Microsoft increases cloud services margins

Partners will now earn higher margins for selling Microsoft cloud services, including Dynamics CRM Online and Business Productivity Online Suite.

WASHINGTON, D.C. -- Microsoft is greasing the skids to make it easier -- and more profitable -- for partners to sell Microsoft cloud services instead of their on-premise software counterparts.

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For example, Microsoft upped its partner margins on Dynamics CRM Online sales from 18% to 40%. (CRM partners bringing customers to CRM Online already get a 10% referral fee.) Microsoft is also giving partners that close Business Productivity Online Suite (BPOS) deals an additional 20% rebate on those sales.

Partners also get 250 free seats of CRM Online for internal use.

These increases build on the message Microsoft channel people have been bringing to partners for the past few months: Don't worry about selling on-premise software. Focus on Microsoft cloud services.

The feeling here at the Microsoft Worldwide Partner Conference 2010 was that the company has shifted its mantra from "software plus services" to "services plus software." And, as any businessperson can attest, sales staff will sell what they're compensated for.

"Salespeople are coin operated," said Don MacNeil, CEO of Strategic SaaS LLC, a Houston-based company specializing in online services sales. "While everyone wants an annuity, salespeople want something right away."

Cloud is totally the direction they're going in.
Linda Rose
Rose Business Solutions

That can put partners in a bind, because they bill out monthly but have to cover that sales money up front, he said.

Microsoft cloud services shift gains momentum

As everyone knows, Microsoft is paranoid about Google and its success in offering free (or near-free) email and desktop application services. Microsoft executives have finally acknowledged that the company's on-premise business must take a backseat to its cloud efforts.

"Cloud is totally the direction they're going in," said Linda Rose, CEO of Rose Business Solutions, a San Diego-based Microsoft partner.

Rose said Microsoft reps have pushed this message to partners -- many of whom worry about disintermediation in a world where services flow from vendor data centers to customers. Microsoft has to reassure partners that there is a business model for them in this cloud universe.

Even before instituting these changes, Microsoft had some success winning over potential Google defectors. MacNeil said his company logged several BPOS take-backs from Google, including one site with 130 users.

"We've gotten quite a few customers who went to Google Apps, took a good look and bought BPOS," said a San Francisco-area integrator who declined to be named.

A lot of the Google Apps users out there didn't legally license Microsoft Office anyway, this partner said, adding, "I think they're pirates."

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.

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