Microsoft to Partners, "The Free Rides are Over!"

Jul 7, 2019

The news media and investor market is certainly embracing the "Softer" side of Microsoft introduced since the appointment of Satya Nadela as CEO. While the company's stock is at an all-time high, it seems Microsoft's network of Partners are being gradually introduced to a new "Harder" side.

Update: You can still read this, but Microsoft reversed this decision.

Partners Pummeled

In recent months, partners have seen a continuous barrage of changes that are catching most off-guard. Many have described some of these changes as types of "Partner Taxes". For example:

• Mandatory, but unnecessary, requirements to purchase Advanced Support for Direct CSP Partners (Minimum $15K/yr)
• 10%-20% of ISV's Revenue to now be shared with Microsoft
• The elimination of Internal Use Rights licenses (IUR), as I was the first to tweet about last week.

Add to these, recent changes to the Competency Requirements, tripling the number of certified individuals. It all has a lot of partners wondering... WTF! Let's break it down.

The Purge

What most of these things will have as a common result, is a reduction in the number of partners. Fewer Direct CSP Partners, fewer Gold Partners, fewer Silver Partners, fewer ISV Partners... fewer partners across the board. It seems that Microsoft is struggling with how to achieve a new goal: dramatically increase the "Quality" of partners in their channel. One part of reaching that goal, is reducing the "Quantity".

Quality Partners

Ask 20 partners what defines a "Quality Partner", and you'll get 20 answers. But none of them matter, because the definition of a "Quality Partner" is determined by Microsoft, and always has been. Over the years, Microsoft's own definition has evolved, along with changes in technologies. A "Quality Partner" ten years ago, may well be an irrelevant partner to Microsoft today. Irrelevant partners aren't removed from the program, they're just ignored.

This is not on Microsoft, this result sits squarely on the shoulders of the partner who did not evolve. Over the years Microsoft has increased the number of their partners significantly, but today they actually see many of them as irrelevant, serving only to boost numbers on brag slides. So why not just remove them from the program? Re-read the first paragraph if you don't already realize that's what's happening.

Beauty is in the Eye of the Beholder

So what is a "Quality Partner" to Microsoft... today anyway. This will vary significantly from one internal group to another, but it does seem that there are some common themes. The first is that they are usually big. Big partners sell big deals, small partners sell small deals, simple. There are exceptions, small partners that somehow sell big deals, or small partners that sell big logos. Microsoft's only interest in small partners is whether they have the potential to become big partners... soon... and most do not.

This is not Microsoft's fault, they are not a charity organization. With success on Wall Street, comes extreme pressure to increase that success, this is all new to Microsoft, but clearly small partners won't cut it. Big is not the only metric, in addition to that, the partners have to be selling the right things, like Azure. If you are not selling Azure today, your relevance to Microsoft is significantly diminished. Again, Microsoft's Azure Powered Cloud is the force-multiplier on their stock value, and there will be no re-trenching.

Irrelevance?

So, if big Azure selling partners are the holy grail, are all others irrelevant? Not "irrelevant", just "less relevant". Out of Microsoft's 120,000+/- employees, a percentage of them do not have Azure as their highest priority. Although, if you followed the string connected to whatever their priority is, it often eventually leads to Azure, down the road or behind the scenes. If you look at the intentional "culling" efforts underway, it is fairly clear that Big Azure partners are immune.

Second to the last Partner Standing

If you are not a big Azure selling partner, and you are not able to become one, what is your next best option to remaining or becoming relevant to Microsoft today? You better follow the bouncing balls. Today, it is not important "how" good you are, what is important is "what" you are good at. On my side of the Microsoft house (Business Applications), you better be good at verticals, and migrating customers off of competing solutions. And, if you're not racing towards the Power Platform, you're racing towards irrelevancy. Whatever part of Microsoft's business you're in, you better be listening to their signals. Your agreement with the directions they take is not relevant.

Effects of Motions

Let's look at what I think the effects will be of some of these recent motions:

1. Increasing the number of required Certified individuals for a Competency. This will dramatically reduce the total number of partners with competencies. Many Gold Partners will become Silver Partners, and many Silver Partners will simply fall off. Is it fair that Microsoft has decreed that your "Competency" with a product (which the dictionary defines as "the ability to do something successfully or efficiently"), is specifically proven by the quantity of certified people you have?
2. Advanced Support Requirement for CSP Partners. Clearly this is Microsoft fixing their own mistake. In their zeal to grow this program initially, they lowered the bar to entry for Direct CSP partners. The predictable result was too many partners who were not qualified or capable of managing and supporting the Direct CSP arrangement. Coincidentally, the vast majority of those were small partners, and what's the best way to shake off a bunch of small partners? Add a significant new cost. It has the added benefit of not appearing like Microsoft took anything away... small partners removed themselves!
3. ISV Revenue Sharing. I already wrote at length about both sides of this coin here and here.
4. Elimination of IUR benefits. This will primarily impact smaller partners, who we have already determined are less relevant anyway. I expect there will be a lot of noise from those small partners, but if a tree falls in the woods... Microsoft won't hear it. This one has some fairly clear motivation behind it. Back in the day, IUR meant giving you a license key to on-premise or desktop software. It may have been foregone revenue, but at least there was no cost to Microsoft. Today, most of the IUR benefits are not free to Microsoft... they have a cost. Imagining the number of IUR services activated across their huge network, this cost is significant. Eliminating this benefit will have the dual effect of reducing costs, and increasing revenue... and who doesn't want that?

What does it all mean?

If you thought, with the dramatic and rapid evolution of Microsoft from near irrelevance, to the most valuable company in the world, that your life as a partner would remain unaffected... well then you're just a moron. Like Microsoft, you also have to let go of the past. All the old "favors" you racked up, have no value today. The cronies that protected you, are all gone. All of your storied history with Microsoft... pfft!

What have you done for Microsoft lately? That is all that matters, and frankly, all that should matter. Microsoft is "Culling the Herd", which by definition means "Literally, to separate or remove (and usually kill) inferior animals out of a herd so as to reduce numbers or remove undesirable traits from the group as a whole."

To me, this sounds like exactly what's happening...