Microsoft Office 365 Cloud Billing Policy: An Update

Microsoft Office 365 Cloud Billing Policy: An Update

At Microsoft Worldwide Partner Conference 2011 (WPC11), the software giant has successfully communicated momentum on a number of fronts -- everything from Windows Azure adoption to Windows 7 deployments. But there's an elephant in the room for some MSPs. At times I've ignored it, minimized it and turn away from it. Still, there's no denying that Microsoft's cloud billing policies continue to annoy some very influential managed services providers (MSPs) here at WPC11.

Instead of sensationalizing the situation I hope I can keep it in proper perspective. There are roughly 12,000 Microsoft channel partners here at the conference. Earlier today, Microsoft COO Kevin Turner wowed attendees with a keynote that directly attacked such rivals as Cisco Systems, Google Apps and Oracle's Siebel business. Turner was on message. Moreover, Microsoft Channel Chief Jon Roskill has successfully communicated progress on a number of fronts, including growing momentum for Microsoft's Cloud Accelerate and Cloud Essentials partner programs. For the most part, the energy is positive here at the conference.

Still, there's that elephant in the room: Microsoft's Office 365 cloud billing policy. Generally speaking the strategy goes something like this:

  • Microsoft won't let most channel partners directly bill customers for Office 365 and other cloud services.
  • Large service providers are permitted to handle billing if they mesh their own services with Office 365. I believe many of those service providers use Parallels software as part of a so-called Office 365 syndication strategy.
  • Small MSPs can turn to third-party hosted Exchange providers to brand and bill various Microsoft cloud applications as their own.

That Horse Ain't Dead

Overall, I suspect the vast majority of Microsoft's partners -- say, 95 percent or more -- are fine with Microsoft's cloud billing policy. If fact, many VARs prefer to have Microsoft automatically manage customer billing. But the five percent who don't like the policy are vocal, influential, smart and stubborn (in a good way). Most of the billing policy critics are successful MSPs who (A) already mastered recurring revenue models and (B) want to maintain close relationships with end-customers.

The cloud billing debate has popped up every few months. Most of the major channel media sites, including ours, have covered the issue to death. But apparently, the dead horse ain't dead. Sources say many members of the Microsoft channel team want to offer partners a way to manage cloud customer billing. But those sources indicate that either (A) the Microsoft Online Services team or (B) Steve Ballmer himself has no such interest in offering that capability.

The Google Factor

Adding fuel to this small but significant fire: Google allows partners to manage end-customer billing for Google Apps. Some critics think Google Apps is free with very little channel influence. I claim otherwise. The Google I/O conference attracted 6,000 attendees earlier this year. My best guest: Most of the Google I/O attendees were age 25 to 30, and a good number were MSPs and channel partners -- young, next-generation channel partners and ISVs that Microsoft needs in its camp.

To reiterate: I suspect 95 percent or more of Microsoft's channel is fine with Microsoft's current cloud billing policies. And no doubt, many Microsoft partners are pushing beyond Windows and Office to eagerly promote Lync, SharePoint and Dynamics CRM. But at managed services gatherings here, the Office 365 cloud billing policy issue won't go away. MSPs have hit my inbox at least five times daily, asking me if I think Microsoft will change the policy here at WPC11.

Generally speaking, I think Microsoft continues to underestimate the influence of successful MSPs. Those MSPs network like crazy, they share best business practices, they drive social media discussions -- and they're passionate about customer control. And by the way, many of those MSPs are the first channel partners promoting cloud computing to SMB customers. And the MSPs are profitable, which means they have staying power.

A prime example: During the IT Nation conference attended by more than 1,000 people last October, one of Canada's largest and best-known MSPs stepped onto the stage and offered this guidance to peer MSPs: He will only partner with cloud companies that permit him to manage end-customer billing. The Canadian MSP demands that cloud vendors guarantee -- perpetually, in writing -- that partners will retain the right to control end-customer billing.

Influential Perspectives

So, where does that leave us? I reached out to HTG Peer Groups Founder Arlin Sorensen for his perspectives on the WPC11 conference -- what trends did he notice? I didn't mention the cloud billing debate. But his reply to me was telling. Sorensen works successfully with Microsoft on a number of fronts. But billing was on his mind:
"Microsoft has to fix the online billing model before partners will embrace their solution in the MSP space -- lots of people are talking and many at Microsoft are listening and starting to understand the pain.  The question is whether -- as KT [Microsoft COO Kevin Turner] said in his keynote -- they will actually execute on that requirement.  It doesn't matter to many partner types but as you know it is critical to the MSP business model..."
Again, let's keep this in perspective. Sorensen isn't trashing Microsoft. HTG Peer Group members partner successfully with Microsoft in multiple areas. A bunch of members, in fact, tell me they're taking a really close look at Microsoft Lync opportunities. Others are expanding their use of SharePoint, both internally and across customer settings.

Overall, I think Microsoft's channel partners are impressed with WPC11. But for some very influential partners who are looking at cloud computing, the elephant in the room remains.

Bottom line: It's time for Microsoft to shoot the elephant and give influential MSPs what they want: The power to control end-customer cloud billing.

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