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The Changing Channel

What Will Be the Straw that Breaks the Microsoft Channel's Back?

The next few months could prove to be the most trying for all but the largest of Microsoft's partners.

It really looks to me like early 2014 might be considered the time when Microsoft finally dropped the straw that broke the channel's back.

As a solution provider partner for decades, I'm among those who never liked the Large Account Reseller (LAR) program. I do understand why Microsoft doesn't want to carry 700,000 accounts receivable. As long as there were LARs who didn't compete with solution providers by offering IT services, the solution was an acceptable one.

But recent reports tell us that Microsoft has seriously and significantly slashed the return LARs enjoy on sales of licenses. As a result, those LARs have been slashing budgets and turning many quality people out onto the street. The word is that Microsoft is hiring many of these to sell Enterprise Agreements (EAs) to large customers.

Also, these LARs will need to replace that lost revenue. It's very likely they'll turn where everyone has historically turned -- to selling IT services.

Examine the Taxonomy
The Microsoft partner ecosystem can pretty easily be seen as having three major segments:

  1. At the top of the market, enterprise-focused partners will be negatively impacted by the entry of more Microsoft salespeople into their channel.

  2. At the bottom of the market, the Small & Medium Business & Distribution (SMB&D) segment went into panic mode with the introduction of the Microsoft Partner Network a few years ago. The "uniqueness" rule meant partners that held many competencies could now only hold one or two. Everyone had to choose what they were best at and focus there. Smart for Microsoft. Painful for partners. Many partners left the program.

  3. In the middle are the Corporate Account Managed and Corporate Territory Managed (CAM/CTM) partners who work closely with assigned Microsoft sellers on the CAM accounts, and work to move CTM accounts to CAM status. CAM status is generally awarded to those midrange accounts that make substantial purchases from Microsoft.

The CAM/CTM partner cannot sell licenses to their customers. There's a more cost-effective buying mechanism available to customers in this market segment. To properly serve their customers, solution providers must instead partner with a LAR to sell an EA. Those LARs used to be their partners, but now they'll be competitors for those all-important professional and managed services.

To the best of my recollection, this is the first time Microsoft has created a condition in which partners will seriously consider how they could move customers to another platform. If midmarket partners can't sell licenses in good conscience and selling EAs would mean introducing customers to competitors, what else can they do?

So it's with fascination that partners examined the introduction at the Consumer Electronic Show (CES) of products like the Lenovo N308, the company's first Android-based home computer, and the LG Chromebase running Google Chrome OS. More than one pundit declared that Intel is staging a "coup" by introducing systems at CES that run both Windows and Android.

How long will it be before solution providers move their clients off of Microsoft licenses and onto alternatives?

Other Changes
There are other ways Microsoft is upending loyal elements of its channel. Partners grumbled privately and publicly to CRN in January about cuts to cloud commissions effective Jan. 25. While the percentages partners are paid for Office 365 EA seat deployments are staying the same, the base rate at which Microsoft calculates those payments is being cut. That's leading to reductions in partner payouts of up to 56 percent on some SKUs.

Then, the Solutions Incentive Program was just retired, as expected, along with the also-expected end of Windows Small Business Server and related programs.

Taken all together, one could conclude that Microsoft is making it dramatically less attractive to sell any of its products or services unless you're a very, very large partner.

More Columns by Howard M. Cohen:

About the Author

Howard M. Cohen is a consultant to IT vendors and channel partner companies and a board member of the U.S. chapter of the IAMCP. Reach him at hmc@hmcwritenow.com.

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