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By | Paul Kunert 21st October 2015 15:17

Microsoft enterprise licensing partners heading for extinction

Vendor 'turning off the lights' inside four years, warns volume software seller Crayon

Microsoft is planning to shutter the classic enterprise licensing channel over the next three to four years, as indicated by the swingeing cuts to fees in recent times.

This is according to Rune Syversen, CEO at Crayon Group, one of Microsoft’s top-ten biggest selling Licensing Solutions Partners (LSPs) worldwide, who is trying to mitigate the financial implications through SAM consultancy and cloud services.

He told us to expect “tremendous consolidation” among LSPs, formerly known as Large Account Resellers; there are currently three hundreds of these organisations in Europe.

“It [the number] will go to zero,” said Syverson, “as Microsoft is planning to turn the lights off the traditional LSPs and transform them into a different landscape of resellers."

These things “always take longer” to play out than industry watchers and vendors expect, he said, but reckoned three to four years was a good estimate.

The fees Microsoft pays to LSPs were dramatically slashed in early 2011 by more than two thirds for licence sales to the largest global corporate and public sector customers.

And since then, the software giant has continually chipped away at them, funnelling more cash towards those selling to mid-market clients and latterly the cloud sellers.

At the global partner knees up this summer, Microsoft revealed the fees for cloud sales now account for 49 per cent of the total pot available to channel partners.

In another related move that started this month, Microsoft will pay fees based on clients’ consumption of software, not the straight sale of a license, be it in cloud or on-premise.

This will be based on customers’ monthly reports, and means the sales people at LSPs will need to have a different conversation with customers that isn’t based on the best license type.

“In this market you’ll need to invest heavily to have the talent and knowledge to help customers and channel partners deploy the technology in the cloud,” said Syverson.

Some 60 per cent of the staff at Crayon are software and cloud consultants, not sales people. The company is expanding, after making numerous acquisitions in the US and investments in people.

LSPs we contacted were not as bold as Crayon but agreed with the comments from the top man there that the massive drop in fees for licence sales is only going one way.

“There is relatively little money selling licences, the only way to get rewarded is by customers consuming the software, but you need services capabilities to help them do that.”

Microsoft assures us it will talk about the issue but it has yet to provide a comment, some 20 hours after we first asked for one. ®

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