Should You Be a Microsoft CSP? 20 Points To Consider

Here are the most essential factors Microsoft partners should think about before jumping on Microsoft's new Cloud Solution Provider bandwagon.

Microsoft didn't overhaul the Microsoft Partner Network (MPN) this year, but it may as well have. Consider this: The Microsoft Cloud Solution Provider (CSP) program that's rolling out at scale right now completely changes the way Microsoft interacts with the majority of its partners on the products that Microsoft considers most strategic to its future -- Office 365, Microsoft Azure, Dynamics CRM Online, Enterprise Mobility Suite and Microsoft Intune.

Microsoft executives expect the growth for CSP, in both partner participation and in revenues, to rapidly outpace growth in the older Advisor and Open cloud programs. The industry, from distributors to tools vendors, is lining up to get a piece of the CSP action.

The question for every current Microsoft partner is, should you be a CSP? Based on interviews with senior Microsoft executives and partners, a review of Microsoft's detailed CSP FAQ and the Microsoft CSP nomination form, here are 20 essential points to consider before committing to the expanded CSP program.

1. CSP Defined
Described by Microsoft as "a true cloud reseller program," CSP appears to align Microsoft's core cloud products with a partner business model that should let customers buy Microsoft products and related cloud offerings in the way that they would prefer.

Here's how Microsoft defines CSP in a FAQ for partners:

"The Microsoft Cloud Solution Provider program enables partners to directly manage their entire Microsoft cloud customer lifecycle. Partners in this program utilize dedicated in-product tools to directly provision, manage and support their customer subscriptions. Partners can easily package their own tools, products and services, and combine them into one monthly or annual customer bill."

Implied in that definition are some of the key elements that partners have been asking for from Microsoft for years. One of them is the ability to control customer billing in two key ways. First is to have the bill to the customer go directly from the partner to the customer rather than from Microsoft to the customer. Partners have always had concerns that Microsoft would use a direct billing relationship to upsell and cross-sell services to a partner's customer, cutting the partner out. Second, partners who can control the billing can bundle the Office 365 or Dynamics CRM Online price in with the rest of their own services and resale services. That gives the customer the simplicity of a single bill to pay, and a single throat to choke, and gives the partner control over margin.

One critical flip side -- CSP partners assume responsibility for many types of customer support, incurring a large expense that partners used to be able to pass on to Microsoft.

2. Why CSP Matters Now
Microsoft unveiled the CSP program more than a year ago in July 2014 and kicked it off the following fall. But it was an extended pilot, in the words of one senior Microsoft executive. A few critical things have changed to make CSP really matter now:

  • The availability of a CSP API. With the API, CSPs can now integrate provisioning and ordering activities into their own systems. The API supports provisioning new customers, ordering subscriptions and add-ons, and modifying the license count.

  • The readiness of cloud distributors. For partners who don't have the capabilities to handle billing or, in some cases, customer support by themselves, many of the major distributors are now set up to act on their behalf in the background. The worldwide distributor readiness is partly due to the availability of a CSP API. This development will lead to the largest number of reseller partners being able to participate in the CSP.

  • The scale is becoming truly global. Microsoft first rolled the CSP out in fewer than 50 countries. That's a lot by non-Microsoft standards, but Microsoft now supports the CSP model in more than 131 countries.

3. Microsoft Finally Transitions
During each of the last five years, Microsoft has been encouraging partners to get ready for the cloud. Ironically, the CSP program in many ways represents Microsoft itself finally getting ready for the cloud. Ever since Microsoft introduced the Advisor model back before Office 365 was even called Office 365, partners were asking for the ability to bill customers themselves. At the time, Microsoft officials said partners weren't ready to do the billing. But they also would admit that Microsoft's internal systems weren't configured for breadth partners to conduct billing.

The addition of cloud products to the Open program over the last few years did give some partners the ability to bundle services, bill customers themselves and, therefore, own the relationship. At the same time, though, the yearlong commitments the partners had to assume on the licenses didn't match customers' monthly payment preferences, and could leave partners hanging if a customer canceled.

With the CSP, Microsoft has finally set up cloud in a way that most partners want to sell it and in a way that customers seem to want to buy it.

4. The Basic Program for Most Partners
For the vast majority of partners, who are not existing Microsoft Syndication Partners or distributors, the CSP has two main paths. A partner can be a 1-Tier partner or a 2-Tier reseller.

The 1-Tier partner is approved by Microsoft and orders seats on behalf of customers directly from Microsoft, rather than through another partner type. To get that relationship, a partner must have a series of capabilities. To qualify for 1-Tier, a partner must be able to bill, provide 24x7 support, do technical integration and handle customer lifecycle management. Microsoft is also looking for partners with a business model around managed services IP and with broad market reach.

There's also what Microsoft calls a 2-Tier model. In that one, the distributor or companies that were formerly part of the Microsoft Syndication Partner program handle the capabilities with Microsoft. Those partners are called 2-Tier distributors or cloud distributors. They in turn work with the bulk of Microsoft partners, who are the 2-Tier resellers. Depending on a given cloud distributor's offering, those resellers may still have control over customer billing and may also be able to outsource white-labeled support services to the distributor. For much more detail on the emerging 2-Tier ecosystem, see the related feature in this section.

5. The New Managed Partner?
Microsoft would surely quibble with the comparison, but in many ways, the 1-Tier partner is the new managed partner. Consider the similarities. Requirements aren't concrete and automatic like they are for a competency. They're vague and subjective like those that go into being chosen to be a managed partner. Last year, the 1-Tier program was invite-only in the sense that Microsoft would reach out to handpicked partners. This year, it's slightly more open in that partners can nominate themselves, but they still have to wait for Microsoft to invite them in.

Partners who want to nominate themselves can fill out an online form in the Microsoft Partner Portal. Among other questions, the form asks if the organization can offer sales, customer support, and billing and invoicing. It also asks about additional services you plan to include in your offerings, such as data, files and mailbox migration; desktop/device management; storage, backup and disaster recovery; infrastructure management/monitoring; custom app development; architecture assessment/design; security/threat management; system integration services; line-of-business applications; and support/help desk.

Microsoft also wants to know the applying partner's annual revenue, with categories starting at $20,000 to $50,000 and topping out at $400,000-plus.

Microsoft started with hundreds of 1-Tier CSPs and officials have said the number will expand to more than 1,000 in the current fiscal year. By comparison, 2-Tier resellers are expected to number in the tens of thousands.

6. The Special Case of Dynamics CRM
Competencies are the major component of the MPN, but they don't figure that prominently in Redmond's CSP program. The one exception is for partners selling Dynamics CRM Online, a new addition to the CSP program this year.

According to the CSP FAQ, both the CRM Cloud Competency and a Partner Support Plan are "highly recommended" for partners selling Dynamics CRM Online.

All of the Dynamics ERP and CRM products have traditionally been a specialized sale with their own partner requirements and partner benefits. Microsoft appears to be encouraging the continuation of that partner segmentation between IT generalists and business application partners in the CSP program.

7. Sell into Enterprise
The CSP program may tear down barriers when it comes to customer size. Microsoft has detailed customer segmentation for a lot of partners, and those limits were enforced in the cloud with open licensing, which is generally limited to 250 seats. For CSP partners, however, there aren't hard-and-fast rules. "Although pricing pressure may be felt at deals with larger seats (e.g., 1,000), there is no seat cap," the CSP FAQ states.

8. Azure Available
Up until this fiscal year, the Microsoft offerings in the CSP were exclusively seat-based products, like Office 365. That changed with the introduction of Azure into the CSP. The model is slightly different with Azure partners being able to bill for and provision compute, storage, data, networking or apps. Azure opens the most flexible possibilities of any of the CSP products for partners to build custom solutions and wrap them in a managed service.

9. Field Compensation Hasn't Caught Up
While Microsoft executives are very serious about CSP for the company and the structure is a huge step forward, some elements of field compensation have not caught up, according to a partner who asked to remain anonymous. Many roles in the Microsoft field remain incentivized to push other types of sales and their bonuses aren't yet aligned with CSP sales. Expect to see compensation plans adjusted around the middle of the Microsoft fiscal year (the beginning of calendar 2016), encouraging much stronger institutional momentum around CSP, the partner said.

10. Partner Center
Partners familiar with the Partner Admin Center (PAC) that's used to manage Advisor customers will have a new interface to learn. In July, Microsoft released the Partner Center, which is a powerful console for managing and administering CSP customers. While CSP partners could previously use the PAC to manage CSP customers alongside Advisor customers, new CSP features stopped being added to the PAC in July and the ability to manage CSP customers will be completely removed from the PAC this month.

For now, partners managing both CSP and Advisor customers will need to use both management consoles. In the future, Microsoft plans to add the ability to manage Advisor customers from the Partner Center.

11. Partner Admin Roles
CSP partners will have the ability to create three different types of delegated admin roles in the Partner Center for their employees. The agent roles are Admin, Helpdesk and Sales. The Admin agent role is the equivalent of a global admin with the ability to perform any function on behalf of a customer. The Helpdesk agent role is able to reset passwords. The Sales agent role has the ability to provision new customers, order subscriptions and manage subscriptions.

12. 3 Contracts
As with any dealing with Microsoft, or IT business, or business in general, there are contracts to sign and get signed. In the CSP, there are three. The first is between Microsoft and the CSP. Called the Microsoft Cloud Reseller Agreement (MCRA), partners sign it when accessing the Partner Center. That one-year agreement automatically renews on Aug. 31. Partners must also have each customer sign a Microsoft Cloud Agreement before placing orders on their behalf. The third type of contract lays out partner terms with the customer, and Microsoft doesn't provide a template for those. Some of the distributors in the 2-Tier model may offer template contracts for their resellers.

13. Support Escalation
A critical component of the CSP program is that the partner is the first point of contact for a customer support incident. Some types of support that partners are responsible for providing include:

  • Frontline billing and subscription
  • Provisioning
  • Answers to questions
  • Service and software updates
  • Software configuration
  • Performance issues within a partner's span of control
  • Client connectivity and client desktop
  • Service availability issues within a partner's span of control

Some types of incidents can be escalated to Microsoft, such as:

  • Supported tasks that are outside the functionality provided with available tools
  • Break/fix -- undocumented problems with the service
  • Availability -- service not accessible
  • Not operating according to service descriptions
  • Bugs and other irregularities that affect service appearance or operation
  • Large-scale network disruptions
  • Regional, multi-tenant impact

14. SLA Recovery
In case of outages, partners will need to stay on top of Microsoft to ensure their customers get appropriate credits.

Microsoft won't be issuing bulk credits on behalf of all a partner's customers in the event of an outage. Instead, there has to be a customer-generated support incident for a partner to create an SLA claim on behalf of a customer.

If Microsoft determines that an SLA credit is due, it will be paid to the partner in the direct pricing amount rather than the wholesale pricing amount. The partner is then responsible for crediting the customer.

15. Multiple CSPs Can Share a Customer
One of the controversies of the Advisor model was when one partner would kick out another as the Partner of Record and scoop up their recurring revenue fees. As in the "Highlander" movies and TV series, there could be only one.

The CSP model is different, with its own benefits and problems. A customer can have multiple CSP partners for different Microsoft services, and adding another CSP doesn't bump the original one.

Microsoft gives the example that a customer may have one CSP for Office 365 and another CSP for Azure, products that represent two completely different partner skillsets. In another example, Microsoft notes that a customer may have one CSP for Exchange Online and a different CSP for SharePoint Online.

According to the Microsoft FAQ, CSP subscriptions can coexist with subscriptions purchased direct from Microsoft, from Advisor partners, through Open or through Enterprise Agreements (EAs). This type of multiple subscription-type coexistence is called "multi-channel," and like the "multi-CSP partner" feature, it's a recent addition to the CSP program. One type of cloud partner that gets exclusivity is Microsoft Syndication Partners, the category of large partners to whom Microsoft first handed the rights to direct bill their customers. Their customers cannot work with a CSP.

Existing subscriptions can't be transferred from one CSP to another, but the ability for multiple partners to work within a customer account does raise the need for CSP partners to defend their cross-selling and upselling opportunities.

16. Uncertain Future for Advisor and Open
Microsoft isn't making any specific announcements about ending either the Advisor or Open programs as CSP comes online. However, the new partner model is expected to eclipse the Advisor program, and some partners are looking for Microsoft to phase it out in the coming years.

Microsoft flatly denies any plans to end the Advisor program, and reports continued growth in Open. But clearly the relative growth of the business models is an area to keep an eye on as partners commit to one model or another.

17. Stick to an Authorized Country
The cloud makes the world a smaller place. A tiny company in Idaho can serve customers in Australia and the United Kingdom as easily as customers in North Dakota, right? Well, not in the CSP program. Naturally, currencies, rules for data residency, taxes and many other factors apply, so Microsoft is very careful to prohibit partners from selling outside their regions. CSPs can sell in multiple countries, but they need to be approved and onboarded as a CSP partner in each of the markets.

18. Compensation Comes Through an Up-Front Margin
The compensation model in the CSP is a wholesale model, in which partners pay Microsoft a lower price for the cloud subscription than they charge their customers. This is different from the Advisor, Open and EA models, which all involve channel incentives. Microsoft says there are some incentives available in the 2-Tier CSP model. One other major part of compensation comes from the ability to bundle in other services in a single bill, whether a partner's own IP or another third-party service and associated margin.

19. Microsoft in the Account
While becoming a CSP partner stops Microsoft from directly billing a partner's customers, it's clearly no panacea for partners concerned about Microsoft going around them into an account. Microsoft is a multi-faceted organization with a lot of business units and constantly evolving initiatives. Customers often use multiple Microsoft products sourced from different places and will often have contacts with Microsoft reps and other Microsoft partners outside of any individual partner's relationship. With the multi-channel and multi-CSP partner elements of the CSP program, there is a lot of potential for infighting within an account.

20. Why It's Better
The Microsoft CSP FAQ ends with a strong statement following the question, "Why is this better for the customer, the partner and Microsoft?":

"This is better because you understand your customer best and have the most frequent engagement. You understand your customers' business, their needs, their challenges and what they need to be successful. In addition, you also have direct access to customers' systems and can sell, deploy, provision and manage a customer seamlessly. Through delegated admin access you can often resolve issues more quickly than Microsoft can working with the customer and can resolve most issues without the need to contact Microsoft support."

One of the most interesting points in that statement is the idea that it's better for the customer and for Microsoft to have partners deeply engaged in providing cloud services. After years of keeping one element or the other of cloud in-house in Redmond, Microsoft finally seems to be ready to entrust its most strategic business to the channel.