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July 1, 2022updated 05 Aug 2022 11:40am

Microsoft cloud licensing changes delayed in face of CSP opposition

Resellers are unhappy with planned licensing changes which they say will see them take on more risk.

By Matthew Gooding

Microsoft has postponed a planned move to force cloud solution providers (CSPs) to sell software licenses for its products on new terms. The move away from perpetual licenses to fixed-term contracts has raised concerns with CSPs around the amount of risk they will be taking on, and this is one of the number of problems likely to arise with the new arrangements. An expert told Tech Monitor the situation could take up to six months to resolve.

Changes to Microsoft’s cloud licensing model have proved controversial with resellers. (Photo by HJBC/iStock)

Automatic renewals of legacy CSP contracts had been due to come to end on July 11, but Microsoft said in an update on its partner centre that this move has now been postponed “indefinitely”. The July 11 cut-off would have meant that when existing contracts came to an end they were switched to Microsoft’s New Commerce Experience.

“Though our goal is still for partners to migrate legacy subscriptions to New Commerce before end of term, we have made a business decision to continue supporting the legacy auto-renewal functionality beyond July 11,” the Microsoft statement said.

What is Microsoft New Commerce Experience?

Microsoft New Commerce Experience is a way for CSPs to manage subscriptions to the company’s cloud products. The latest iteration was launched in March, and removes perpetual licenses in favour of fixed-term agreements, offering discounts to customers who sign up for long deals. Paying on a month-by-month basis incurs extra costs.

The launch of New Commerce Experience for CSPs has coincided with a slate of price rises for Microsoft 365 and Office 365 subscriptions for businesses, which came into effect on March 1. Consumer and education subscriptions were unaffected by the hike.

Previous versions of New Commerce Experience have been around since 2019 across various Microsoft products. When the latest round of changes was announced last November, Alex Perez, new commerce and cloud solution provider lead for global partner solutions at Microsoft, said the system was designed “to give customers greater choice and flexibility in how and where they purchase, while giving our partners more opportunities to sell to a growing base of existing and new customers.”

Why has Microsoft delayed the changes for CSPs?

The main complaint from CSPs to date has been around who is liable for contracts if the end-user fails to pay. Under the New Commerce Experience set-up, the CSP would bear the liability for the rest of the contract if their customer is unable to do so. The issue was raised repeatedly at a Q&A session for resellers held by Microsoft earlier this year, it was reported, with the CSPs feeling that Microsoft should shoulder this risk.

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This dispute is likely to be the tip of the iceberg when it comes to gripes about New Commerce Experience, says Tom Seal, senior research director in IDC’s European enterprise applications team. “Microsoft is trying to standardise its contracts, which I wouldn’t criticise it for at all,” he says. “And it has to protect itself – it shouldn’t carry all the legal and financial risk for what its smaller partners do.”

But, he says, “these Microsoft partners will have been working to a particular contract for maybe many years. They understand that contract, and have made a whole load of decisions on that basis, then someone moves the goalposts.”

With the changes, Seal says “lawyers are going to be going through the new contracts and raising a whole array of concerns. I suspect the reason Microsoft is having to delay here is that they’ve had a long list of issues come back for which there is no quick fix.”

What impact will Microsoft New Commerce Experience have on businesses?

IDC’s Seal expects Microsoft to listen to the concerns of its partners. “Collectively, the partner group is very important to Microsoft,” he says. “Microsoft may have power as the bigger company, but it does need its partners and I know it wants to invest in that partner network. Now it’s a case of revisiting the balance of risk and reward between themselves and that partner group.”

He says finding a solution which keeps all partners happy could take up to six months. “Negotiating a software agreement is big and complex and will involve a lot of iteration,” he says. “It’s not going to be a quick process and Microsoft needs to find a way of resolving this at scale with its partners.”

Businesses are already dealing with price rises for their Microsoft subscriptions, but Seal says customers should not expect to see additional costs around the changes to New Commerce Experience passed down from their CSPs. “The resellers are going to incur some legal costs unpicking this stuff,” he says. “But I think as a business you’re going to want to try and act as a barrier to protect your customer from that and stop the propagation of that cost and additional risk going down the value chain.”

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