8 Microsoft Channel Cutbacks That Made Partners See Red

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Microsoft says it's not reducing its channel investments, despite Office 365 incentive changes going into effect later this month that will put a big dent in some partners' profitability. In fact, Microsoft says it invests $2 billion annually in channel incentives, and cloud incentives will double year-over-year in terms of dollars and as a percentage of the overall incentives mix in fiscal 2014.

Yet in the past year or so, some partners say there's a trend of Microsoft making changes to its channel program that resemble cutbacks. Some of these changes are minor ones, while others stand to affect a large portion of the Microsoft partner base. While Microsoft would argue that it's not cutting back on the channel, partners say there's plenty of evidence to the contrary.

There aren't many enterprise vendors with a better channel track record than Microsoft. But as the cloud continues to disrupt traditional business models, Microsoft is making adjustments to its channel program, and following are 8 examples.

8. Limits On Phone Support For Partners

In November 2013, Microsoft began limiting the number of business-critical phone support incidents for Gold and Silver partners. For Microsoft's competency partners, the limit is now 15 incidents for Gold partners and 10 incidents for Silver partners, according to a Microsoft document viewed by CRN. Microsoft Action Pack subscribers did not see any changes to their business-critical phone support limits.

Microsoft, in the document, said partners can get free support from its Partner Support Community. Or they can use their advisory hours to get training from "experienced Microsoft technical consultants." If partners need more support than that, they can buy Premier Support for Partners plans, Microsoft said in the document.

One partner told CRN Microsoft's Office 365 support has been watered down significantly. "It's to the point where it's no longer truly escalated," the partner said. "They originally promised level 3 only and that all personnel would be Microsoft employees. That isn't true anymore."

7. Retiring Small Business Specialist Community, Ditching Small Business Server

In November 2013, Microsoft also retired its Small Business Specialist Community (SBSC), a partner organization formed in 2005 to focus specifically on small businesses. That means partners can no longer take advantage of SBSC-specific enrollment, branding and benefits.

In its place, Microsoft created the Small Business competency in the Microsoft Partner Network. Microsoft also discontinued development of its Small Business Server product last July and began steering partners to Windows Server 2012 Essentials.

Microsoft says it's working on a partner-to-partner community for small business partners and will share details sometime this year, but it's fair to wonder if partner enthusiasm in this segment will ever return to its previous levels.

6. Shutting Down TechNet Subscriptions

On Aug. 31, Microsoft stopped selling TechNet subscriptions, which for years were a popular way for partners to test out a smorgasbord of Microsoft software without having to pay full price for the licenses.

While software piracy has been an issue with TechNet in the past, Microsoft said that wasn't the primary reason for its decision to shut down the service, which cost $199 annually. Microsoft is keeping its MSDN subscription, which is similar to TechNet but costs $699.

5. Cutting Large Account Reseller Incentives

Microsoft is cutting fees for large account resellers (LARs) by 1 to 2 percent in fiscal 2014, which ends June 30, sources told CRN recently. Microsoft, which now refers to LARs as licensing solution providers (LSPs), didn't deny the cuts when CRN asked for comment earlier this month.

The problem with this is that LSPs are now going after other partners' deals to make up for the shortfall, including the partner-of-record revenue that partners get from selling Office 365 to enterprises. That's causing chaos in the channel, but Microsoft says it's not going to get involved.

"We don't want to dictate to a partner the scope of business they can provide to customers," Stephanie Rodriguez, director of channel incentives in Microsoft's Worldwide Partner Group, told CRN earlier this month. "We certainly don't want to be a referee in the market, deciding which spot they sit in and what customers they can talk to."

4. Holding Back Windows 8.1, Server 2012 R2 RTM

Microsoft angered developers and irritated partners in August by not giving them access to the release to manufacturing versions of Windows 8.1 and Windows Server 2012 R2, as it had done previously. After a backlash, Microsoft changed its mind, but partners were still bewildered by the move.

This wasn't a channel cutback per se, as partners interpreted it as part of Microsoft's attempt to be more secretive about its product plans. Still, it was the sort of move that had partners wondering if Microsoft cares more about being like Apple than it does about disrupting their businesses.

3. Shutting Down Solutions Incentive Program

Microsoft shut its Solutions Incentive Program (SIP) on Dec. 31, putting a major -- if not unexpected -- crimp on partner profit. Under SIP, which launched in 2011, partners could register deals and get up to 30 percent extra margin provided they held Microsoft Partner Network competencies for the products.

Some partners had hired entire departments of employees to process SIP rebates. Now they're laying off these staff members. "There are no more registrations to get rebates on. With the SIP program gone, we're not getting the payments we used to," one partner told CRN earlier this month.

2. Office 365 Incentive Changes

Starting Jan. 25, Microsoft is changing how it awards incentives in its Advisor Enterprise Agreement Deploy program, with incentives slated to drop up to 40 to 50 percent for some partners.

Partners that sell Office 365, Exchange Online and other Microsoft cloud services were especially upset that Microsoft only gave them 30-days' notice when sales cycles for these services can take up to six months.

Microsoft says its incentives change all the time and are driven by business decisions to drive demand for certain products. That's fair enough, but for partners that were relying on the Office 365 incentives to make the transition to the cloud, the path just got a lot harder.

1. The Surface Channel Snub(s)

By this point, all Microsoft partners know what went down. First, Microsoft unveiled a cool new tablet-notebook hybrid called Surface that marked the software giant's entry to PC hardware. Then Microsoft touted Surface as a device that would unite work and play like no other tablet on the market.

Microsoft partners thought this sounded great but were shocked when Microsoft revealed its intention to only sell Surfaces through retail. Later, after dismal sales figures began trickling in, Microsoft decided to open Surface sales to the channel. Whoops! Not really. Actually, Microsoft only extended this privilege to a handful of large account resellers.

Microsoft last month extended feelers to a wider range of partners to gauge their interest in selling Surface. But at this point, after all the channel snubs, it's debatable whether partners are still interested.