Microsoft To Double BPOS Margins for Top U.S. Partners

Microsoft is preparing to roll out a new cloud computing engagement model for U.S. partners that will double the Business Productivity Online Suite (BPOS) finders' fee for top-selling partners from 12 percent to 24 percent.

The new engagement model is called the Cloud Champions Club, and the three-tier program is set to launch with a Webcast on Friday.

"It's a program that provides increased support and resources and funding to partners who are really committing to developing a cloud practice," said Eric Martorano, who is responsible for SMB Channel Strategy, Marketing and Online Services.

Martorano belongs to Microsoft's newly formed Small, Medium Business and Distribution (SMB&D) organization run by Cindy Bates. "It's enabling them to develop their business and transform their business and be as successful as they can," he said, in an interview.

Since Microsoft launched BPOS, the initial margin for partners has been 12 percent with 6 percent in annual recurring revenue. Because of the way Microsoft delivers payments, partners would effectively receive an 18 percent margin in the first year and 6 percent each year after that. By increasing the initial finder's fee margin to 24 percent for partners in the top tier of the new club, partners will effectively earn 30 percent margins in the first year and 6 percent annually thereafter.

Other benefits of the new club will include market development funds, deal subsidies, higher margins and field resources. The entry-level tier requires a partner to sell BPOS to at least three new customers for a total of 75 seats or greater.

"That just shows that you're getting some traction and you're making some commitments," Martorano said. Benefits of joining the Cloud Champions Club at that level include specialized cloud training, monthly Webcasts, marketing support, qualified leads and an online services partner development manager.

Martorano contends that the biggest value will come from the live help from Microsoft. "One of the biggest things that we're doing is you'll get assigned an online services partner development manager (PDM) that's going to work with you to scale your business," he said. Microsoft is looking to put in place a ratio of about one PDM for every 20 Cloud Champions Club members, and the PDM's incentive will be partly based on moving partners up through the tiers, he added.

A middle tier requires a partner to be the BPOS Partner of Record on at least eight customer wins with 200 or more seats. "At that point, we're going to introduce increased marketing development funds,” Martorano said. Level 2 partners will qualify for $2,000 in MDF plus another type of funding called Velocity funding to help subsidize proof-of-concept work with clients and for post-migration work.

"One of the things we're hearing from partners is, 'We're having to do a lot of proof-of-concept to show them these programs,'" Martorano said. "We realize time is money, we get that. [The Velocity funding] is close to the range of what it's costing these partners to provide some of these services to their customers."

Tier 2 partners will qualify for $250 in proof-of-concept Velocity funding and $250 in post-sale-migration Velocity funding per deal for customers with more than 25 seats. Benefits will really kick in for partners who reach the top-tier of the program, according to Martorano.

With a requirement of 20 customer additions and 500 seats, "you're really starting to show that you have an established business in the cloud," he said. Tier 3 is where the doubled finder's fee margins take effect. Also at the top tier, MDF increases to $5,000, Velocity funding doubles to $500 each for pre- and post-sale, and partners will gain access to a field marketing consultant and a marketing advisor.

Martorano said that for now, the focus will be on BPOS. "When we launch Intune, Intune will be put into this program, as well," he said. "We haven't made a decision yet for CRM Online, but I'm not going to say that's not going to happen."

Deal eligibility will be retroactive to July 2009. Pete Zarras, president of Morris Plains, a N.J.-based Cloud Strategies LLC, said his company is grandfathered into the top tier based on business they closed four to five months ago, and he was looking forward to using the Velocity subsidies.

"For us it's going to be huge, because it helps subsidize work that we're doing in segments that may not be otherwise profitable or lucrative," Zarras said. "We're taking a somewhat different tack than other partners. Some partners are avoiding the micro-space of really small businesses, but we look at it as cost-recovery in that space. For us it's about volume, it's about velocity. Anything that helps subsidize work that's not hugely profitable for us is clearly a win-win for everyone."

Of about 4,000 U.S. partners signed up to sell BPOS, roughly 1,000-1,200 have sold enough to qualify for the Cloud Champions Club, Martorano said Of those qualifying partners, Martorano estimates that about 70 percent qualify for Tier 1, about 20 percent qualify for Tier 2 and less than 10 percent qualify for Tier 3.

The Cloud Champions Club is loosely modeled on a VAR Champions Club that Microsoft launched in the United States in early 2010.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.