In-Depth

For a New Category of Cloud Partner, Microsoft Relaxes Office 365 Billing

In a major change from BPOS, 20 hosters with value-added services will handle their own customer billing for Office 365. VARs and MSPs must still go through Microsoft in the Partner of Record model.

• By Scott Bekker
• June 30, 2011

• Read our in-depth review of Office 365 here.

With the launch of Office 365 this week, Microsoft also unveiled a new category of hosters, called syndication partners, that will be able to handle their own billing of customers for Office 365.

The move overcomes the so-called "direct billing" objection that was a major partner sticking point in Office 365's predecessor, the Business Productivity Online Suite or BPOS -- but it's a fix only for 20 select value-added hosters around the world.

For the remaining 15,980 or so of the 16,000 partners that Microsoft says are signed up to sell Office 365, the deal remains the same as it was under BPOS: Partners will jockey to have their customers sign them up as the Partner of Record (PoR) on Office 365 deals. The customers will be billed by Microsoft and the partners will receive their quarterly payments from Microsoft on active seats so long as the partners maintain that PoR status.

Microsoft CEO Steve Ballmer positioned the syndication partners' effort as a way to expand Office 365's global reach. "There's lots of opportunity out there to reach current and new customers, and to make that happen, we know we need to engage our massive, global partner ecosystem of systems integrators and resellers," Ballmer said during the Tuesday Office 365 launch event in New York.

"I'm excited to announce today that we are extending that network to more than 20 leading telecommunications companies and hosters from around the world. These companies already have established, trusted service relationships with millions of small and midsize businesses. With our new partner program, these businesses can take Office 365 and package it with the valued services that they already provide to small and midsize customers," Ballmer said.

The new partners will include Office 365 with services such as Web hosting, broadband, security, finance solutions, audio conferencing and mobile services. This worldwide stable of syndication partners consists of AppRiver, Atea, Bell Canada, Central Europe On-Demand, InterCall, Intuit Inc., Jack Henry & Associates Inc., KPN, Mamut, Orange, Premiere Global Services Inc., SKB Kontur, TDC Hosting, Telefonica, TeleiSonera, TELMEX, Telstra, UPC Business, Vodafone and StarHub.

"Our partners represent some of the best-known, most-trusted brands in their local markets," said Kurt DelBene, president of the Microsoft Office Division, in a statement. "Our customers will be able to rest easy knowing their cloud services are backed by Microsoft and some of the greatest service providers in the world."

Microsoft channel executives, including channel chief Jon Roskill, have acknowledged that partners were unhappy with direct billing in the BPOS era. At a town hall meeting with partners late last year, Roskill said Microsoft was looking at the issue.

In an interview at the launch this week, John Betz, director of product management for Microsoft's Business Online Services Group, made clear that the issue has been decided and that the special billing relationship only applies to the syndication partners.

"[The syndication partners] are partners that own the billing relationship with the end customer. But for the majority of partners, Microsoft is going to do the billing," Betz said. "Advisor partners do not do billing. We do the billing and we pay them their cut of the subscription."

Betz reiterated the counterarguments that he and other Microsoft executives have made over the past several years as partners have raised objections since BPOS' launch to having Microsoft bill customers directly.

"Frankly, when you think about the complexity of billing across the 40 markets we're commercially available in, having partners do it themselves can get pretty complicated. I think what you'll see over time is partners appreciating the benefit of having someone worrying about collection of money and the vagaries of billing across those different markets," he said.

With syndication, Microsoft is addressing the concerns of one major group of committed partners that have broad enough market reach to potentially result in some massive market share growth. Hosters who had committed to offering Microsoft Exchange hosted from their own datacenters were understandably nervous about competing directly with Microsoft when BPOS rolled out. For some of them, the Office 365 bundle adds opportunities, and the syndication billing means the whole thing starts to make business sense.

One example is AppRiver, a hoster attractive to Microsoft because of its 45,000 corporate customers and 6 million mailboxes worldwide. AppRiver has offered hosted Exchange for years and wrappered the messaging service with proprietary spam filtering, Web content filtering, encrypted e-mail, administrative control panels, unlimited mailbox storage and 24x7 U.S.-based live support branded as "Phenomenal Care."

With Office 365, the company will sell customers a mix of its own version of hosted Exchange, and upsell the rest of the Office 365 components, all the way up to offering downloads of the full version of Office Professional Plus. At the same time AppRiver will sell Microsoft's Exchange Online in the Office 365 package for customers who want the vanilla package.

Company executives seem most excited about Office 365's ability to broaden their footprint with SMBs. "A year and a half ago, SMBs didn't know what to make of SharePoint or didn't know what it was. It is now becoming an extremely important part of how small businesses share information across mobile workers and work teams. We recognize that, and Office 365 gives us an opportunity to offer that," said Scott Paul, strategic accounts manager for AppRiver.

But the billing issues that kept Microsoft partners worldwide from jumping on BPOS were a major problem for AppRiver before the syndication program.

"We made a deliberate choice not to participate with BPOS due to the billing that surrounded BPOS and our inability to control billing," said Brian Haynes, channel director at AppRiver.

Of Office 365 billing, Paul said, "There's nothing but good news on that front for us. Office 365 billing will be entirely handled by AppRiver and supported by AppRiver on AppRiver's terms." The company has put the word out to its 1,200 partners globally this week and received "very positive" feedback from the channel about the possibility of partners reselling Office 365 under AppRiver billing.

While the channel programs of the syndication partners offer one way that smaller VARs and MSPs may get around Microsoft's ownership of Office 365 customers, it's not clear yet how those programs will be structured.

Because of the intense secrecy surrounding whether Office 365 would launch on June 28 or not, AppRiver had been unable to communicate any details with partners to get feedback on how to set up a mutually agreeable resale model. "We were confined by the restrictions on communications around Office 365 until [Tuesday's] event," Paul said. "At the Microsoft Worldwide Partner Conference in L.A. and in face-to-face and webinar and conference call meetings with partners in the next few weeks, we'll be putting the finishing touches on the program."

InterCall is another of the syndication partners. The Chicago-based conferencing and collaboration provider will enhance Office 365 by adding services to Lync Online, such as call scheduling via Microsoft Outlook, dial in/out, the ability to join meetings from external locations and multiple devices, mute/unmute, lock/unlock, in-call support and VoIP and PSTN integration, including combined recording of Lync and InterCall audio participants.

Joseph Berger, director of business development for InterCall, said the syndication billing makes his company much more committed to driving Office 365 in the market than it was to driving BPOS. "We signed up with BPOS to be a Partner of Record, but we didn't promote it that often," Berger said. "We're going to be actively promoting Office 365. You'll be able to buy it directly off our e-commerce site, our salesforce will be actively selling it, we'll be doing more marketing around it. We see this as a significant opportunity for us."

InterCall also has a channel, although Berger is not sure how much flexibility his company will have for allowing partners to bill their customers. He said InterCall is pressing Microsoft on the issue. "Microsoft today does not have a two-tier resell model for Office 365, so it's not in the contract. We still provide it more from an agent model where we can bill on your behalf," he said. "What we can do is we can sell our audio as a two-tier model. For those partners out there who are doing the Partner of Record model, they can sell our audio."

Absent from Microsoft's syndication list are some major current hosted Exchange partners, including Intermedia, Apptix and Rackspace. It's not clear if more hosters will be added to the syndication program later.

In a statement tied to the Office 365 launch, New York-based Intermedia's new President Michael Gold took a "rising tide lifts all boats" approach.

"Office 365 is a big moment for Microsoft and gives them much deeper online services reach into the mainstream business world, including the companies coming to the cloud for the first time," Gold said. "Microsoft's broad partner ecosystem can refer not only Office 365, but other Microsoft cloud services, giving the company an even bigger advantage versus Google. Companies like Intermedia take Microsoft and other best-of-breed products and tailor them for businesses that need additional support, security, mobility, compliance and other cloud services."

Just as Microsoft played the syndication program close to the vest until the Office 365 launch, the company will probably stay very quiet while it decides whether to allow two-tier resales through syndication partners or whether it will broaden the number of syndication partners in the future.

For now, the hosted Exchange players that have allowed smaller VARs and MSPs to handle customer billing should have a continuing opening to broaden their sales through the channel in parallel to Office 365.

Jeffrey Schwartz contributed to this report.

Related:

• Office 365 Review: You Get What You Pay For
• 28 Things Partners Should Know About Office 365
• Microsoft Office 365 Now Available Globally