Office 365 Billing: Another Tweak to Partner Payouts

Microsoft is tweaking the way partners will be paid advisor fees when they get customers signed up for public cloud services like Office 365 and Windows InTune.

A change announced this week at the Microsoft Worldwide Partner Conference in Los Angeles tips payments in partners' favor. But the change doesn't address many partners' fundamental complaint that Microsoft won't let partners bill their customers themselves.

Microsoft left the fundamental formula unchanged -- when a partner sells new seats of Office 365, the partner is eligible for 12 percent margin on the customers' entire first year payments to Microsoft, plus a 6 percent renewal fee every year as long as the customer keeps subscribing and maintains the original partner as the Partner of Record.

What changed is that Microsoft accelerated when that 12 percent net-add seat payment goes to partners. Under the Business Productivity Online Suite (BPOS), which was the predecessor to Office 365, partners got the 12 percent in four quarterly payments over the course of the year -- in other words, a 3 percent margin each quarter.

Now Microsoft will pay partners the entire 12 percent in the first quarter after the sale. Microsoft, correctly, positions the change as a cash-flow-boon to partners.

(There are some other less significant changes to the payout model, but I got different stories from different product teams at WPC about how those would work. I'll report on those when I can confirm the details.)

Microsoft officials are saying that they're getting fewer complaints from partners about direct billing (see our interview with Jon Roskill, corporate vice president of the Worldwide Partner Group, from the July issue for details).

Some of the partner metrics around cloud that were announced at WPC do seem to point to growing acceptance by partners of Microsoft's direct billing approach.

The strongest evidence is that Microsoft now says 42,000 partners are signed up to sell public cloud services, more than double the 16,000 the company had signed up by WPC 2010. (An important caveat is that only an undisclosed fraction of those numbers of partners have actually closed cloud deals.)

The other question is what limit the direct billing model might impose on the audacious target Microsoft COO Kevin Turner set during his Wednesday keynote for partners selling cloud.

"Office 365: 5 million licensed users, 2.8 million already deployed, 42,000 partners trained. I want the other 600,000 partners to get on board. That number needs to be 642 next year," Turner said.

Does the faster payment on the 12 percent advisor fee make a difference to you? Comment below or shoot me an e-mail at [email protected].

Posted by Scott Bekker on July 15, 2011