Resellers will soon be able to buy Office 365 from distributors Ingram Micro and Rhipe and pay for the software on a monthly subscription.
If customers want to pay monthly for Office 365, the new 2-Tier Cloud Solution Provider (CSP) model is a better fit than Open licensing, which requires an annual commitment.
Distributors Ingram Micro and Rhipe (formerly NewLease) have been named as the first '2-Tier CSPs', opening up the new monthly licensing model to a reseller base of 8,500 active partners at Ingram and 1,500 at Rhipe.
Their appointment follows the announcement last December of the first batch of '1-Tier CSPs', OBS, CloudFirst, OzHosting, Ensyst, iiNet, Melbourne IT and Nimbal, which is a partnership of Kloud and XCentral.
Microsoft expects the majority of partners to buy Office 365 via the 2-Tier distributor arrangement, rather than 1-Tier. Philip Goldie, Microsoft Australia's director of partner business and development, said that to be successful as a 1-Tier CSP, partners would need to be deploying at least 5,000 seats per year, "and that is probably a low water mark".
Goldie said monthly billing was a key advantage of the new model. "In Open licensing, you pay for a one-year subscription up front and you get billed, while in CSP you get billed on a monthly basis. CSP is much more a platform to build managed service around while Open licensing is a traditional product resale model.
"They both have a valid place. There are cases where the reseller wants to buy it upfront and resell the licence with a margin added. They will co-exist and fulfill different requirements but over time, we expect to see more more partners buying via CSP as the program scales out."
Distributors can wholesale any Office 365 plans via the new model, with Goldie expecting the Business, Business Essentials and Business Premium to be the most popular Office 365 plans sold via the CSP model.
The CSP licensing model is Microsoft's way of closing the gap between how customers want to pay, and how a vendor charges for its products. It addresses a pain point felt across the wider industry, as resellers want to bill clients monthly for managed services, but many vendors still incline toward capex deals to hit quarterly revenue targets.
"We have partners who have looked at Open licensing and said, 'How can I build an Office 365 service around Open licensing?'. They have to pay upfront for the licence and bill that out and that creates exposure and cash flow issues for the partner," said Goldie.
"With CSP, that goes away - it's a much tighter alignment between what customers want to do, which is pay monthly, and what partners want to do, which is bill monthly."
CSPs, whether 1-Tier or 2-Tier, have to own the complete customer lifecycle through direct billing, provisioning, management and 24/7 support.
Before they go live, both Ingram Micro and Rhipe will integrate their own e-commerce platforms with Microsoft's billing and provisioning engine via APIs, which are still in pilot phase.
Goldie said that creating the billing and provisioning capabilities for Microsoft's cloud portfolio was extremely complex. "It is an engineering effort on our side, the Microsoft side, as we build these programs that is probably unparallelled in technology. You are talking about building commerce engines that have not been built on that scale before."
Microsoft is no stranger to missed deadlines and false starts in the cloud. For instance, the Australian launch of its Online Portal for SMBs missed its deadline by about four months.
Partners have also complained of challenges in getting their incentives for migrating customers to the Azure cloud platform. Goldie said that Microsoft was aware of the problem and was working through it. "We are getting a couple of steps closer... we know it has been a pain point but it gives you a sense of the sheer scale of this."
He added that these challenges explained why Microsoft was taking "a mindful approach" around its CSP program. "Running fast for the sake of it and getting lots of partners on board and delivering a poor experience for customers and partners doesn't help anyone."
Next: Backlash over previous models