With Subsidy, MS Returns 68% of First-Year BPOS Revenue to Partners

On the Microsoft SMS&P blog this week, Eric Ligman wrote about a current partner incentive program for cloud that we'd missed -- and it's a pretty big deal. The math is really good for partners, and it's effectively seed money for the add-on services that Microsoft is always saying partners will get if they sell BPOS.

"Here is a great opportunity for all of you partners focusing on SMB customers to drive adoption of online services," wrote Ligman, the global partner experience lead for the Microsoft Worldwide Partner Group.

The U.S. promotion is called the Microsoft Business Productivity Online Services Customer Rewards Offer, and it covers sales from Feb. 1 through April 1.

Anyone who has used Microsoft's popular Big Easy subsidy program will be familiar with the concept in use here. Sell a product that's covered by the subsidy, and the customer gets a rebate check from Microsoft made out to a partner, who then can then provide services, follow-on licensing or hardware.

In the case of the BPOS offer, covered products include Microsoft BPOS, SharePoint Online, Exchange Online, Office Communications Server Online, BPOS Deskless Worker Suite, SharePoint Online Deskless Worker and Exchange Online Deskless Worker.

This rebate is worth 50 percent of the customer's first annual subscription fee, payable in subsidy checks made out to a Microsoft Partner Network member. If that partner is the BPOS Partner of Record, they're already getting 18 percent of the first-year subscription revenues in referral fees. Together, that's 68 percent of the first-year subscription going back to partners as revenues.

Why is Microsoft putting so much back into the channel? According to Microsoft materials describing the program, the point for Redmond is to "drive SMB adoption leading up to the launch of Office 365."

I did some back-of-the-envelope calculations on what the deal is worth for BPOS partners. This promotion applies to deals of at least five seats, and the subsidy cuts off after 25 seats. Assuming the BPOS price of $10 per user per month, and that the 50 percent subsidy applies evenly across that range of seats:

• Each seat sold under the program is worth $21.60 in referral fees and $60 in subsidy checks for $81.60 total per seat from Microsoft, so
  
  
• A partner selling the five-seat minimum would get $108 in referral fees and a $300 subsidy check for $408 total from Microsoft, and
  
  
• A partner selling 25 seats would get $540 in referral fees and a $1,500 subsidy check for $2,040 total from Microsoft.

Where it gets even better is on the add-on services side. Microsoft officials have said repeatedly that partners can make five or six times the BPOS subscription fee in professional services fees, and they've suggested similar multiples in the past for the Big Easy promotion, too.

In other words, those subsidy checks under this BPOS program aren't the end of the revenue opportunity, they're the beginning. What's better is that for the first time that I know of, Microsoft is seeding that add-on spending with these subsidy checks.

Jump aboard this promotion quick, because it runs out in less than a month. Here's hoping that the BPOS Customer Rewards Offer will get reupped after April 1 and again in the Office 365 timeframe. Yes, Microsoft has reason for desperate giveaways now in the limbo period between an aging offering (BPOS) and the release of its hotly anticipated successor (Office 365). It still may be in Redmond's interest, though, to continue the program later, because it puts real money behind the promise of add-on revenues to cloud services.

Posted by Scott Bekker on March 04, 2011