On November 1st, 2019, Microsoft launched a new commerce experience for CSP partners. It is somewhat challenging to understand what this announcement is all about and what it means to managed service providers (MSPs) who resell Azure and other Microsoft products via the CSP program.
In this article, I’m going to answer some of the most common questions about this new experience.
Why is Microsoft introducing a new way to resell Azure?
Before jumping into the specifics of what is new, let’s try to understand why Microsoft decided to make this change.
First, Microsoft wants to reward CSP partners who add value on top of Azure by providing managed services rather than simply reselling it. In the current CSP Azure commerce experience, a CSP partner receives a discount when buying Azure regardless of whether the partner is actually servicing the customer’s Azure environment. In the new commerce experience, there are no more discounts. Partners earn incentives (i.e., rebates) called “Partner Earned Credit” when they have admin management access to the customer’s Azure environment. Selling Azure only, without providing any management services, will no longer be financially lucrative.
Second, current pricing for Azure is extremely complex and varied. Different countries, currencies, and licensing programs have their own extensive price lists and it is very difficult to be an Azure-focused MSP having to track so many different price lists across your customer base. With the new Azure Commerce Experience, all pricing will be tied to a single global price list in USD. Pricing will be consistent across licensing programs and geographies with currency conversions happening relative to the USD pricing. This should make it easier for customers and partners to shop and compare. Partners will be able to differentiate themselves and attract customers with better services, not cheaper pricing, based on a different licensing program.
Third, there are now new simplified agreements for both customers and partners. Microsoft is bringing the Customer Agreement to the CSP program. This new, non-expiring agreement will replace the current Microsoft Cloud Agreement for all new and existing CSP customers. It’s a single agreement that all customers will sign digitally, with simplified terms and conditions. The agreement lets customers make purchases across all Azure channels and allows products and services to be added as needed. The Microsoft Partner Agreement (MPA) will make the contracting experience easier, including delivering relevant terms based on partner type and the offers they’re qualified to sell.
How does this impact existing CSP partners who are already reselling Azure?
This is a new and additional way to resell Azure. The existing commerce experience will continue to be available for existing customers. However, Microsoft is going to continue encouraging partners to adopt the new commerce experience for both new customers and to migrate existing customers. It is likely that at some point in the future Microsoft will make it mandatory to use the new experience. Already, there are certain incentives (i.e. rebates) available only in the new experience and others are higher under the new experience compared to the old one. So even though you don’t have to change your existing customers today, this is something you should investigate and be familiar with as you’ll likely have to start using this soon.
To which CSP partner does the new Azure commerce experience apply?
This is an important question because it will determine whether you, as a CSP, have to do something today or just be aware that this is coming and be prepared. The new Azure commerce experience applies to all CSP partners who are using the Microsoft Partner Center to transact Azure. Direct CSPs and Indirect CSP Providers use the Partner Center. Indirect CSP Resellers who sell Azure through their CSP provider (like Pax8, Ingram, D&H, Sherweb, and others) are not affected by this directly. Most MSPs are Indirect CSP Resellers and since they don’t use the Partner Center (only their CSP Provider does) they don’t have to do anything at this point. The CSP Provider will eventually have to adopt the new commerce experience for Azure and will create their own systems for their CSP Resellers to use. They will be communicating to their resellers the specifics on how to take advantage of the new experience.
The bottom line is that if you’re a Direct CSP or Indirect CSP Provider be sure you understand the specifics, but if you are an Indirect CSP Reseller, be aware that this is coming and what it is, but wait for your CSP Provider to tell you what to do before making any changes to your Azure practice.
How does the new Azure commerce experience work?
(Additional detailed information published by Microsoft)
Remember, this is a way to “transact” Azure; it does not affect how Azure is used by your customers--only how you get billed for it, the price you pay and the rebates you’re incentivized with as a Direct CSP or Indirect CSP Provider. The new commerce experience is “above” the “Azure subscription”. The Azure subscription and below (i.e.,. resource groups, resources, etc.) remain the same.
It is also very important to remember that this is a new Azure commerce experience. As a CSP you’re likely reselling Office 365, Microsoft 365, Dynamics 365, Windows, EMS, etc. The new experience does NOT apply to these products; only the way Azure is resold is affected. The easiest way to think about it is to realize that “usage-based” products (i.e., Azure) now have a new way to be purchased while “license-based” products remain the same.
Today, you log into the Microsoft Partner Center, create a customer, and add a usage-based Azure subscription. This creates a subscription inside of the customer’s Azure tenant. As resources are added into the subscription, the meter starts running and at the end of the month you get an invoice and a reconciliation file for all resources used across all your customers’ tenants and subscriptions. Your invoice has a built-in discount (i.e. margin) that reduces the cost of Azure resources from the public list price down to what you pay to Microsoft.
Reminder: This is how things work for Direct CSP and Indirect CSP Providers. Indirect CSP Resellers have a different workflow that involves their Indirect CSP Provider.
With the new commerce experience, instead of adding “Microsoft Azure” (i.e., Azure subscription) directly under a customer’s account in the Partner Center, you will add an “Azure Plan”. Azure Plan is a new concept in the new commerce experience in CSP. There can be only one Azure Plan per customer, but you can add multiple Azure subscriptions under a single Azure Plan. Any Azure subscriptions added to an Azure plan will be billed based on the new commerce experience (more on this below). Once you add an Azure Plan under a customer account you will no longer be able to add Azure subscriptions “outside” of the Azure Plan—only “under” it.
You can also transition existing customers from a standalone Azure subscription to the Azure Plan. We won’t get into the details of the process here, but you can find all relevant information about this process on the Microsoft’s Transition Your Customers to Azure Plan page.
What does all of this mean for MSPs?
We’ve now discussed the reasons why Microsoft wants to make this additional commerce experience available. We’ve looked at the fact that this applies to Direct CSPs and Indirect CSP Providers who use the Partner Center and reviewed the purchase experience in the Partner Center at the high level. Now, let’s see what this practically means for your MSP’s Azure practice.
First, the workflow of purchasing Azure for customers and the user-interface will be different. There is now the concept of Azure Plan and transitioning customers from the existing experience to a new one you will need to be familiar with.
More importantly, the way Microsoft bills you and pays you will be very different. You’re now going to be purchasing Azure resources from a global pricelist that will be constantly updated. The price list will be based on USD. However, billing will be done in customer’s location currency. Therefore, the pricelist will be simpler, based on one currency (converted for billing), and will have no discounts.
The most important change, however, is the fact that you’ll no longer receive a discount off of the public list price of Azure resources on your invoice (the way it works in the current commerce experience) and will instead benefit from the Partner Earned Credit.
This is worth repeating: You will pay for Azure consumption based on publicly listed prices without any discounts like you get today on your invoice. You’ll continue getting a discount on Office 365, Microsoft 365, Dynamics 365, and other “license-based” software but Azure will be billed at list prices. If you qualify, you will earn PEC (Partner Earned Credit) as a rebate that will be applied to your invoice.
What is Partner Earned Credit (PEC)?
Partner Earned Credit is Microsoft’s new methodology for rewarding partners who actively manage their customer’s Azure environment and not rewarding partners who simply resell Azure. If all you do is resell Azure without any managed services, you will make 0% margin and will receive no PEC. If you help your customer deploy and manage an Azure environment, you will qualify for PEC and see it as a rebate on your CSP invoice from Microsoft. Let’s dig a bit deeper.
To be eligible for PEC partners must:
- Have an active MPN agreement
- Have 24x7 operational management and control of the resources in customers’ subscriptions. This basically means you must have admin access to your customers’ Azure environments through your CSP tenant.
If you do not have RBAC-based admin access to your customer’s Azure resources you will not get PEC for those resources and not receive the rebate.
PEC is calculated daily and can be viewed in the daily usage file and monthly invoice reconciliation file. A partner must have access for the entire day (24x7) to ensure that PEC is earned. PEC is earned down to the Azure resource level. If you - the partner - have valid access at the subscription, or resource group level, each resource that rolls up to the higher entity will earn PEC.
How much of a rebate will you get for earning PEC?
There isn’t any publicly facing information today about the size of PEC or in other words how much of a rebate you’ll get for having admin access to your customers’ Azure resources. As a Direct CSP or Indirect CSP Provider, reach out to your Microsoft Partner Development Manager (PDM) to find out the specifics of how much PEC will pay. Based on some of the information we found, there are indications that the maximum size of PEC will be similar to the current 15% Azure discount that Direct CSP and Indirect CSP Providers receive (see partnerEarnedCreditRate field for the hint).
What about other incentives?
Other incentives partners earn for reselling Azure are also changing. These incentives get updated often by Microsoft based on the current strategic objectives the company is trying to achieve. With the introduction of the new Azure commerce experience, Microsoft is offering the highest incentive rates for partners who are transacting in the new commerce experience and lower rates when using the existing (i.e. “legacy”) commerce experience. This is likely to continue, and the gap is likely to grow in the future as Microsoft tries to incentivize its CSP partners to transact in the new way.
In conclusion, at Nerdio we believe that MSPs are uniquely positioned to create tremendous value by simplifying the purchasing, deployment, and management of Azure for their customers. As you know, even the transactional process is no simple matter let alone the technical aspects of this vast and complex platform. Microsoft is now revamping their incentive system for the entire CSP ecosystem to encourage managed service providers to take upon themselves the management of customers’ Azure deployments to increase the likelihood of success in these deployments.
Nerdio's mission is to empower MSPs to build profitable cloud practices in Azure. We help partners with technology that automates the deployment, pricing, management and cost-optimization of customers’ Azure environment and by creating industry-leading content tailed specifically for MSPs on how to succeed with Azure and partnering with Microsoft.
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