COLUMN: Google’s Gemini AI Squeeze Play

CRN's Steve Burke says a short-sighted decision by Google Cloud to cut Gemini AI Workspace partner margins will hit solution providers hard.

Compensation drives behavior. Nowhere is that maxim more painfully felt than in the channel.

That certainly will be the case with Google Cloud, which has cut Google Gemini AI Workspace partner margins at a time when channel sales and technical resources are required to accelerate customer AI adoption.

To put it bluntly, now is not the time for vendors to be short-sighted with regard to AI profit margins and sales incentives for partners. Instead, it is the time to double down to capture AI first-mover share gains. That’s why it is so disappointing to see Google make such a huge strategic product shift with what appears to be little concern for the channel impact.

The channel margin squeeze came with Google’s decision to include Gemini AI as a standard part of its Workspace productivity suite instead of as an up-to-$30- per-user, per-month add-on. At the same time, Google also increased prices across the board for Google Workspace subscriptions. Prices for annual and fixed-term subscriptions increased by up to 22 percent.

That comes on top of a Google decision last year to cut channel partner margins for Workspace renewals from 20 percent to 12 percent, representing an approximately 40 percent margin cut.

No matter how you add it up, the strategic shift means lower software licensing margins for partners.

All of these changes come with Google in the midst of an AI market share-battle extraordinaire with its much-more-channel-savvy rival Microsoft. Microsoft, by the way, continues to offer Microsoft 365 Copilot through the channel as a separate $30-per-user, per-month subscription for M365 business and enterprise plans.

Google, for its part, told CRN in an email that “AI is foundational to the future of work and its transformative power should be accessible to every business and every employee at an affordable price.”

Partners, of course, agree. But the decision to lower software licensing margins on Gemini hits partners in the pocketbook at a time when they most need the margin and sales incentives to drive Gemini adoption.

One partner that appears to be feeling the margin pressure is Google Cloud-focused solution provider SADA Systems, which in January conducted layoffs across various departments in North America. Among those laid off, according to LinkedIn posts, were a director of Google Cloud business development and a senior Google deployment engineer.

Google told CRN that the company is “excited about the enormous value that our simplified Workspace pricing will deliver to customers, which allows partners to focus on driving adoption for AI-powered workplace tools and creates much larger, strategic revenue opportunities for our ecosystem.”

But before partners can focus on driving adoption for AI-powered workplace tools and the much larger strategic revenue opportunities, they need to sell Gemini.

The bottom line is this is going to result in partners shifting sales and technical resources from Google to Microsoft Copilot. That surely cannot be the kind of result Google was looking for.