Channelnomics

Microsoft Willing to Pay for Office 365 Users

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The InformationWeek headline pretty much says it all: “Microsoft Pays Customer $250,000 to Adopt Office 365.” In the exclusive report by Paul McDougall, the University of Nebraska acknowledges Microsoft paid it hundreds of thousands of dollars to choose its cloud-based productivity suite over Google Apps as a replacement for IBM Lotus Notes.

According to McDougall’s report, Microsoft gave the university $250,000 to cover the costs of consulting and integration services for the migration from the legacy Lotus Notes to Office 365 for email and calendar. The program is being paid out through Microsoft’s little-known and little-revealed Business Incentive Funds.

Microsoft didn’t comment in the InformationWeek article and did not respond to a request for comment from Channelnomics. According to the InformationWeek report, the fund is available to partners and resellers to provide key accounts incentives to buy Microsoft products over competitive offerings. Microsoft was competing against both Google and IBM for the University of Nebraska business.

A quick poll of Microsoft partners revealed that little is known in the channel community about the Business Incentive Fund. However, partners did say Microsoft offers several voucher programs – essentially coupons – through which partners and customers can significantly reduce the cost of software licenses and subscription programs.

It’s no surprise that Microsoft might be willing to buy market share for Office 365. While Microsoft has long offered Web-based products such as Exchange and SharePoint, it’s perceived as a relative newcomer compared to Google and IBM. The Office franchise generates a significant share of Microsoft gross revenue and net profit, which makes the success of Office 365 critical.

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Many vendors have tried buying market share by undercutting competitor prices, which sometimes dampens margins to partners. Microsoft may be reluctant to talk about the Business Incentive Fund, but it’s a potentially good deal for partners since it doesn’t rely on undue discounts or partner margin compression.

Assuming the InformationWeek report is correct in its details, this program seems to provide significant incentives for capturing business without impeding revenue opportunities for partners. In the University of Nebraska example, the money provided by Microsoft will go to pay partners for the work they’ll perform in support of the adoption and customization. The customer and the partner win.

For a vendor like Microsoft, the value of such programs is obvious. Microsoft may take a hit today on the revenue it would have made if it sold Office 365 at retail price. But the renewals will likely not have the same incentives, and the cumulative recurring revenue will easily outstrip the money made through one-time licenses.

As vendors look to secure their place in the cloud for the next epoch of computing, they may offer partners and customers increasing incentives. Partners should look for these programs to help their own cloud sales.

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Lawrence M. Walsh is CEO and president of The 2112 Group, a technology business advisory service that specializes in optimizing indirect channels and partner relationships. He’s also the executive director of the Channel Vanguard Council. He is the former publisher of Channel Insider and editor of VARBusiness Magazine. You can reach him at [email protected].

On Twitter:
Larry Walsh:@lmwalsh2112| Channelnomics: @channelnomics

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