Microsoft Slashes Marketplace Fees for Partners

Microsoft rolled out a dramatic reduction in partner fees for its collection of commercial marketplaces on Wednesday as the company kicked off Microsoft Inspire, its two-day virtual conference for partners.

Charlotte Yarkoni, chief operating officer of Microsoft Cloud + AI, positioned the changes as investing in the partner ecosystem to help partners do business with Microsoft.

"Starting July 1, we lowered our marketplace transaction fee from 20% to 3%," Yarkoni said in a blog posted just ahead of her Inspire keynote. "This reduced transaction fee demonstrates our commitment to the success of partners creating value on our platform -- and helps partners keep more of their margin to invest in their growth."

Microsoft's marketplaces occupy a specific position among major technology marketplaces. They have huge potential for partners to tap into Microsoft's brand and its massive installed base of customers across commercial, government, consumer and gaming sectors. To provide a sense of the scale, Microsoft claims an audience of more than 750 million customers in 141 countries for one of its commercial marketplaces, Microsoft AppSource.

Yet the company and its partners have also struggled to realize the opportunity, with a series of fits and starts that have included a long line of branding changes, as well as a cycle of marketplaces popping up around specific products, followed by attempts to unify the marketplaces, followed by product-centric marketplaces popping up again, etc.

Because of Microsoft's unique mix of products and the marketplaces it competes against, there's no exact match for the new price model. However, it now goes from being a mid- to high-end price point to one of the lowest fee structures. For comparison, Apple and Google, both heavily consumer- and gaming-oriented marketplaces for mobile, charge roughly 30 percent, but recent moves make them closer to 15 percent for many participants. Salesforce, meanwhile, which sells business applications that compete directly with Microsoft Dynamics 365 and other enterprise applications, charges partners 15 percent for transactions in AppExchange.

Yarkoni said the move "reinforces our commitment to helping partners get to market faster, build apps for every customer need, and scale through our channels."

Specifics of the new deal are that the 3 percent fee applies to transactable applications published in the Microsoft commercial marketplace. That includes the Microsoft AppSource and the Azure Marketplace digital storefronts.

According to a company statement about the rationale for the increase: "Microsoft has seen a 70% increase year-over-year in transactable applications in the commercial marketplace and expects those numbers to continue to increase. The commercial marketplace aims to lead the way in simplifying the process of buying and procuring software for enterprise customers, as well as optimize their spending."

In related announcements from Inspire Wednesday:

• The 2-year-old ISV Connect program is being enhanced beyond the revenue sharing changes. New elements will include go-to-market resources, ISV app license management and discounted dev/test/demo environments. The changes are expected to be implemented this fall for the program, which currently has 734 ISVs enrolled.
• Another change to the Microsoft commercial marketplaces will make it more turnkey for publishers to work with Cloud Solution Providers (CSPs), Microsoft's community of 90,000 partners who resell Microsoft cloud services such as Microsoft 365, Azure, Dynamics 365 and other Microsoft products. In the fall, publishers will be able to set a discounted price for CSP partners, providing an upfront margin and allowing the CSPs themselves to set their own markup for sales outside the commercial marketplaces.
• Microsoft is also opening up a section in the Microsoft Teams admin center to allow IT admins to purchase ISV apps. The functionality will become available this summer and will be at the same 3 percent revenue share as the rest of the commercial marketplaces.

Posted by Scott Bekker on July 14, 2021