Gavriella Schuster’s first job at Microsoft was building a global solution provider program, helping independent tech consultants and developers customize software for business customers.
One of the key benefits Microsoft came up with was “internal use rights,” which grant those partners licenses to software for their own day-to-day use — giving them valuable experience deploying and running the technology, while also saving them money on software.
That was in 1995, back when software came on a disc and granting additional licenses was mostly a matter of changing the paperwork.
Nearly 25 years later, as the corporate vice president in charge of Microsoft’s One Commercial Partner Organization, Schuster was surprised by the long-term implications of that decision.
Microsoft’s costs for delivering those internal use rights had skyrocketed, due to the growing use of cloud services by partners, the resources required for Microsoft to deliver those services on-demand from the cloud, and the growing size of Microsoft’s partner program.
So how big are the costs, exactly?
“Really big,” Schuster said in response to GeekWire’s question during a briefing with reporters on the Microsoft campus in Redmond this week. “It really overran my budget this year. When I started to do the calculations, I was like, ‘Wow, look at this.’ And so I had to cut back on things that I was going to invest in … so that I could pay both bills.”
Schuster didn’t provide a number, but Mary Jo Foley of ZDNet reported on Thursday that they are in the range of $200 million annually, citing a person inside the company familiar with the numbers.
As she crunched the numbers, Schuster said, she came to the difficult conclusion that Microsoft would need to do away with internal use rights. While the cost might seem like a drop in the bucket for a giant tech company that generates more than $120 billion in revenue annually, it would have required the partner organization to cut back on other critical initiatives if it continued to grow, Schuster said.
It really overran my budget this year. When I started to do the calculations, I was like, ‘Wow, look at this.’
So the company announced last week that it will be ending the benefit in one year, effective July 1, 2020. “Product license use rights will be updated to be used for business development scenarios such as demonstration purposes, solution/services development purposes, and internal training,” but not for day-to-day internal use by partners, Microsoft says on its website.
The reaction from partners has not been positive, to say the least — with one headline declaring it Microsoft’s “worst move in 30 years,” and other reports indicating that some Microsoft partners are contemplating quitting the program. The timing is also not great, coming in advance of the company’s annual Inspire partner conference in Las Vegas next week.
Maintaining positive relationships with partners is a critical issue for the company, which says it generates 95 percent of its revenue through its partners. Those partners are a key strategic benefit at a time when Microsoft is increasingly competing with cloud rivals Amazon and Google in addition to traditional enterprise technology vendors to land and keep big business customers.
Microsoft has more than 300,000 partner companies and organizations, and says it has been adding new partners at a rate of 7,000 per month.
“As we moved into cloud services, we didn’t really think through that very much, until recently when the bills were getting very big,” Schuster said. “There’s real costs — a substantial amount of real costs — in that. It was like, wow, if our partner ecosystem, with 7,000 new entrants every single month, continues to grow like this, we can’t afford this.”
Schuster acknowledged that she has been inundated with complaints since the change was announced. So what does she tell Microsoft partners frustrated by the move?
“First, I’m sorry,” she said. “I didn’t want to have to do this. But when I explain why I did have to do this, they go, as good business people, ‘Oh, OK. I get it.’ And then we talk about what their options are.’ ”
Those options include paying for traditional licenses, and also taking a close look at which Microsoft technologies they actually need to run inside their businesses day-to-day. Schuster compared the current situation with some partners to someone who doesn’t pay for electricity leaving the lights on because they aren’t aware of the costs or don’t feel them in their own pocketbook.
“We have to figure out, how do we help our partners to utilize the products so that they can sell them,” Schuster said. “But we can’t actually afford to run every single partner’s organization all around the world anymore, because it’s not free.”