Microsoft Partners At A Crossroads: Radical Changes Rattling The Channel

Recent changes to Microsoft’s partner program -- NCE and the upcoming Partner Capability Score -- are rattling some solution providers in Microsoft’s 400,000-strong channel ecosystem. Is the tech giant listening?

It only took one month for Guardian Computer President Jean Prejean to discover one of the biggest problems with Microsoft’s new rules for how customers buy and renew commercial software subscriptions with partners.

In April—one month after Microsoft began enforcing changes rolled out under its New Commerce Experience, or NCE, banner—Prejean brought on a new customer for her Metairie, La.-based MSP business.

What should have been a purely celebratory occasion for Guardian Computer, a member of CRN’s 2022 MSP 500, came with a catch.

Because the customer had already signed an annual commitment with its former MSP under NCE—and because, under NCE, Microsoft does not allow partners to transfer licenses after seven days—Prejean was forced to work with the old provider.

“There is nothing we can do,” Prejean told CRN in an interview. “It’s hard to tell a new client, ‘Hey, but you’ve got to still deal with your old MSP for another 10 months.’ … Sometimes, there is bad blood in there.”

In the end, Prejean and her staff of 13 employees promised to provide support to the new customer while the old MSP collects revenue until the contract ends next year.

“We’re a Microsoft shop,” she said. “We wouldn’t be who we are without Microsoft. And some of these changes have been disheartening.”

Prejean is among the hundreds of thousands of partners that now have to decide how to adjust to the new costs and requirements of doing business with Microsoft.

There’s no question that the partner program changes Microsoft is making are taking their toll.

Microsoft said in its most recent earnings call that “partner transition work” had a negative effect on growth with small- and midsize-business customers.

During the question-and-answer portion of the call Microsoft CFO Amy Hood said that the company saw “some weakness in new deals, particularly in the SMB segments,” noting that licenses aimed at SMB customers are primarily sold through partners.

“We’ll keep executing that through partners. We’re in the middle of that transition we talked about last quarter, and we’re still working on it,” she said during the call.

The changes Microsoft is making are some of the biggest to hit Microsoft partners since the Microsoft Certified Solution Provider program launched 30 years ago.

The diversity and size of Microsoft’s program can be an asset—400,000 partners with a mix of partners less than half Guardian’s size and partners exponentially larger with hundreds of employees pulling in tens of billions of dollars in revenue.

But that diversity makes it hard for program-wide changes to satisfy all partner sizes and business models—and former Microsoft channel employees tell CRN that businesses such as Prejean’s represent most of the partner program population.

CRN has reached out to Microsoft for comment on this article but the company would not make members of its channel team available.

Twenty-three percent of 160 Microsoft partners polled by CRN in July said they are more dissatisfied with Microsoft as a partner than they were a year ago. An additional 4 percent, meanwhile, said they were significantly more dissatisfied than a year ago.

Furthermore, 27 percent of partners polled by CRN said they are dissatisfied or very dissatisfied with the new partner program requirements, NCE and changes in partner incentives.

“Microsoft has dramatically increased the difficulty in doing business with them,” said one partner participating in the survey. “Ease of doing business with Microsoft is non-existent at this point. [I’ve] grown very tired and frustrated with their never-ending, confusing partner program changes, clunky partner systems, multiple portals [and] lack of being able to speak to real people.”

“I don’t like the change from the CSP program to the NCE program. It was a win for Microsoft and a loss for partners,” said another surveyed partner.

“The change in requirements for partners to the ‘point’ system is too much with not enough time to meet them,” said yet another partner. “Microsoft seems to assume we can have engineering resources stop their normal job function and focus solely on the new requirements.”

Microsoft’s Relationship With Partners

Microsoft’s channel leadership itself, meanwhile, has gone through change. Former channel chief Rodney Clark—who also held the title of corporate vice president of channel sales— decamped for Johnson Controls in May.

His role has been split into two, according to a Microsoft statement to CRN. Instead of a channel chief, Microsoft now has a vice president of channel sales, David Smith, and a vice president of go-to-market, programs and experiences, Julie Sanford.

“The decision to evolve what formerly had been a single role into two distinct areas of responsibility is a reflection of the growing importance and breadth of our partner ecosystem all-up,” according to the statement.

Microsoft recently named Nicole Dezen chief partner officer and corporate vice president of the Global Partner Solutions organization. Her role is considered “much broader than channel chief,” according to Microsoft. It “focuses on Microsoft’s entire commercial partner business—encompassing all different types of partners and relationships.”

During Microsoft’s annual Inspire partner-focused event— held online July 19 and 20—Dezen said that Microsoft’s co-sell program has seen $33.8 billion in annual contracted value and 35 percent revenue growth since its launch in fiscal year 2018.

“From the beginning, Microsoft has been a partner-first company,” Dezen said during Inspire.

“Our ability to co-sell together is what makes our partners—plus Microsoft—the most powerful asset in the industry,” she added.

Microsoft Chairman and CEO Satya Nadella said during Inspire that partners help “make small businesses more productive, nonprofits more effective, multinationals more competitive [and] governments more efficient, improving health care and educational outcomes and creating economic opportunity and creating jobs. That’s what makes this partner ecosystem so unique.”

Although Prejean and partners of Guardian Computer’s size bring in fewer dollars individually, that long tail is a revenue generator for Microsoft and helps the Redmond, Wash.-based company bring its software to Main Street when larger consultants prove too pricey and lack a local presence.

“The MSPs, a lot of us, are relatively small,” Prejean said. “So I think it’s maybe hard for [Microsoft] to hear the feedback because we’re just a bunch of little fish. But if you add us up, I’m sure we make a difference.”

But Microsoft’s partners also benefit from the tech giant, as Nadella indicated during Inspire.

“For every dollar in revenue we generate, partners who build differentiated software solutions on the Microsoft Cloud generate $10 more,” the CEO said.

Prejean and other Microsoft partners who spoke with CRN said they don’t want to leave Microsoft, a leader in the productivity applications market with popular apps such as Word, Excel and Teams. Google is considered its closest competitor in productivity with its Workspace offering and apps including Docs, Sheets and Meet.

Microsoft is also widely considered the No. 2 cloud computing vendor behind Amazon Web Services and ahead of Google Cloud.

The New Partner Capability Score

Tackling NCE and the discussions with customers over whether to make an annual commitment to Microsoft software packages or to pay a 20 percent premium on month-to-month commitments in case of a change in employee count or license type was a heavy enough lift for some partners.

But as Microsoft executives said again and again during Inspire, the second controversial change for the Microsoft partner program— the Partner Capability Score—is here to stay.

The Partner Capability Score will determine who qualifies as a Microsoft “Solutions Partner,” the designation that replaces the classic Gold and Silver partner competencies that come with sales and customer support for partners.

Under the new system, partners earn points for deployments, usage growth, getting certifications and new customer adds, with rules around how large a customer must be to count toward the score. Solutions Partners can also go on to earn “specializations” with more benefits.

Microsoft executives have touted NCE and the Partner Capability Score as simpler ways for customers to do business with the ecosystem.

For example, NCE moves Microsoft from about 20 licensing constructs and purchasing experiences—including Open License and Select Plus—to three, Clark previously told CRN. The three are a breadth motion that includes Cloud Solution Provider partners, an enterprise motion serviced by Enterprise Agreements and Microsoft Customer Agreements, and a self-service motion, all sharing a common platform.

Customers opting for annual commitments give partners a more accurate forecast of the revenue they stand to make. And the 20 percent premium on month-to-month commitments gives partners some cushion should a customer go out of business or reduce license count.

The Partner Capability Scores should also improve collaboration between Microsoft sellers and partners, according to the company.

Dan Rippey, program director for the Microsoft Partner Network—which the tech company will rename as the Microsoft Cloud Partner Program in October—said during Inspire that the new designations are meant to better communicate to customers a partner’s technical acumen and “ability to deliver successful outcomes.”

Dezen said that partners who sold collaboratively with Microsoft sellers saw revenue grow 29 percent in 2021, almost double the 15 percent revenue growth of partners not actively engaged in Microsoft co-sell.

Partners have until Sept. 30 to renew legacy competencies—and they will retain benefits they received as Gold and Silver partners until their next anniversary date. Gold and Silver badges and marketing materials from Microsoft will go away Oct. 3.

‘So Far’ From Qualifying

Prejean, currently a Microsoft Gold partner, said working toward a higher partner score for her business would be too difficult.

“We’re so far from being able to qualify that it’s been like, ‘OK, we don’t even have to dig into this anymore,’” she said. “We can’t. It’s so based on growth.”

All levels of the upcoming Microsoft Cloud Partner Program share some benefits—such as a cloud enablement desk, help and support requests, digital marketing content on demand, marketplace rewards, and training and enablement resources.

Partners who score below 70 can still buy Microsoft’s Action Pack aimed at new and smaller partners, Rippey said during Inspire. Action Pack provides some technical presales advisory hours, co-sell eligibility, Azure credits and Visual Studio subscriptions. It’s also less expensive at $475 a year than what partners currently pay for Silver and Gold levels. Silver costs partners $1,670 a year, while Gold costs $4,730 a year. The coming Solutions Partner designation will cost the same as Gold.

Zac Paulson, CEO of TrueIT, a Fargo, N.D.-based Microsoft partner, called the new Partner Capability Score a “disaster.” His business, a Gold partner for Microsoft’s Dynamics CRM tool, currently scores below the 70-point threshold in all six Solutions Partner areas—business applications, digital and app innovation, security, modern work, infrastructure and data and artificial intelligence.

Paulson told CRN that he’s confused on what data the Partner Capability Score pulls from and how to get a more accurate measure for his business.

“We’re very well-versed in Dynamics, we do a ton of work in Dynamics … that shows me something’s broken,” Paulson said. “In my opinion, that does not represent the large buy-in our company has to Microsoft and the large spend we have with them either.”

Paulson is hopeful that Microsoft will delay the Partner Capability Score deadline and revise how partners get points. He’s concerned that Action Pack won’t provide the same number of internal use rights that comes with his Gold membership, should he lose it when he reaches his next anniversary in May.

“One of the things that is probably the most frustrating with Dynamics is in order to get the [new Solutions Partner] designation we would have to have 20 trained professionals,” said Paulson, who has a staff of about 50 between TrueIT and its spinoff, TruNorth Dynamics, a Dynamics consultant aimed at MSPs.

“You had to have the certifications across the board,” he said. “And that’s just not rational. Not rational at all.”

A Moving Timeline

Although various Microsoft executives repeated the October deadline for Partner Capability Scores during Inspire, a delay wouldn’t be a surprise.

In June, the tech vendor indefinitely delayed a plan to enforce the premium on renewals of Microsoft 365, one of multiple delays during the rollout of the partner program changes. Microsoft called the delay “a business decision” in an online post.

The delay came two weeks ahead of the deadline—still more lead time than Microsoft gave partners in March when it gave partners a reprieve for the overall Microsoft 365 and Office 365 price increase on the day it was set to go into effect. Microsoft at that time announced a two-week delay, citing “current high demand” to move customers onto NCE as the reason.

Even the start of NCE was pushed back from an original date in October 2021—about seven months after Clark replaced Gavriella Schuster as Microsoft channel chief.

Clark and his team had also added a discount for partners to effectively keep the 20 percent discount at bay until June 2022—pointing to the changes as signs to partners that Microsoft is listening to their concerns.

“I made a decision to actually push the launch of this from October to January just to provide more time for our partners to get ready,” Clark told CRN in February.

Some Partners Praise Changes

Prejean and Paulson’s experiences with NCE and the Partner Capability Score have differed from others in the Microsoft partner program. In CRN’s survey, 22 percent of partners said they are more or significantly more satisfied with Microsoft as a partner than they were a year ago, while 51 percent said their satisfaction level remains unchanged.

Take, for example, Tony Guidi, senior vice president of the Microsoft Partner Alliance at Indianapolis-based Microsoft partner Core BTS, No. 161 on CRN’s 2022 Solution Provider 500.

Core BTS is an Azure Expert MSP and a 2022 Microsoft U.S. Partner Azure Migration Award winner for helping customers migrate to the Microsoft Cloud.

Guidi put his team of 400-plus Microsoft architects and consultants to work as NCE unfolded, rewriting and retooling their internal system.

As a direct CSP partner, Core BTS uses its own tools to manage the business instead of a distributor as the smaller companies run by Paulson and Prejean do. Paulson uses Pax8 as a distributor, while Prejean uses D&H Distributing.

The Core BTS team met monthly with Microsoft employees directly to learn about immediate changes and the road map for changes to come. Over several months, Core BTS employees talked to more than 300 active customers in health care, financial services, retail and other industries to make sure each customer had the appropriate Microsoft license amounts and types—giving customers a mix of annual and monthly commitments.

“There’s complexity to migrating a whole portfolio of clients over to the new NCE platform, but we built out a very rigorous approach to it and have some operations people on our CSP team who’d been able to coordinate to be able to make that go as smoothly as possible,” said Guidi, a nine-plus-year employee of Core BTS whose resume includes more than 30 years of IT consulting and more than four years with Microsoft itself.

Guidi left Microsoft in 2013 as a territory manager for corporate account customers in southern Ohio.

Core BTS has not run into the same issue with bringing over a new customer during an annual commitment—as Prejean has—but Guidi said he believes most customers will stay with their MSPs and switch, if they want, on their anniversary dates.

He also hopes to see Microsoft add the capability to change channel partners, which the company allows for Enterprise Agreements—aimed at customers with 500 or more users or devices.

Guidi also praised Microsoft for the new Partner Capability Score, calling the change “overdue.” Some partners have succeeded in passing the exams for Gold and Silver competencies but don’t have the real-world experience to deliver, he said. The Partner Capability Score and the new solution area designations show customers that the partner has been vetted by Microsoft.

“Talking with leadership on the partner side of the [Microsoft] house, really part of this is to help clients easily understand what partners are qualified to deliver on a specific solution,” he said. “If a client is looking for a partner that is [in] app modernization, app innovation, there’s not really an easy way for them to determine by looking at competencies if a partner is really qualified.”

Right now, Core BTS has 16 Gold competencies and five advanced specializations. Guidi expects to qualify for five of the six solution area designations come October.

Microsoft Channel Consolidation On The Horizon?

Vince Menzione—who worked at Microsoft for more than eight years, leaving in 2016 with the title of general manager for partner sales and strategy and making CRN’s Channel Chiefs list multiple times—told CRN that he views the Partner Capability Score as Microsoft telling the largest partners where to invest in their Microsoft practices and turning attention away from the smallest partners.

“I think that Microsoft pivoted too much to the broad ecosystem of the 400,000” in the past, said Menzione, founder and CEO of Ultimate Partnerships, a Jupiter, Fla.-based consulting firm aimed at connecting ISVs with the channel.

“Microsoft loves everybody,” he continued. “It’s democratized. And it treats everybody the same. And so what’s happened is those [smaller partners] have gotten more disproportionate love than the focus on building the practice for an Accenture, Deloitte and all the big guys, which takes a massive amount of time, effort and money to do.”

He said he expects to see consolidation in the channel as a result of the partner program changes. “Microsoft is going to force some of the smaller guys to sell to the larger guys. I think you’re going to see more of that,” he said.

Sherman Crancer, president of consulting and partner development management at Irvine, Calif.-based Crancer Group—a consulting company that is aimed at helping Microsoft partners grow—called the new Partner Capability Scores “a culling of the herd.”

Crancer, who spent five years at Microsoft, leaving the company in 2019 as manager of the top 25 Microsoft partners across the Western region, said that the bar for Gold and Silver was “too low” in the past. “Silver and Gold competency doesn’t mean anything anymore because there’s just too many people who got it,” he said.

“Too many Gold partners were professing that they were excellent at implementing Azure solutions, and the results were many incomplete implementations that then focused the attention back on Microsoft. Implementations started lowering confidence in Silver and Gold standards,” Crancer said.

Some of Crancer’s MSP customers still have points to earn for new certifications. He’s come up with a strategy for partners to dedicate only a month for engineers to stop working on customers and get their new certifications—focus on Microsoft’s learning materials for one week, then take two practice tests each day of week two, three practice tests a day in week three, four tests in week four, then take the test.

To Crancer, Microsoft’s biggest flub in rolling out the changes was lack of communication and a long-time lack of help for partners who struggle with net-new customers.

“The uproar is based on change and then [partners] not understanding the change. And that’s where Microsoft tripped. They made both of them too abrupt, I think,” he said.

“If Microsoft could change, I think their messaging also needs to be about, ‘We’re going to make some changes, but let me explain to you, let’s really talk about how this is going to affect you financially in a positive way. Let me explain to you how you’re going to make more money here. Let me give you more about the benefits.’ I think that was lacking too. It was left to the machinations of people, which then [doesn’t work] because people like to go negative anyway. That just snowballs.”

Some Partners Soften Their Criticism

Some of the fiercest critics of Microsoft’s 2022 partner changes have cooled on their rhetoric.

In September, the monthly premium angered Bobby Guerra so much that the CEO of Jacksonville, Fla.-based Microsoft partner Axiom posted a petition to Change.org calling for Microsoft to revoke it. As of July, the petition had garnered more than 2,000 signatures.

In a more recent interview with CRN, Guerra said that more customers than he expected accepted the monthly premium or an annual commitment, paying the solution provider the money up front.

“This might sound surprising: It was a lot more profitable for us than we thought it was going to be,” Guerra said. “I was surprised. It was a lot more profitable because so many went for the monthlies.”

He is still incensed, however, at the rules around changing a customer’s licenses—upgrading customers to more expensive licenses appears easier so far than bringing them down, and his portal with distributor Pax8 won’t let him schedule license changes for the future.

The biggest help to Guerra in navigating the changes wasn’t Microsoft or even Pax8 employees, he said. It was fellow partners talking to him about their strategies—partners he met through peer groups.

“It would not be as bad if we knew the strategies and the right approach to handle this,” he said. “And we didn’t get any of that guidance. It was everybody in the community on our side for managed service companies just coming up with alternative ways of approaching this nut to crack.”

Guerra and his team of 12 employees—whose customers come from a variety of industries, including health care, construction and legal services—are now working on increasing their Partner Capability Score before the October deadline.

At the same time, he said he is interested in possibly adding a Google practice and is becoming better versed in Google’s products.

TrueIT’s Paulson told CRN in November that encouraging customers to take an annual contract over a monthly one was not in “the spirit of the cloud” because it took away flexibility in changing the number of licenses.

In a more recent interview with CRN, Paulson said that the NCE rollout “hasn’t been too much of a challenge for us,” gave him the opportunity to give customers better plans and did bring in some extra revenue -- “a few $1,000 a month in revenue, and then a few $100 a month in margin.”

But talking to customers about the price changes and re-quoting products made Paulson and his team feel as though they were reselling customers on products they already bought. Most of his customers, ones with stable employee counts, opted for annual commitments instead of month to month.

“I would say the trade was not fair,” Paulson said. But NCE “hasn’t been as big of a loss as predicted, so that part’s been nice. … I wish they would have picked a time when the rest of the world wasn’t exploding. But I get it. They probably had this change in the works for a long time and eventually it just had to happen.”

Even with the monthly premium and the new Partner Capability Score, Paulson said that he is not interested in switching to or adding a Google practice.

“At this point, we haven’t looked at Google,” Paulson said. “And even though Pax8 has rolled out AWS, we haven’t looked at AWS. There’s just so much more capacity left in Azure and in [Office 365] that, I mean, we still are on-boarding clients that don’t have O365, believe it or not.”

Robby Hill, CEO of HillSouth IT Solutions, a Florence, S.C.-based Microsoft partner, told CRN in November that customers would feel “alienated” by a push to annual contracts and that annual contracts go against the allure of flexible cloud computing.

In a more recent interview with CRN, Hill said he has changed his mind about annual contracts—even though he’s run into the same problem as Guardian Computer’s Prejean, the Microsoft partner who took on a new customer stuck in an annual contract with an old MSP.

“We’re optimistic about how it’s going to really help the partners at the end of the day because I think by handcuffing those end users to the partners, we all get to work together a little bit more in case there are any hiccups in the relationship where basically we’re stuck with each other,” Hill said.

Hill also said that prices going up in the U.S. helped give Microsoft some cover, with his customers unsurprised if they got a price increase and more willing to lock in their price for a year in case the cost of Microsoft products continues to climb. He did not see an increase in revenue due to NCE, he said.

His distributor, Irvine, Calif.-based Ingram Micro, was helpful in adopting the NCE changes, Hill said.

“We on-boarded a big corporate account earlier this year,” Hill said. “And our distributor was vital to winning the business, on-boarding the business and then now maintaining it by helping make sure we had all the resources we needed, including the best pricing.”

Hill also said he has no interest in adding a Google practice.

“We try to pull people off Google,” he said. “It’s unfortunate, but Google just doesn’t have a competitive product. And I think in this cloud, communications space, Microsoft really took the downtime during COVID and invested in their product. They’ve got a product suite here for communications and collaboration that is, frankly, unparalleled to anyone on the market and, basically, it’s priced right. So I just don’t see leaving the Microsoft ecosystem.”

‘A Positive Side’

Even Prejean’s frustrations with Microsoft haven’t pushed her so far as to explore other partner programs, although her customers have asked her about Google. In her opinion, Microsoft’s offerings have better features and security, she said.

In fact, Prejean’s plans for growing her business— which she founded in 1996 with her husband, John— include more investment in the Microsoft portfolio. Microsoft’s communications app, Teams, has proven popular with her customers. She’s also thinking of investing more in Microsoft’s Defender cybersecurity offering.

“There is a positive side,” she said. “Their products are all so well-integrated that we put up with all their humbug because they do have exceptional products.”

Even with the arrangement she came to—sharing a customer with its former MSP—she said she feels OK with giving up revenue for a new customer, calling the arrangement a “gentleman’s agreement.” Her only concern is security with the old MSP still having access to the customer and seeing a slowdown in responding to the customer’s needs due to having to work with another MSP.

When asked if she has a message for Microsoft’s new channel leaders, Prejean said, “Listen to the smaller MSPs. Simplicity is important to us.”

“With the NCE thing, if they would just work with us to tweak it a little bit, I think it would be a win-win,” she said. “And that’s the whole portability aspect, letting us take it from distributor to distributor, client to client, MSP to MSP. Just those three things would be huge.”