Options for Direct Bill CSPs with Microsoft’s New Requirements

Microsoft announced a performance standard for Direct-bill Microsoft CSPs.

This announcement has invoked a wide range of reactions from the partners in the Microsoft CSP program. Some partners are reassessing their business models, and others are doubling down on their plans.

Highlights of the announcement include:

  • Microsoft is introducing revenue requirements for the direct bill program. Partners who want to enroll as direct bill partners in the Cloud Solution Provider program must meet at least USD300K in Cloud Solution Provider program revenue during the 12 months before their  required support contract renewal date.
  • This requirement will go into effect in January for current direct bill partners, and partners will need to meet the requirements by their partner support plan renewal date.
  • If partners are not able or would prefer not to meet these updated requirements, they will need to re-enroll as an indirect reseller in the CSP program.

So, what are the options?

  1. Stay put and accelerate growth: If you are a direct bill CSP partner that is below the revenue requirement, here are a few specific considerations:
    1. Is this a strategic area of growth and how important is Azure revenue for your business? It is significantly more challenging to scale Azure through an indirect provider, so remaining a direct partner can make a big difference in your ability to sell and manage Azure billing.
    2. What does the financial modeling look like? There are additional systems that must be implemented and a system that must be setup, potentially costing additional resources.
    3. Is there is a roadmap and template to follow? If this is a strategic opportunity for your business, you can define the products and services and follow this sort of three–step process. You can also use co-op funds to finance these activities.
  2. Evaluate the right Indirect Provider(s) for you: Indirect providers will welcome you with open arms; however, they are not all the same. Here are a few elements to consider when evaluating an indirect provider:
    1. The big three Distributors provide a wide range of products and services, including hardware, software, and cloud services. The most comprehensive range certainly provides you a one–stop–shop, but your business needs focus and specialization. Some providers have expertise around specific product lines, and your account manager may have specific capabilities. Ultimately, the biggest may not be the best.
    2. Billing alignment will save you time and money. Understand how they invoice you. How will you invoice your customers, and will their invoicing process impact your billing process? These processes can be time–consuming and need to be automated as much as possible. Understand the formats of Azure consumption and license-based invoices. Using a billing automation system like Work 365 will significantly reduce this risk and effort related to billing. Some distributors provide pro-rated refunds on reductions; some offer a free month or a set of free days.
    3. Is there an integration available with your internal systems? Have you invested in a billing and provisioning system? Indirect providers will want you to use their portals to provision all their services. They believe it is difficult to transition services from one provider to another, so a lock–in is inevitable. They will also offer a migration service to move your services over.
    4. Financial impact and Margins are going to be critical to your decision. If you lose on the margin, you could still gain it back on the savings from the ASFP cost (15K/year). At the 300K threshold you could lose 5% of your margin and still arrive at breakeven – this is back of the napkin math. Also, you can manage and expand margins only when you have options in service providers. If you only provision through the distributor portal, it’s more difficult to bundle and even shop around.
    5. Support becomes vital during a service migration or when things break. Distributors sell their support services as a differentiator and it comes in the form of pre-sales and post–sales support. Distributors can be great sales partners and provide the pre-sales support; it’s when things break where they contact Microsoft behind the scenes to coordinate. The level of support and business you bring in will dictate the margin you receive.

Summary

As with many Microsoft announcements, this one takes some thought and evaluation. Re–investment of capital into your business in the form of automation can help your business achieve growth profitably. At Work 365, we understand navigating the CSP business. We have a passion for building solutions that help our users navigate these challenges now and into the future.