Insight Expects Second Multimillion-Dollar Hit From Microsoft Partner Program Changes

Insight Enterprises continues to be impacted by the changes Microsoft made to its partner compensation model last year, and it said Wednesday it’s expecting another multimillion-dollar earnings hit in 2015.

A little more than a year ago, Microsoft began to roll out cuts to its cloud sales commissions, including cutbacks on Office 365 incentive fees, causing outrage among partners who relied on those commissions. The changes also impacted Microsoft’s Licensing Solution Providers (LSPs), such as Insight, which are the only type of partner Microsoft allows to sell enterprise volume licensing agreements.

Microsoft’s partner program changes reduced gross profit for Insight’s North America software business by $11 million to $14 million in its fiscal 2014, the company said on its fourth-quarter earnings call. Insight's overall profit was $22.6 million during the quarter, down 6 percent from last year.

[Related: PC, Server Refreshes Drive Q4 Sales Growth For Insight]

While other Insight vendors are making changes to their partner programs, such as Cisco and HP, none of the changes have been of the ’same magnitude that we had with the software partner," CFO Glynis Bryan said on the earnings call.

Bryan said Insight expects the impact of the changes to reduce its overall profit in fiscal 2015 by $5 million to $10 million.

While Insight didn’t name the software vendor on the call, CEO Ken Lamneck told CRN in August that the changes referred specifically to Microsoft.

The lingering effect is due to long-term enterprise migration agreements, Lamneck told CRN in an interview Wednesday night after the earnings call.

"It impacts us because these migrate over a three-year period, as far as these enterprise agreements. So we're just navigating through those. We're through the toughest period of that this past year. We mitigated it quite a bit, but it still had a financial impact," Lamneck said.

CRN has reached out to Microsoft for comment and will update this story if we hear back.

Insight first announced an "adverse effect on gross profit" directly related to Microsoft partner program changes in its 2014 first-quarter earnings, announced in May. At the time, Insight estimated the profit impact would be between $15 million and $20 million, an estimate it later lowered to $10 million to $15 million.

In an interview with CRN after that earnings call, Lamneck said that the changes to fee and rebate levels "obviously ... have a big impact on the business." He said Insight was working to "remediate" those changes by investing in cloud, such as Office 365 and Azure, an effort that was echoed in the latest earnings call.

Additional Reporting By Michael Novinson And Kevin McLaughlin

PUBLISHED FEB. 12, 2015