AI and identity investments they're taking on,” Bellian said.
SHI’s strategy aligns with the orchestrator role CDW CEO Chris Leahy pointed to in a recent earnings call. Leahy said customers are moving away from self-service and specialist customers in favor of larger partners can integrate multiple technologies.
“AI increases complexity and value shifts from access to execution quality, depth and comprehensive end-to-end solutions, a shift that reinforces the relevance of our model across all of our customer end markets and sizes, small, mid-market and enterprise and expands our opportunity set, an opportunity further strengthened by our recent go-to-market alignment of resources,” Leahy said.
The pricing game
Large VARs are offering what they characterize as an edge in AI orchestration. Their competitors call it pricing arbitrage.
“It's definitely been a thing of the last two or three years of pricing pressure based on large scale distributors just coming in bottom-barreling the price,” Brown said. “They're probably taking most of their incentives on the back end for that.”
SMBs might be looking to consolidate their partners in a strained economy, Slater said. A memory chip shortage advantaged larger VARs with robust supply chains. Once they’ve landed SMB and midmarket customers with a hardware sale, the big resellers can press their advantage into software.
“If I'm a sales leader at an LSP, it's always easier to sell something to existing customers than find a new one,” Slater said.
Customers are also learning how to play the pricing game. Many have heard of lucrative discounts to be gained through an EA and will see what they can obtain directly from Microsoft. Businesses then go back and forth between with Microsoft and the CSP to get the better price.
“Microsoft does help intervene with that a fair bit, but it's really tough once the deal has been put in a motion to pull it back,” Slater said.
Deep consulting and high-touch services can help small managed service providers and resellers fend off larger competitors.
“You have to play on your knowledge of what you bring to the client. If you're just providing license value and that's it, anyone's gonna be able to take that business,” Brown said.
Opkalla has flexibility as a CSP to match discounts, but the advisory firm wants to win with personalized services. That’s where the big partners are struggling, Opkalla Microsoft Practice Director John Fread said.
“If they say they use [an LSP], we know exactly what they're unhappy with. At the end of the day, most of it always comes back to service support,” Fread said.
For customers with 100 employees or fewer, the savings potential from consolidating partners isn’t worth it, Criterion Consulting Founder Jay Dixon said.
“Some people like to say one throat to choke. I like to say the one back to pat. It's not enough dollars for them to care,” Dixon said.
The mom-and-pops have the most to gain from AI and automation and controlling their costs in general.
“I think there is a favor for lean businesses in the market,” Slater said. “Especially lean businesses that lean cloud.”
