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Microsoft Inspired to Go Vertical and Stop Selling Licenses

by Stephen White  |  July 12, 2017  |  Comments Off on Microsoft Inspired to Go Vertical and Stop Selling Licenses

During the past week news of a Microsoft restructure has surfaced, details of the changes being made had been kept under wraps until Microsoft’s FY was complete. Some twelve months since the departure of Kevin Turner a number of shifts have been made within the former COOs areas of responsibility. Now however comes a significant structural change to Microsoft’s global sales functions.

Structural changes announced include alignment of the sales force, removing duplication in sales operations and creating a clearer distinction between management of Enterprise accounts and smaller organizations, whilst transitioning field compensation plans away from selling to focus on cloud consumption.

Microsoft’s new sales structure shifts six client size oriented segments into four and introduces six priority verticals in the new Enterprise structure (called industries), with three each in Commercial Enterprises – Manufacturing and Resources, Financial Services plus Retail – and three within Public Sector – Government, Health and Education.

Microsoft Industries

The named six industries are those being prioritized for engineering investment into vertical solutions. Corporations in other verticals such as Media, Legal, Hospitality and Technology will still be managed by vertical sales teams, but in the immediate term at least will be dependent on partners to develop and deliver solutions.

The new SMB oriented customer segment is being named Small, Medium and Corporate (SMC) and will be heavily serviced by partners with Microsoft’s internal resource investment being channelled towards inside sales demand generation.

So what can clients expect to experience with these changes?

Thresholds between the four segments will be impacted by not only organization size but also technology dependency and growth potential. Whilst the methodology for aligning clients to segments is being refined, organizations which were formerly aligned to Corporate Tele-Managed and SMB units will likely receive less Microsoft account management – as partners take ownership of relationship management, and utilize the CSP license model rather than the EA. This dynamic follows changes announced in early 2016, when the minimum EA seat count was increased from 250 to 500 users – a change which continues to take effect given organizations with existing agreements have been able to renew for less than 500 seats.

Organizations aligned to the Enterprise group will likely receive more focus from Microsoft, with some benefiting from a reduced client to account management density. Perhaps most positively the reorganization is oriented to stronger technical engagement, and should lead Enterprise clients to explore Azure solutions and the broader technology stack more directly with Microsoft. A degree of vertically aligned solutions may be more readily available directly from Microsoft, and potentially less dependent on additional bespoke partner services. Any notable shift in that direction will likely lag the structural changes, and be part of Microsoft’s journey in the longer term, rather than an outcome in the new FY.

Focusing on value and consumption at the expense of license sales motions

Key to the modified sales motion will be a pivot to focus on consumed cloud services rather than selling subscriptions announced at Inspire this week. For almost five years Microsoft has progressively shifted in this direction, using partner incentives directed toward consumption (or active usage). Extending that motion whereby Microsoft sales will now be 100% compensated (for Azure at least) on consumption rather than closing deals is particularly significant.

An increased focus on consumption may impact commercial offers to clients and an increase in the degree to which commercial concessions are oriented to services consumed rather than the size of a monetary commitment. Whilst intuitively an organization investing in Azure services would want to consume them, in reality however online services are regularly under-consumed.

Why would Microsoft sacrifice focus on closing ‘deals’? Under consumption creates a problem for any online services vendor expecting to grow subscriptions at renewal, given the client’s view of the prior contract period may be somewhat negative. In addition, clients who do actively use their Azure services find themselves highly dependent upon the service. Considering that situation when combined with Microsoft’s newly available Azure Stack offering, clients who adopt a hybrid strategy with Microsoft would be somewhat less likely to transition to an alternative provider.

Enhancing vertical focus combined with sacrificing deal based compensation in favour of consumption based compensation indicates Microsoft may be at a pivotal point of it’s journey to services. In so doing choosing a more sophisticated path, with long term Enterprise customer value the chosen destination.

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Category: cloud  licensing  reseller  

Tags: azure  cloud  cloud-contract  enterprise-agreement  licenisng  lsp  microsoft  strategy  

Stephen White
Research Director
4 years at Gartner
16 years IT Industry

Stephen White is a Research Director in Gartner's IT Asset Management, Vendor Management and Procurement team, focusing on strategic licensing and negotiation strategies, asset management, and reseller engagement. Mr. White leverages his experience in software sales and consulting to assist IT leaders through his coverage of best practices in license life cycle strategy and trends, license metric and pricing practices, contract negotiations, optimizing terms and conditions, sourcing, and relationship management. Read Full Bio

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