Only paying for Microsoft software that you use? It's coming

Microsoft is starting to take customers’ software usage rates very seriously in the cloudy era. It has to, otherwise punters may well endure the upheaval of taking their business elsewhere.

Previously, Microsoft sold a licence that covered multiple products over multiple years and didn’t track consumption levels. But with Redmond's shift to a subscription-based model, all that changes.

“In the old world, customers were trapped in a Enterprise Agreement, licensed for three years but they can terminate a cloud deal in thirty days,” said a senior source at a significant Microsoft partner.

“Microsoft has sold licences for a long time but has not been too concerned if all of the software was being used. Now it is scared to death of customers moving and of unpredictable revenue streams.”

Internally, Microsoft sales people are already paid, in part, based on "active usage", said a source close to the vendor.

From 1 October, Microsoft will replicate this model for channel sellers, based on monthly reports from clients, meaning Licensing Solutions Providers (LSPs) will need to regularly go cap-in-hand to Microsoft to ascertain consumption levels and the fees they can expect to make.

The whole commission plan – namely, that LSPs pay their own sales staff – will need to made fit for purpose in the 21st Century.

Microsoft Cloud Solution Providers that have their own portals and mechanisms to bill customers will be at a massive advantage, and a big work of transformation lies ahead for many LSPs.

“LSPs are ill equipped for this,” one Microsoft LSP admitted. “System integrators are far more capable. Microsoft has said for a long time that simply managing software licences isn’t enough for LSPs.”

Microsoft is moving the management of LSPs and SIs under one roof, to be split between current LSP boss Jay Epton and Karen Cosgrove, who is at present director of business planning and operations.

Multiple Microsoft suppliers told us they expect the vast majority, if not all the fees they make, to be based on consumption patterns in the medium term.

As we revealed last month, nearly half of the pot of fees that Microsoft pays to suppliers is already based on cloud products. Sources told us that five months ago, 35 per cent of enterprise customers were using the cloudy stuff and ten per cent of public sector organs.

But the introduction of the Cloud Transformation Agreement with the Cabinet Office means more and more departments will embrace the cloud, rather than paying a lot more for on-premise licenses. ®