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WPC 2012: Office 365 Partners To Get Direct Billing

TORONTO -- Microsoft for the first time will allow its broad base of partners to handle customer billing for the Office 365 suite, addressing what has been the single biggest controversy in the Microsoft channel for the last few years.

Kurt DelBene, president of the Microsoft Office Division, made the announcement to huge applause on Monday during a keynote at the Microsoft Worldwide Partner Conference.

"The first thing, which is a really big deal for us, is we're announcing today the Office 365 Open program...and the great thing is it works just like Open does in all the other products that you guys know and love. That means that you guys own the top-level or the top-line revenue. It means you get to bill your customers directly for Office 365," DelBene said.

DelBene went on to explain the ramifications in terms that partners have argued themselves to Microsoft for several years. "It means that you get to present a single package or single solution to customers because you can take your own services and you can package that together with the Office 365 service and say this is your total invoice, this is your total bill for Office 365 plus all that value-added that you guys create," DelBene said.

From the moment Jon Roskill publicly took over as corporate vice president of the Microsoft Worldwide Partner Group at the Worldwide Partner Conference in 2010, he faced demands from partners for direct billing for the suite that was then known as the Business Productivity Online Suite (BPOS).

"Since I took this job two years ago, it is the No. 1 thing that you have been asking me for," Roskill said after DelBene's announcement.

Darren Bibby, program vice president, software partnering research at IDC, acknowledged the popularity of the move among partners. "Most of them wanted to do it. They say that the billing relationship is the customer relationship."

But Bibby also said Microsoft could really open a sales spigot by allowing most partners to resell Office 365. "There could be a material boost because more partners are going to be interested in positioning it. That was a real issue before: 'Why would I position it if there's no economic value for me?'"

The Office 365 Open License will work the same way that the Microsoft Open License works today, according to Kirk Gregersen, a general manager in the Microsoft Business Division.

"We'll have a key for the service that the partner can purchase through Open. Then they can resell that to the customer, charge their own price and bill as they'd like," Gregersen said.

With direct billing, partners wouldn't get advisor fees like they currently get with Office 365. Instead, the partner would be able to bundle Office 365 with any other services and build their own margin into the solution price. For partners who do like the advisor model, Microsoft introduced incentive changes on Monday that would give partners higher margins in most cases.

Currently, partners who sell Office 365 seats get a 12 percent advisor fee for the sale and a 6 percent renewal fee each year, for a total of 18 percent in the first year. The 12 percent fee is staying the same, and the automatic renewal fee is decreasing by 2 points to 4 percent. However, partners who sell more than 150 seats get points added to the initial payout. The first year total for more than 150 seats is 20 percent, for more than 500 seats is 22 points, and for more than 2,500 seats is 23 points. The total seats count across customers and the incentives apply retroactively to all seats, Gregersen said.

Roskill also said the other models for Office 365, such as syndication partners and the Service Provider License Agreements through hosting partners, will all remain in place.

"We've filled it out so we've got the most complete set of partner go-to-markets around the cloud of anyone in the industry," Roskill said.

It was not immediately clear when the billing changes would take effect.

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

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