At Microsoft Worldwide Partner Conference 2011 (WPC11), the software giant has successfully communicated momentum on a number of fronts — everything from Windows Azure adoption to Windows 7 deployments. But there’s an elephant in the room for some MSPs. At times I’ve ignored it, minimized it and turn away from it. Still, there’s no denying that Microsoft’s cloud billing policies continue to annoy some very influential managed services providers (MSPs) here at WPC11.
Instead of sensationalizing the situation I hope I can keep it in proper perspective. There are roughly 12,000 Microsoft channel partners here at the conference. Earlier today, Microsoft COO Kevin Turner wowed attendees with a keynote that directly attacked such rivals as Cisco Systems, Google Apps and Oracle’s Siebel business. Turner was on message. Moreover, Microsoft Channel Chief Jon Roskill has successfully communicated progress on a number of fronts, including growing momentum for Microsoft’s Cloud Accelerate and Cloud Essentials partner programs. For the most part, the energy is positive here at the conference.
Still, there’s that elephant in the room: Microsoft’s Office 365 cloud billing policy. Generally speaking the strategy goes something like this:
- Microsoft won’t let most channel partners directly bill customers for Office 365 and other cloud services.
- Large service providers are permitted to handle billing if they mesh their own services with Office 365. I believe many of those service providers use Parallels software as part of a so-called Office 365 syndication strategy.
- Small MSPs can turn to third-party hosted Exchange providers to brand and bill various Microsoft cloud applications as their own.
That Horse Ain’t Dead
Overall, I suspect the vast majority of Microsoft’s partners — say, 95 percent or more — are fine with Microsoft’s cloud billing policy. If fact, many VARs prefer to have Microsoft automatically manage customer billing. But the five percent who don’t like the policy are vocal, influential, smart and stubborn (in a good way). Most of the billing policy critics are successful MSPs who (A) already mastered recurring revenue models and (B) want to maintain close relationships with end-customers.
The cloud billing debate has popped up every few months. Most of the major channel media sites, including ours, have covered the issue to death. But apparently, the dead horse ain’t dead. Sources say many members of the Microsoft channel team want to offer partners a way to manage cloud customer billing. But those sources indicate that either (A) the Microsoft Online Services team or (B) Steve Ballmer himself has no such interest in offering that capability.
The Google Factor
Adding fuel to this small but significant fire: Google allows partners to manage end-customer billing for Google Apps. Some critics think Google Apps is free with very little channel influence. I claim otherwise. The Google I/O conference attracted 6,000 attendees earlier this year. My best guest: Most of the Google I/O attendees were age 25 to 30, and a good number were MSPs and channel partners — young, next-generation channel partners and ISVs that Microsoft needs in its camp.
To reiterate: I suspect 95 percent or more of Microsoft’s channel is fine with Microsoft’s current cloud billing policies. And no doubt, many Microsoft partners are pushing beyond Windows and Office to eagerly promote Lync, SharePoint and Dynamics CRM. But at managed services gatherings here, the Office 365 cloud billing policy issue won’t go away. MSPs have hit my inbox at least five times daily, asking me if I think Microsoft will change the policy here at WPC11.
Generally speaking, I think Microsoft continues to underestimate the influence of successful MSPs. Those MSPs network like crazy, they share best business practices, they drive social media discussions — and they’re passionate about customer control. And by the way, many of those MSPs are the first channel partners promoting cloud computing to SMB customers. And the MSPs are profitable, which means they have staying power.
A prime example: During the IT Nation conference attended by more than 1,000 people last October, one of Canada’s largest and best-known MSPs stepped onto the stage and offered this guidance to peer MSPs: He will only partner with cloud companies that permit him to manage end-customer billing. The Canadian MSP demands that cloud vendors guarantee — perpetually, in writing — that partners will retain the right to control end-customer billing.
Influential Perspectives
So, where does that leave us? I reached out to HTG Peer Groups Founder Arlin Sorensen for his perspectives on the WPC11 conference — what trends did he notice? I didn’t mention the cloud billing debate. But his reply to me was telling. Sorensen works successfully with Microsoft on a number of fronts. But billing was on his mind:
“Microsoft has to fix the online billing model before partners will embrace their solution in the MSP space — lots of people are talking and many at Microsoft are listening and starting to understand the pain. The question is whether — as KT [Microsoft COO Kevin Turner] said in his keynote — they will actually execute on that requirement. It doesn’t matter to many partner types but as you know it is critical to the MSP business model…”
Again, let’s keep this in perspective. Sorensen isn’t trashing Microsoft. HTG Peer Group members partner successfully with Microsoft in multiple areas. A bunch of members, in fact, tell me they’re taking a really close look at Microsoft Lync opportunities. Others are expanding their use of SharePoint, both internally and across customer settings.
Overall, I think Microsoft’s channel partners are impressed with WPC11. But for some very influential partners who are looking at cloud computing, the elephant in the room remains.
Bottom line: It’s time for Microsoft to shoot the elephant and give influential MSPs what they want: The power to control end-customer cloud billing.
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Posted In: Cloud Computing | Finance | Partner Program | Sales | Service Level Agreements
Tags: Google Apps | Google Partner Program | Microsoft Cloud Billing | Microsoft Partner Network | Microsoft Worldwide Partner Conference | Office 365 | Office 365 Billing | WPC 2011 | WPC11
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It’s been a continuous topic for many MSPs. You’re right, Joe, in that this isn’t an issue for all solution providers. In fact, it’s not an issue for MOST solution providers. As we know from financial indexes like Service Leadership, there are a number of different partner business models, and each has a different profitability profile and a different way of engaging.
For those with a Managed Services focus, and particularly those focused on the best practices that have been established in this style of business. While you talk about 95% of VARs not minding, you might be right. Then again, we also know that in general, 20% of a group of partners drive 80% of revenue. Do we know the overlap? I don’t, but if we believe the 5% who are upset are among the top performers (The so called “Best In Class” MSPs), then it stands to reason that this represents a large portion of revenue.
The horse isn’t dead. The key to this discussion is not that partners want to set price, or even set margin. By controlling the billing, MSPs can roll solutions such as Office 365 into a complete solution, manage margin in a larger solution, and deliver the value we want to. Making sure Microsoft has insight into our sales and drive in the channel is important too, in order to deliver value back to our partner.
These partners (like me) are ones who WANT to go to market with Microsoft. In fact, we passionately want to. The horse won’t die because we care too much about our Microsoft relationship.
Dave,
Hats off to you, Arlin and other folks who are discussing this topic in a balanced matter. A lot of people are emailing me privately, stating that they don’t want to go on record but that they hope media sites such as MSPmentor continue to raise the issue with Microsoft.
Frankly, I wish more people would simple state their issues publicly though in a professional, constructive manner… the way you have.
I’m not sure how much revenue MSPs represent to Microsoft. But I do know this: MSPs have been ahead of the curve on cloud computing. And Microsoft needs to change their stance on this issue, in my personal opinion.
You raise a key point about rolling Office 365 into a larger solution. A growing number of MSPs, as Gary Pica recently pointed out to me, no longer offer line-item information about each individual service. Instead, monthly MSP pricing has shifted to an all-in, per-user model that includes everything. Office 365 simply won’t fit that model. At least not yet.
There was a lot to like at WPC. The story above only applies to selected MSPs that want to manage total solutions for end customers. But the concerns are real.
Thanks again.
-jp
Spot on Dave!
Dave has hit the nail right on the head. We’re a long-time Microsoft Gold partner and a pure-play MSP. We offer cloud solutions like hosted Exchange and SharePoint to our clients as part of a complete managed services solution – a suite of products and services all rolled up into one price, one monthly invoice, and one accountable party (us).
Currently we package our program around 3rd party offerings but I would much rather use Office 365 if we could get Microsoft to work with us on the billing issue.
Scott, Jeff: Thanks for reinforcing Dave’s thoughts.
Memo to Microsoft: Are you reading? Many MSPs don’t fear you or your cloud strategy. The MSPs above apparently want to support Office 365 as part of a larger monthly package of services… as part of one bill that they can manage for end customers…
-jp
First, I completely agree with Dave. Very well said. However, let’s be honest: Most of us have worked with Microsoft (and Dell) long enough to know that once the camel’s nose gets in the tent, there really isn’t a whole lot we can do to stop the rest of it from coming in. We are extremely leery of letting Microsoft sell directly to our clients because we know with absolute certainty that they will eventually start marketing other services–including managed services (Intune?)–directly to our customers. It’s only a matter of time. Dell was horrible about doing this–so bad we eventually dropped them. Microsoft would be a much harder vendor to replace. Better to keep the camel away from the tent.
Jim
Jim,
Thanks for the perspectives. Quick question: Do you think you’ll opt to work with third-party hosted application providers that offer hosted Exchange, hosted SharePoint, etc., that you can brand/manage as your own? Or do you have that same worry about any/all hosting providers taking your customers direct?
Best
-jp
Joe,
We currently resell Intermedia and like the service. It isn’t a good fit for all of our customers, but they provide a good solution and are easy to work with. The issue isn’t with hosting providers per se. The issue is more with the vendors selling the hosting services.
We’re no stranger to cloud services. We’ve been reselling Postini for about 6-7 years, and we’ve been hosting our own backup solution (powered by Asigra) about as long. In the end, we’ll host our own solutions where it makes sense and resell others’ services where it doesn’t. However, when we do choose to resell, we will think long and hard before reselling a service where the vendor bills the customer directly. Nothing good can come of it.
Jim
Jim,
Thanks for the additional insights. I know you’re busy running a business. But our readers are super-curious about the cloud services that some MSPs already leverage and why. So thanks for sharing the items above. I know our site visitors will appreciate it.
-jp
Could be worse guys, you could be in Australia!
Microsoft have an exclusive arrangement in Australia with Telstra (the 800 pound gorilla of the telco business here). All Office 365 (and BPOS before it) is billed through Telstra.
Telstra then mark the service up 40-70% on the US price and take on the billing to the customer.
Handing the customer relationship to Microsoft would be frustrating. Handing it to Telstra is a a lot more than frustrating, it is dangerous. Telstra compete with many of our services and want to compete with all of them.
Like others above we also want to bundle all our customers ICT services together on one bill in a per user per month model.
Telstra are keen to do the same.
There is another problem with Office 365 however. Our own hosted Microsoft services are competitive and offer a different value proposition to Office 365. However there are a number of Office 365 products and price points we cannot match due to the limitations and costs of SPLA licensing. Unlike BPOS there is no longer a level playing field.
We (Anittel) have always worked very closely with Microsoft and would like to continue to do so. We are feeling at the moment that the relationship is somewhat one sided.
Mark: Sorry to hear about the situation in Australia, assuming your info is correct. I will reach out to Microsoft to see if they have any comment about how the Office 365 strategy currently works/may evolving in Australia.
-jp
Hi Joe,
Here’s a good overview of the Australian situation – http://www.itnews.com.au/News/262115,aussies-to-pay-huge-premium-for-office-365.aspx
Microsoft are well aware of our views, particularly around the limitations of SPLA licensing.
Cheers,
Mark
Mark,
Thanks for the additional note and link. Some of Microsoft’s service provider licensing agreement (SPLA) policies have also caused some concerns in North America. In particular, many MSPs want to offer Windows as a hosted desktop but they can’t make the dollars and cents work. We’ll continue to track the story and see if we can add any new insights.
-jp
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An old thread, anything new on the subject. Still a big issue for MSP’s.
Rick: Nothing new that I’m aware of. I think it’s a big issue for the most vocal MSPs… but it seems like the controversy has quieted down a bit in the past year.
Still, I’m scheduled to speak with Microsoft’s channel team in late February. I’ll be sure to get an update for you and other interested readers.
-jp