Google Workspace Partners Distraught Over Renewal Margin Cut, Effective April 1

“We’ve been with Google for 15 years now, and for the first time ever we’re now at a negative as of April 1. That’s the impact of Google’s shift here. And with only a 30-day notice to us—it’s insane,” says one top executive from a Google Workspace partner.

Many Google partners are fearing for their business following the tech giant’s decision to cut Google Workspace renewal margins by 40 percent in a move solution providers said will significantly cut into their profits.

Effective April 1, the changes set channel margins for Google Workspace renewals at 12 percent, down from 20 percent previously, as the company aims to shift its focus toward closing new business, solution providers said.

“This is not just a 40 percent cut to some margin that’s a small part of the business, this is a 40 percent cut to our bottom line,” said one longtime Google Workspace partner, who asked not to be identified. “We’ve been with Google for 15 years now, and for the first time ever we’re now at a negative as of April 1. That’s the impact of Google’s shift here. And with only a 30-day notice to us—it’s insane.”

Partners argue that the roughly one-month notice from Google on the renewal licensing change will dramatically impact profitability for Google Workspace resell partners.

“This is going to cut our profits in half,” said one U.S.-based Google partner, who did not want to be identified. “Google is using the stick instead of the carrot to get partners to focus on net-new accounts rather than renewals. But what Google is doing is [depreciating] the long-term value of our client relationships. We are adapting to this, but for some small partners this is an existential moment. I think some partners, because of the size of their business, will not survive this.”

[Related: ‘AI Is Google’s Birthright’: Google Cloud’s Partner Leader Explains AI Gameplan]

In a statement to CRN regarding the matter, a Google Cloud spokesperson said, “We’re growing our rewards for partners overall to help them address the significant opportunity to deliver high-value services in areas like generative AI, cloud migrations, and data analytics and Google Workspace.”

Google Is 'Changing The Chemistry'

Some Google partners see the change as typical of vendors today putting channel dollars into driving customer growth and new value over renewals.

“Google desires growth in their consumption and expansion in share of wallet. The new incentive structure is designed to reward partners on those growth metrics,” said Sanjay Singh, CEO of Google partner Onix, which is one of largest Google Workspace partners in the world. “The margins on a transactional relationship without any value creation is being reduced and that will impact partners who are primarily renewals focused without end-to-end services capabilities.”

Singh said fellow Google partners “can argue about the way it was implemented—the 30 days and all of that, that’s a fair argument—but principally, we don’t see this as a negative motion.”

“Even with this cut of 8 [points of margin]—which is not a small cut, it’s certainly a significant cut—Google is still the best in class in the industry,” Singh said. “Google has come a long way from where it was in the initial days to now they’re looking for partners to solve complex problems. … They are not reducing the amount of funding in the channel; they’re changing the chemistry.”

Carrie Steyer, chief customer officer for Google partner 66degrees, said the 40 percent margin cut “is not as painful” for her company because of the additional rebates and incentives Google is pouring into the channel around new client wins and growth.

“These changes require us to focus on growing our client base and growing consumption within our clients,” Steyer said. “In doing those two things, we will align not only to Google’s goals but our own as well.”

Google’s Workspace portfolio includes Gmail, Meet, Drive, Docs, Sheets, Slides and some generative AI features.

40 Percent Partner Margins For New Workspace Customers

Google sources familiar with the matter told CRN the move to reduce Workspace renewal margins was made to shift more partner funding toward new customer wins. Google is shifting away from up-front discounting toward more consumption-based incentives. The company is striving to encourage partners to win new business and grow their customer base instead of relying on re-signing Workspace renewals contracts every year.

Some Google partners said the 8-point margin cut on Workforce renewals is understandable since Google is providing heavy incentives—around 40 percent margins for one year—when a partner wins a new Google Workspace logo.

“So imagine if you book a $10 million deal for a year, you make $4 million, which is very significant,” Onix’s Singh said. “And that’s on top of your resell margin, by the way, because it’s stackable. So you will get your partner discount, and on top of that, you get a 40 percent rebate for year one.”

One Partner: Google Thinks We’re ‘Being Lazy’

Although distraught partners say they understand what Google is trying to accomplish by slashing Workspace renewal margins in favor of net-new business incentives, some say Google simply doesn’t understand the renewal market.

“We all know they’re trying to incentivize growth and upsell of Gemini and upgrades and all that kind of stuff, but it comes back to not understanding what partners are doing,” said the longtime Google partner. “There are a ton of partners who are retaining a Google Workspace customer against a competitive threat from Microsoft. So that’s the misunderstanding of Google thinking, ‘Google partners aren’t doing enough. They’re being lazy so we need to incentivize them with this change.’ They don’t see the customer retention fight happening already.”

Furthermore, some partners say Microsoft 365 has caught up to Google Workspace features in collaboration and communication over the past several years.

“Thanks mostly to [Microsoft CEO] Satya Nadella, Microsoft closed the gap on Workspace. He brought about Teams, and communication/collaboration became their focus, and Microsoft caught up with them,” said one Texas-based Google partner who asked not to be identified. “The difference between Microsoft and Google now is nothing really. It’s like Apple and Android. There aren’t these incredible collaboration capabilities you get in Google and not Microsoft. So the sell for Google Workspace is much harder than it used to be.”

For incumbent Microsoft customers, getting them to move to Google is difficult because Teams does enough to satisfy most Microsoft clients.

“It takes passion and dedication to sell Google Workspace—that’s why we needed the 20 percent [renewals] margin because it would sometimes take six months or 12 months to get a customer to come over to Google,” he said.

Onix’s Singh argued the battle to win over Microsoft customers isn’t due to technology comparisons, but Microsoft’s licensing tactics.

"It's certainly an uphill battle because of the install base of Microsoft in almost every enterprise," said Singh. "Technologically, there is no clear advantage for Microsoft and with the integrated Google stack, Google customers can gain significant benefits. To unlock this possibilities, Google is offering higher incentives and rebates for partners to help us drive market success."

Google Workspace With Gemini Versus Microsoft 365 With Copilot

Since 2023, both Google and Microsoft have come out swinging on the AI front. The two companies have poured billions of dollars into building new AI and generative AI capabilities that are being injected into Google Workspace and Microsoft 365, respectively.

These Google Workspace renewal cuts come as Microsoft 365 with its AI Copilot portfolio aims to position itself as a more attractive alternative than Google Workspace with its AI Gemini portfolio.

Google sources told CRN that Google believes competitors’ renewal margins, like Microsoft 365, are more in line with its new 12 percent Workspace renewal margin.

CRN spoke to several Microsoft partners who said Microsoft 365 margins when buying direct from Microsoft, compared with a Microsoft distributor, range from anywhere between 8 percent to 20 percent on renewals. Microsoft Copilot margins, meanwhile, can range from 8 percent to upward of 16 percent margin. That does not include Microsoft back-end incentives.

“Google thinks by making this change they’re going to make people sell more Google Workspace, but they’re not because they’re making Workspace now less valuable for partners,” said the longtime Google partner. “The 20 percent margin was what was needed in order to make it worthwhile to sell Workspace.”

Some Workspace Partners Eyeing A Switch To Microsoft 365

Furthermore, partners of the $37 billion Mountain View, Calif.-based Google Cloud said they’re looking potentially to switch from selling Workspace with Gemini AI to offering Microsoft 365 with Copilot.

“I do not want to sell Microsoft, but now I’m considering it. Why? Because my company needs to stay alive,” said the longtime Google partner. “Google is wiping millions and millions and millions [of dollars] off partners.”

In fact, one partner said he’s preparing a webinar for his clients with direct comparisons to Microsoft 365 with Copilot versus Google Workspace with Gemini.

“For customers that are wondering if they should stay with Google or shift to Microsoft because of Copilot, we want to remind them that we support both of those products,” said the U.S.-based partner. “I would rather have them pay me to move them to Microsoft than go to a competitor for Copilot. My priority is keeping my customers well-supported. That is more important to me than keeping them on Google Workspace.”

Thirty-Day Notice ‘Is Just Bananas’

Nearly every partner CRN spoke with agreed that the 30-day notice to partners regarding the 40 percent margin cut on Workspace renewals wasn’t the way Google should have implemented the change.

“If Google was like, ‘We’re going to do this over 12 months or 18 months,’ we could have a conversation about it. But to do it in 30 days is just bananas,” said the longtime partner. “No business can pivot in 30 days, it’s impossible. So either businesses start to lose money, or will start to close within six months, or will start to eat into their savings.”

Google sources told CRN that Google has been making its partner ecosystem aware of its plans to push new customer logos versus renewals for the past few years.

“I told Google, ‘Guys, you should have told us during our annual planning cycle about this. Right now, this is coming in the middle of the year.’ So they could have timed it a little bit better, that’s for sure,” said Onix’s Singh. “But to be fair to Google, they have been giving this warning for two years. It was coming, but none of us knew how fast and furious it would come.”

Some Partners Fear Future: ‘We Feel Betrayed’

Although some partners are bullish about Google putting channel incentive dollars toward new customer logos versus renewals, others feel that the financial rug is being pulled out from underneath them with profits plummeting.

“For us as a business, we’re half a million dollars down in terms of profit that we use to pay our bills [because of the renewal margin cut],” said the longtime partner. “We’re lucky in some sense that we have some savings and we can survive this and pivot to other things. It’s going to cost us money, but there are other partners that don’t. Google has just destroyed the business overnight.”

This hits home to some Google partners because they said Google has never really touched its partner renewal margins before.

“People can say, ‘Well, you should know Google might do that. Partners sell the water, Google owns the tap.’ That’s always been true, but they’ve never touched our margin,” he said. “We’ve been a Google partner since the inception of the partner program for over 15 years, and they have never really changed margins.”

The Texas-based partner said Google is strongarming his company to shift its business quickly with these moves.

“They’re saying, ‘We’re going to take away 40 percent of your renewal business, so you have no choice but to bring in new business or you’re closed,’” he said. “And to force that change in 30 days, that’s the thing that feels so disconnected from everything. We feel betrayed.”

However, not all partners feel that way.

“Google is actually putting more money in the channel if you sell ‘A’ ‘B’ and ‘C’, which is what they want to promote, so partners will make 2X or 3X more margin than they used to make before,” said Singh. “That’s the whole mantra, ‘Drive work for me, and we will take care of you handsomely. But if you’re in the business of just renewing the same paper and not going giving us growth—we will still honor you, but your margins will lower.’”