In November 2019, Microsoft announced its new Azure commerce experience, changing the Azure pricing and billing model, and the way Microsoft remunerates CSPs.
Microsoft Makes a Move to Standardize Azure Pricing
The Microsoft Azure pricing model has been standardized under the new commerce experience, so that published prices are consistent, independent of who supplies the Azure service. These changes create more price transparency for customers and encourage Microsoft CSP Partners to shift their focus away from reselling Azure resources to competing on the value they add on top of the base Azure offer.
The move toward standardization also extends to Microsoft agreements. Now customers will be presented with a single Microsoft Customer Agreement (MCA) with simplified terms and conditions. Microsoft has also modified the Microsoft Partner Agreement (MPA) to streamline the contracting experience.
It’s worth noting that the old Azure model will continue for now. However, Microsoft is likely to make the new commerce experience mandatory in the near future affecting all customers.
The Big Four: Azure Plan, Reserved Instances, Microsoft Subscriptions, and Marketplace Services
While the principle behind Microsoft’s modern commerce experience is to create a simpler pricing model for the end user, there is increased complexity around billing for the CSP Partner.
Let’s break the commerce offer into its component parts to get a better understanding of how pricing works and how CSPs are remunerated.
Azure Plan Consumption
Microsoft no longer publishes a cost price for Azure consumption under the new commerce experience. Instead, Microsoft publishes a list price in US dollars, and CSPs receive a Partner Earned Credit (PEC), which is a rebate of around 15%— although this can vary depending on the Microsoft criteria that partners meet and Microsoft promotions.
Microsoft criteria include adding ongoing cloud operations management around Azure, such as Azure estate monitoring, policy and governance management, set up and configuration fine-tuning, technical support, and other services.
When a customer buys a reserved instance, they are purchasing a specific amount of Azure resources at a fixed price for a pre-determined period. Reserved instances can be up to 83% cheaper than the equivalent ‘pay as they go’ option. Microsoft does not provide separate cost and sales prices and does not pay a rebate or partner earned credit for reserved instances, so CSP partners have the option to add a service or management fee to make their margin.
Microsoft Software Subscriptions
Microsoft subscriptions such as Windows Server and SQL Server subscriptions are sold, much like O365 products. CSP partners buy these services at a unit cost price and sell them at Microsoft’s suggested sales price or their own sales price.
Marketplace services are products that Microsoft allows approved third parties to sell via its Azure marketplace. Just like reserved instances, Microsoft does not provide a separate cost and sales price for these services, nor is there a rebate or partner earned credit. CSPs usually add a service or management fee to make a margin on these services.
The table below summarizes remuneration for all service groups for Microsoft Direct CSPs:
Table: Pricing under the new Microsoft Commerce Experience
For the time being, most CSP partners will continue to manage some customers under the old Azure pricing model, and some customers under the modern commerce experience. This will involve managing an even more complex mix of billing and pricing rules, as well as different world currencies.
Cloudmore Moves to Support the New Microsoft Azure Experience
Cloudmore has supported the Direct CSP program since its launch back in 2014 and has a team of developers exclusively dedicated to keeping the Cloudmore platform at the forefront of CSP innovation. This includes evolving our end-to-end CSP automation solution to support the new Microsoft commerce experience to include sales price management and billing for the big four.
Ensuring accurate cost reconciliation and enabling flexible pricing management is a core part of how we help Microsoft Direct CSP Partners. New Cloudmore functionality to support the Modern Commerce Experience will include:
1. The ability to set different sales price rules for Azure plan, reserved instances, software subscriptions, and marketplace services. This means that you can:
pass back some of the rebate to the customer or add a margin to the list price to cover additional value-added services for Azure plan consumption
add a handling or management fee to make a margin on reserved instances and marketplace services
add a margin for Microsoft software subscription 2. Billing reports that provide well-defined Azure cost breakdowns. 3. Comprehensive Azure billing reports for customers
It’s much easier to migrate your customers to Microsoft’s Commerce Experience, including the new Azure Plan and reserved instances if you have firm control over Microsoft’s new billing rules. Cloudmore aims to assure Direct CSP Partners that we have adapted our solution to meet the new requirements. Our revised billing calculations will, therefore, continue to provide 100% billing and reporting accuracy, giving you the confidence that your customers are invoiced correctly, and your margins are not eroded.