Microsoft tries to sweeten Office 365 deal for partners

The company wants to make Office 365 easier to sell and more profitable for partners

Microsoft is modifying its Office 365 sales agreement with partners to motivate them to push the product more aggressively, the company announced on Monday.

Microsoft wants to make Office 365 easier to sell and more profitable for its partners, said Kurt DelBene, president of the Microsoft Office Division, at the company's Worldwide Partner Conference in Toronto.

The changes have been prompted by feedback from partners. "[They] aren't shy, they like to tell us what's working and what we need to improve on," said DelBene, during a keynote speech that was webcast.

To that end, Microsoft will let partners bill their customers directly for Office 365, and bundle in a single invoice complementary services they provide in addition to the price of the software. This will be possible via a new initiative called the Office 365 Open Program.

This new Office 365 Open Program is aimed at traditional Open Volume License Resellers, which buy software licenses up front from distributors for products like Exchange and SharePoint and then resell them directly with a markup of their choice to their customers.

"This lets these partners sell Office 365 in the same way they sell other Microsoft products," said Kirk Gregersen, general manager of the Office Business Division, in an interview after the keynote.

In addition to the new program, Microsoft is boosting the potential first-year commission for partners that market Office 365 through an existing program called Advisor, in which Microsoft bills the customer directly and gives partners a commission.

Until now, these partners have gotten an 18 percent commission on the first year, and a 6 percent recurring commission in years two and beyond. Now, Microsoft is modifying this so that they get a 16 percent commission, plus up to 7 percent more based on volume, for a potential 23 percent commission in the first year.

To get the extra 7 percent commission, partners need to sell 2,500 seats or more, Gregersen said. They get 6 percent for 500 to 2,499 seats and 4 percent for 150 to 499. They get no additional commission beyond the 16 percent for 149 seats and below. In years two and beyond, the recurring commission is 4 percent for every partner.

"As you bet on us, on the success of our product, we reward you with an additional margin there," DelBene said during the keynote.

The changes seem like a good move for Microsoft, said Melissa Webster, an IDC analyst. "Margin and account control have been the two areas where partners have had the biggest concerns," she said via email.

"The billing change -- allowing partners to bundle Office 365 licensing fees in with their added value services -- should be very welcome. Partners have to worry about retaining account control, especially as cloud services replace many of the added value services they have provided in the past," she added.

Microsoft CEO Steve Ballmer, who was on stage with DelBene, said that the company is working on new capabilities for Office 365, including ways to make it easier for partners and their customers to deploy it.

"Office 365 will be as dynamic a product as Microsoft has ever done in terms of new capabilities coming to market," Ballmer said.

Office 365, a cloud collaboration, productivity and email suite, was launched about a year ago, but Microsoft hasn't yet given hard data about its adoption and revenue.

Microsoft has been vocal about announcing major customer wins for Office 365, and said that it is on track to become one of the "fastest growing offers" ever for the company.

Office 365 is available in a variety of configurations and bundles, each priced on a per-user, per-month or per-year subscription model. Most bundles include online versions of Office, Lync, SharePoint and Exchange.

It is an extremely important product for Microsoft because it lets the company offer customers who have Exchange, SharePoint, Lync and Office the option of using those products via a cloud model.

Critics have said that it took Microsoft too long to come out with Office 365, which competes with Google Apps, a similar suite that has been available since 2007, and with other cloud products.

Prior to Office 365, Microsoft had a variety of cloud suites like Business Productivity Online Suite (BPOS), Office Live Small Business (OLSB) and Live@edu that lacked the functionality and cohesion of the new suite.

Over the past year, many BPOS and OLSB customers have complained that the transition from the older suites to Office 365 was rocky and complicated for them. Because Office 365 is designed to work in hybrid environments so that it can interact with on-premises software from Microsoft and other vendors, it often requires customers to upgrade PC and server software.

A main goal of Office 365 is to prevent Microsoft collaboration and email customers from switching to Google Apps and other competing cloud suites.

Neither Ballmer nor DelBene provided specifics about Office 365's performance in the market, nor did they give details about Office 15, the next major upgrade to the Office products on-premise and in the cloud.

They reiterated that Office 15 is a major undertaking and that it will involve upgrades to the Office productivity applications like Word, Excel and PowerPoint, to the email and collaboration products like Lync, SharePoint and Exchange, and to Office 365.

Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

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Copyright © 2012 IDG Communications, Inc.

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