Microsoft Catches Up with the Channel

Seldom do I discuss Microsoft’s various versions of its partner program here, but recent developments have called me to do so. It looks like what comes around goes around, and Microsoft has caught back up with the channel.

Microsoft & the Channel: An Evolution Story

As we celebrate 50 years of Microsoft, it’s well worth looking back at its early days. Bill Gates was, of course, the chairman, but the President and COO, John Shirley, led the building of the Redmond campus and knew the name and territory of every field manager in his employ; he could probably even tell you all about yours!

With brand-new vendors popping up all around, Microsoft distinguished itself by demonstrating a clear and abiding understanding that channel resellers could be a powerful sales engine if it provided them with enough support. One Microsoft rep told us we had a quota, which was unheard of back then. He then revealed it was a quota for services related to Microsoft technologies. Those of us who realized they couldn’t track that knew that he was trying to emphasize to us that Microsoft wanted to see us selling our own high-margin services, where their products would naturally follow.

For a very long time, Microsoft was my favorite vendor by far.

The channel was evolving, but in a very rocky pattern. We had cleverly discounted our way to tissue-thin margins, so products became less and less desirable to sell. As we moved into the mid-1990s, most “value-added resellers” (VARs) couldn’t afford to give services away, so they started charging for them. Soon, channel leaders like Karl Palachuk and Erick Simpson changed what many of these companies called themselves. IBM first coined them as “resellers” in 1981. Now, many are referring to themselves as “managed service providers. (MSPs).

As we approached and crossed into the early 2000’s, Microsoft had become vigorously focused on shareholder benefit. It seemed like all the Microsoft folks who had formerly supported us so well had other things to do. Some of us figured out that helping them achieve their goals would encourage them to work more closely with us. We became “managed” partners.

As the channel and Microsoft grew up together, the relationship went through multiple upheavals. Microsoft’s transition to subscription services changed the relationship forever. They wanted to invoice customers, but they acquiesced to us invoicing partners. They bifurcated the channel into Tier 1 and Tier 2 Cloud Solution Providers (CSPs), a program that seems to be a permanent state of metamorphosis.

One partner famously characterized our required relationship with Microsoft as being “patriotically adversarial.” We loved Microsoft and made a lot of money with their technologies, but they often did things that damaged us, and we had to make them aware of those. By and large, they’ve usually moved to resolve those things. But it's getting much more challenging.

Today, Microsoft is restructuring the entire partner economics model. Margins on standalone license resale are being trimmed by roughly 15 to 20 percent, while incentives for managed services, AI implementation, and adoption support are going up by as much as 30 percent. In a recent article, Microsoft’s 2026 Channel Strategy: CSP Reforms and Copilot Shift Redefine Partner Success,” the heading on the second paragraph declares, “The End of the Resale Era: CSP Program Overhaul,” and it explains, “The CSP program, which currently accounts for the majority of Microsoft's commercial cloud revenue through partners. This is being restructured to prioritize value-added services over transactional licensing.”

So, that message is very clear: if your business model still revolves primarily around moving licenses, Microsoft is actively nudging you out of that lane. For what it’s worth, I actually predicted this day would come back in 1985 when I switched from running the highest volume computer store of that time to managing the chain’s services operation. The future was services, not products.

You’ve known this for years, but now Microsoft is behind you again, and they're rowing the boat in the same direction.

The first sign of the coming change was back in October 2024 at the Ignite conference when Satya Nadella introduced us all to “The Agentic Age.” The newly introduced Copilot held the promise of this new AI-driven age. It would take a while before we all came to learn more about what Copilot is and isn’t.

Those who have lived in the Microsoft EcoSystem are familiar with the constant state of re-organization the organization lives in. There’s just been another one.

Microsoft recently reorganized its AI leadership to unify consumer and enterprise Copilot under one organization. For partners, AI-related incentives jumped 50 percent, with Azure outcome-based incentives growing 70 percent year-over-year. They also launched Microsoft 365 E7 (which bundles E5 + Copilot + the new Agent 365), positioning it as the flagship SKU for the agentic era, calling it “The Frontier Suite.”

The new "Secure AI Productivity" specialization, which replaces the old Teamwork Deployment specialization, is where Microsoft wants partners to plant their flag.

With these changes, the Cloud Solution Provider program is also changing to a tiered program based on certified technical capabilities, customer satisfaction scores, and growth of consumption rather than pure volume of revenue. There's also a new "Managed Services Marketplace" inside the commercial marketplace where partners can publish standardized service offerings, with automated provisioning and billing integrations. For innovative partners, it’s worth paying attention to this as a potential growth channel.

The Qualified Referral Program retired at the end of March 2026 and was replaced by a unified co-sell experience centered on Partner Center referrals. If you had workflows built around QRP, they need updating. (March 2026 Partner Center Announcements)

If your tooling accesses Partner Center via API, MFA is now required. It may seem like a small thing, but it can cause real headaches if missed.

Starting April 1, 2026, subscriptions purchased on or after April 1, 2025, that expire on April 1, 2026, with auto-renewal off will automatically move into EST. This has downstream implications for how you manage customer subscription lifecycles.

While you can always manage your decisions as to how you want to evolve your MSP, Microsoft is essentially telling the entire channel that their profitable future is in AI-led managed services, not transactional licensing (Oh, what a revelation!)

Partners who build Copilot/AI deployment practices, get the right specializations, and position themselves as ongoing adoption partners rather than one-time sellers are going to be in the best shape. And they’ll be the ones who won't find their margins continuing to dwindle.

All that's left to say is welcome to the services party, Microsoft!

Posted by Howard M. Cohen on April 14, 2026