How will changes to the CSP program impact Microsoft Partners?

Last year, Microsoft announced the New Commerce Experience (NCE) model for Cloud Solution Providers – for Microsoft 365, Dynamics 365, and Power Platform subscriptions – building on the transition that Azure has made over the last couple of years.

As you'll be aware, NCE for CSP began two years ago. Azure was the first offering introduced on the new commerce platform, followed by Azure Reserved Instances and, most recently, perpetual software offers. With the next phase, Microsoft will add seat-based cloud offers.

NCE – in a nutshell

• The concept is to have a uniform pricing model and buying experience regardless of contract type (EA, CSP or direct) following criticism that it was “all over the place” before
• From Oct 2021 Microsoft Partners will be able to sell subscription licences under this new program
• From March 2022 all new and renewing subscriptions will automatically adopt the new experience
• There is no significant operational change to Microsoft Partners, but the changes are likely to affect them commercially.

Current buying experience (pre-October 2021)

• Cloud Solution Providers buy a subscription on a 12-month term, which can be terminated early without penalty.
• The number of subscriptions purchased can be increased and decreased throughout the term, so there’s no issue for the Microsoft Partners if a client wants to cancel, they can easily manoeuvre the licenses, buying more or less as required.
• Most Microsoft Partners enforce at least a 1-month commitment from the client. They may also require a minimum user count.

2 main challenges for Microsoft Partners

Though the NCE model offers more new features (such as the cost management platform which wasn't available on CSP before, it was only available on EA) it is going to present some challenges for Microsoft Partners.

1. Steep price increases in March could prompt customers to shop around for new providers

   For Microsoft Partners the new pricing model will increase the price substantially (from March 2022) after a decade of not increasing it.

   Customers now get the benefit of more services under CSP, and that is one of the reasons for the price increase, but ultimately this is likely to create a bun fight in the marketplace, with suppliers caught in a price war.

   What you need to do now?

   The changes start from 1 October 2021, but you need to prepare for the price increase in March 2022. At Law 365 we’re recommending that Microsoft Partners can be proactive and start moving their clients over to this NCE model now to lock your clients into fixed prices and a new term commitment.

2. New cancellation policy will leave Microsoft Partners exposed

   You’ll no doubt have read that Microsoft will no longer provide pro-rata refunds for the early termination of any subscription.

   Currently on CSP subscriptions that Microsoft Partners buy as a CSP provider, you get a 12-month term, but it's a soft 12 months. There's no cancellation enforced, so you tie your customers into 12-month agreement and they can increase or decrease their subscriptions if they choose. And, of course, you can cancel at any time, which means there's very little risk involved.

New stricter cancellation policy

The new experience that Microsoft is bringing in will start enforcing cancellation terms. You can only cancel within 24 hours of placing an order to get a full refund. If anything goes wrong beyond that period of time, you can get a prorated refund, but only up to 3 days. After the initial 72 hours, no refund. Under these new rules, Microsoft Partners are exposed if the client doesn’t pay.

Microsoft Partners probably won’t be able to flow-down the cancellation fees as a 72-hour window will make this unviable for most. The smaller Microsoft Partners will feel this most acutely as they’re less likely to have a swift process to deal with the backend accounting changes this would require.

The administration costs of the changes are likely to undercut smaller businesses who need the larger margins. The smaller Microsoft Partners could find themselves in the firing line!

On the plus side, clients are now committed to a 12-month period. They can’t decrease their subscriptions, they can only increase them.

Other things to consider

• New requirements to participate in the CSP indirect reseller incentive program.

  From October 1, 2021, the CSP indirect reseller incentive program requires Microsoft Partners to have $25,000 Trailing Twelve Month (TTM) revenue to be eligible. If eligibility isn’t met, those Partners will be offboarded from the incentive program until the $25,000 TTM revenue has been reached.

• What happens if you don’t renegotiate your contracts now and your customers switch to another provider?

  This is a hypothetical scenario, but we think it’s worth giving some thought to now…

  As we all know, when Microsoft Partners sell CSP, they should be supporting it too. But what if, in the new marketplace, your Customer chooses to switch CSP provider?

  In many cases they will still be tied into a support service under your current agreement terms.

  Will those customers decide to use two companies for support? Unlikely. So, in theory at least, you may find that you’re having to play Support Partner to another CSP provider. Not ideal.

• With NCE Per Seat, Microsoft 365, Dynamics 365 and Power Platform SKUs will be available with terms of 1 month, 1 year, and 3 years (for Dynamics 365 only).

• The new NCE Per Seat CSP platform will allow Microsoft to add new features and functionality to CSP provisioning and billing, such as Communication Credits which are currently only available directly from Microsoft by credit card. Microsoft may also post offers and promotions on the NCE platform.

Questions?

Microsoft has provided recommended steps and self-help articles for incentive-related questions on the Partner Center home page. Type “incentives” in the search bar. You can also create a support request directly in Partner Center.

And of course, Law 365 is here to help you navigate these changes and amend your contracts. Give us a call!

View answers to FAQs Microsoft Partners have been asking our experts on NCE and CSP:

Or submit your own question!

• What is the NCE programme?
• Is NCE replacing CSP?
• Can customers stay on CSP?
• Can licenses be cancelled on the NCE program?
• Will customers get a full refund if they cancel within 72 hours?
• Can NCE licences be decreased during the term?
• What does NCE and CSP mean for your contracts?
• Is there any way around the inflexibility of NCE cancellation or subscription changes?