The Redmond, Washington-based software giant is attempting to overhaul a program put in place last fall that allowed resellers to work directly with corporate accounts without any Microsoft involvement.
The program was initially seen as a boon for resellers, which were free to compete head-to-head without a Microsoft intermediary. But resellers soon found themselves in cutthroat bidding wars that left them with paper-thin profit margins.
Microsoft now plans to work with so-called Large Account Resellers, or LARs, to overhaul its policies in order to generate more profits for resellers. Microsoft will now negotiate the pricing of its software upfront, directly with corporate buyers, said Bill Henningsgaard, head of U.S. large enterprise sales for Microsoft.
This will leave LARs to provide invoicing, post-sales support, and services, and compete to differentiate themselves on those levels, he said. The changes will be put in place over the coming months, depending on channel feedback.
Such a move may alleviate the age-old complaint--that Microsoft has relatively little connection with its enterprise customers--by connecting buyers and Microsoft sales representatives upfront. However, analysts believe the change could also give rise to complaints in other areas.
One problem companies may face now is "figuring out whether they're getting a good deal from Microsoft," said Rob Enderle, an analyst with Giga Information Group. "What they used to do is bid LARs against each other in order to get a good deal. This new program will take that avenue away."
Henningsgaard said it was that bidding process that made it essential for Microsoft to step in. "There was incredible margin pressure. Many LARs were seeing little return, and their business models were [threatened]," he said.
The Enterprise Agreement part of the Select Licensing Agreement applies to Microsoft's largest corporate accounts with centralized IT budgets which make single licensing commitments with Microsoft.
In addition to the bidding wars amongst LARs, "Enterprise Agreement customers tend to need a lot of customization, so Microsoft thought it made much more sense for it to be involved in that process," Henningsgaard said.
However, as a result of these changes, Enderle said he expects to see "a potential for higher dissatisfaction with Microsoft prices, because without a baseline to go by companies won't know if they're getting a good deal. Companies will feel more and more like they're are getting taxed by Microsoft, and it probably won't be a good thing for the company in the long run."
Although a few of its major channel partners have been notified, the rest of the LAR community will be briefed on the proposed changes in two weeks at a Reseller Executive Summit in Seattle, according to Microsoft.