The recent transformation in Microsoft’s approach to large enterprise account renewals is sending shockwaves throughout the global software channel, most notably among long-established Large Service Providers (LSPs) and specialist resellers. The roots of this tremor run deep: for decades, LSPs like Bytes Technology Group (BTG) built reliable businesses around healthy margins derived from Microsoft Enterprise Agreement (EA) renewals. Today, with Microsoft now methodically reclaiming direct control over a significant portion of these renewals, the traditional revenue bedrock for these companies is eroding—fast.
Microsoft’s ongoing restructuring of its partner incentives model marks an unmistakable trend: a move from partnership-driven renewals towards a direct sales approach for its largest clients. Throughout the last year, the pivot has accelerated aggressively. Historically, LSPs received a slice of every EA renewal sold, functioning as both resellers and trusted consultants navigating complex licensing environments.
In 2023, global LSP commission payouts for EA renewals reportedly hit $2.5 billion. By 2024, that figure dropped to $1.67 billion, according to data aggregated by channel analysts and reported by The Register and US Cloud. This year, payouts are expected to sink further to $583 million, with the clear message that by next year—2026—the commission pool will be gone altogether. Simultaneously, Microsoft’s own direct sales in these accounts are forecast to nearly triple, rising to an estimated $2.5 billion by next year.
The London Stock Exchange-listed Bytes Technology Group (BTG) provides a stark example of the shakeout. BTG acknowledged that nearly half of its gross profit flows from Microsoft sales, and the abrupt reduction in renewal-driven incentives has already hammered its earnings outlook. Its share price tanked over 25 percent in early July, after the company confirmed lower financial kickbacks from EAs and a macroeconomic environment that’s causing customers to defer purchases.
Crucially, this abrupt policy change creates rapid winners and losers. Microsoft further insulates itself from partner-driven risk, exerts greater control over pricing and customer relationships, and enjoys increased margin. LSPs like BTG—and their shareholders—are left reevaluating their business models in real time.
The shift, however, comes at a cost. Restructuring sales teams and workflows takes time, and as CEO Sam Rudd told investors, it has compounded an already challenging macroeconomic environment. BTG, like many peers, expects gross profit in the coming period to remain flat, with operating profits lower than previous years. Investors, already wary of changing partner economics, punished BTG’s stock accordingly.
Industry analysts such as Indraneel Arampatta of Megabuyte are increasingly vocal about the risks, pointing out that the “Microsoft partner change elements are starting to bite.” Investor sentiment suggests little confidence that BTG’s exposure to Microsoft has lessened—and with further partner model changes reportedly incoming (such as rumored adjustments to the Solutions Designations program), the sense of uncertainty runs deep.
LSPs have long acted as navigators—offering advisory expertise, mitigating licensing complexity, and acting as advocates for their customers in negotiations with vendors as dominant as Microsoft. Mike Jones of US Cloud describes the change as analogous to losing your trusted financial advisor and being told to deal directly with Wall Street. The middleman “cut” may vanish, but so might the nuanced, often indispensable, guidance LSPs provide in multi-million-dollar contracts.
Jones warns that, while direct relationships might promise faster responses and less bureaucracy, the loss of the LSP advisory role could leave non-expert IT executives exposed to costly missteps or suboptimal licensing choices.
Forward-thinking LSPs may well thrive by leaning into high-value, complex environments where Microsoft’s direct model can’t easily replace nuanced consulting. Firms that succeed will transition from simple licensing agents to genuine technology partners, focused on continuous innovation, adoption, and measurable business outcomes.
For Microsoft, the immediate reward is tighter control and improved finance. Long-term, the company must carefully balance efficiency with partner and customer engagement—especially as broader market shifts (such as generative AI and hybrid cloud) demand deep collaboration across the IT ecosystem.
Notably, Microsoft charges a steep premium (as much as $30 per user, per month) for Copilot—a move that may require sustained partner support to achieve mainstream uptake. If LSPs, freshly alienated by revenue cuts, hesitate to champion Microsoft’s latest (and expensive) offerings, Copilot’s growth trajectory could face unnecessary headwinds.
This is especially risky for organizations with limited internal expertise. The possibility of misjudging requirements, missing advantageous terms, or failing to optimally deploy new features can easily outweigh the perceived savings from “cutting out the middleman.” Industry observers will be keenly watching how many enterprise buyers invest in upskilling procurement and legal teams as LSPs step back from the front line.
Additionally, Amazon and Google will no doubt seek to exploit any partner unrest, offering generous migration and alliance terms to talented LSPs looking for a new home.
For Microsoft, the challenge will be to leverage its enhanced control without stifling the dynamism and reach that a healthy partner network provides. For LSPs and their stakeholders, the coming months and years are nothing short of critical: survival, let alone growth, demands urgent reinvention.
Most importantly, for the end customer, the real test will be whether the promise of streamlined, direct engagement outweighs the subtle but vital advantages that skilled reseller-advisors once brought to the table. In the rapidly evolving worlds of cloud and AI, the only certainty is change—and those who adapt fastest, on both sides of the equation, are most likely to thrive.
Source: theregister.com Microsoft Enterprise Account renewals move hurts resellers
Microsoft’s ongoing restructuring of its partner incentives model marks an unmistakable trend: a move from partnership-driven renewals towards a direct sales approach for its largest clients. Throughout the last year, the pivot has accelerated aggressively. Historically, LSPs received a slice of every EA renewal sold, functioning as both resellers and trusted consultants navigating complex licensing environments.In 2023, global LSP commission payouts for EA renewals reportedly hit $2.5 billion. By 2024, that figure dropped to $1.67 billion, according to data aggregated by channel analysts and reported by The Register and US Cloud. This year, payouts are expected to sink further to $583 million, with the clear message that by next year—2026—the commission pool will be gone altogether. Simultaneously, Microsoft’s own direct sales in these accounts are forecast to nearly triple, rising to an estimated $2.5 billion by next year.
The London Stock Exchange-listed Bytes Technology Group (BTG) provides a stark example of the shakeout. BTG acknowledged that nearly half of its gross profit flows from Microsoft sales, and the abrupt reduction in renewal-driven incentives has already hammered its earnings outlook. Its share price tanked over 25 percent in early July, after the company confirmed lower financial kickbacks from EAs and a macroeconomic environment that’s causing customers to defer purchases.
The Numbers: A Market Redrawn
Consider the sheer scale: The global Enterprise Agreement market is worth around $200 billion for three-year contract terms, according to Microsoft support specialist US Cloud. Until the recent shift, LSPs were collectively earning about $2.5 billion a year in renewal commissions—equating to a 1.25 percent average commission rate. Microsoft’s move to absorb direct control adds up to a projected 0.39 percent annual EBITDA increase, which may seem marginal in other contexts but represents a non-trivial boost for a company valued at around $3 trillion.Crucially, this abrupt policy change creates rapid winners and losers. Microsoft further insulates itself from partner-driven risk, exerts greater control over pricing and customer relationships, and enjoys increased margin. LSPs like BTG—and their shareholders—are left reevaluating their business models in real time.
Channel Reaction: Restructuring, Retrenchment, and Regret
Faced with this existential threat, leading LSPs and resellers are scrambling to reshape their organizations. BTG announced it is transitioning from a traditional “generalist” sales model towards specialized, customer-segment-focused teams—hoping to nurture sustainable, annuity-based service revenue and remain relevant to clients in a rapidly changing landscape.The shift, however, comes at a cost. Restructuring sales teams and workflows takes time, and as CEO Sam Rudd told investors, it has compounded an already challenging macroeconomic environment. BTG, like many peers, expects gross profit in the coming period to remain flat, with operating profits lower than previous years. Investors, already wary of changing partner economics, punished BTG’s stock accordingly.
Industry analysts such as Indraneel Arampatta of Megabuyte are increasingly vocal about the risks, pointing out that the “Microsoft partner change elements are starting to bite.” Investor sentiment suggests little confidence that BTG’s exposure to Microsoft has lessened—and with further partner model changes reportedly incoming (such as rumored adjustments to the Solutions Designations program), the sense of uncertainty runs deep.
The Human Dimension: What LSPs Lose—and Customers May Miss
It’s easy, especially for those skeptical of reseller margins, to dismiss the woes of LSPs as a natural market correction. As The Register notes, many in the tech community put little stock in fortunes won or lost from what critics viewed as middleman fees. Yet beneath the dollars and partner politics, there’s a more nuanced reality.LSPs have long acted as navigators—offering advisory expertise, mitigating licensing complexity, and acting as advocates for their customers in negotiations with vendors as dominant as Microsoft. Mike Jones of US Cloud describes the change as analogous to losing your trusted financial advisor and being told to deal directly with Wall Street. The middleman “cut” may vanish, but so might the nuanced, often indispensable, guidance LSPs provide in multi-million-dollar contracts.
Jones warns that, while direct relationships might promise faster responses and less bureaucracy, the loss of the LSP advisory role could leave non-expert IT executives exposed to costly missteps or suboptimal licensing choices.
Strengths of Microsoft’s New Model: Efficiency, Control, and Margin
From Microsoft’s perspective, the strategic rationale is clear—cut out middleman costs, deepen customer control, and reduce revenue leakage. The move brings several tangible benefits, including:- Greater Pricing Discipline: By making deals directly, Microsoft can better standardize pricing, discounting, and manage account revenue predictability.
- Improved Margins: Absorbing commission payouts immediately strengthens profitability, a critical lever as Microsoft doubles down on costly eAI investments and next-gen cloud infrastructure.
- Accelerated Innovation: A direct line to decision-makers theoretically speeds up deployment of new products, especially large-scale AI features like Copilot—where Microsoft now charges up to $30 per seat annually for enterprise users.
Risks and Weaknesses: Alienating a Channel, Losing Trusted Guidance
Despite its immediate financial upside, Microsoft’s new model isn’t without risk. Key concerns flagged by partners, analysts, and channel watchers include:- Erosion of Partner Goodwill: Microsoft’s channel built its global reach over decades, and many LSPs and system integrators remain critical to deployments in complex or specialized environments. Rapid, top-down shifts may breed mistrust, making it harder for Microsoft to mobilize allies on future initiatives.
- Customer Backlash: Not all enterprise customers possess deep licensing knowledge. Without expert guidance, some risk either over-buying, under-licensing, or missing out on new product features. A poorly managed transition could undermine satisfaction and, in time, loyalty.
- Reduced Market Flexibility: The efficiency of direct sales must be weighed against the lost agility that comes from a competitive channel offering tailored services, rapid response, and advocacy. With fewer options, some clients could explore competitors—including surging cloud players like AWS or Google Cloud Platform.
- Impact on SMBs and Niche Sectors: While the current changes target large enterprise renewals, downstream effects could ripple into mid-market and small business channels, affecting local IT economies and industry diversity.
Strategic Analysis: What Does the Future Hold?
Speed and scale favor Microsoft, but the channel has repeatedly reinvented itself in the face of disruption. The pending extinction of EA commission has already forced leading LSPs to seek alternative income streams—managed services, custom cloud integration, cybersecurity offerings, and vertical market specialization.Forward-thinking LSPs may well thrive by leaning into high-value, complex environments where Microsoft’s direct model can’t easily replace nuanced consulting. Firms that succeed will transition from simple licensing agents to genuine technology partners, focused on continuous innovation, adoption, and measurable business outcomes.
For Microsoft, the immediate reward is tighter control and improved finance. Long-term, the company must carefully balance efficiency with partner and customer engagement—especially as broader market shifts (such as generative AI and hybrid cloud) demand deep collaboration across the IT ecosystem.
The AI Angle: Banking on Copilot—But Questions Remain
Overlaying these seismic commercial changes is the heated race for AI enterprise dominance. Microsoft has invested unprecedented sums into generative AI, rapidly launching Copilot and integrating machine learning across its product range. Yet the company remains reticent about the precise financial impact of these investments—AI revenue is not broken out clearly, and adoption rates remain an ongoing question.Notably, Microsoft charges a steep premium (as much as $30 per user, per month) for Copilot—a move that may require sustained partner support to achieve mainstream uptake. If LSPs, freshly alienated by revenue cuts, hesitate to champion Microsoft’s latest (and expensive) offerings, Copilot’s growth trajectory could face unnecessary headwinds.
The Customer’s Dilemma: Direct Isn’t Always Better
For end customers, the direct licensing model holds mixed implications. On one hand, the pathway to contract renewal may seem simpler, with negotiation points—ostensibly—flattened by direct engagement with Microsoft. On the other hand, the loss of channel advocacy means enterprises must take greater ownership of complex licensing, compliance, and implementation decisions.This is especially risky for organizations with limited internal expertise. The possibility of misjudging requirements, missing advantageous terms, or failing to optimally deploy new features can easily outweigh the perceived savings from “cutting out the middleman.” Industry observers will be keenly watching how many enterprise buyers invest in upskilling procurement and legal teams as LSPs step back from the front line.
Investor Outlook: Channel Stocks in the Firing Line
The hit to BTG’s share price is a cautionary signal. Similar LSPs and large-volume resellers across Europe, North America, and APAC could face comparable stock price headwinds, particularly if they have not diversified away from Microsoft commission dependency. For the more nimble, the transition period will be critical for narrative control—demonstrating strong alternate revenue streams will be key to maintaining investor confidence.Regulatory and Competitive Angle
As Microsoft tightens its grip on large enterprise relationships, questions of market power will inevitably arise. Regulators in both the US and EU have scrutinized Microsoft’s cloud practices in recent years, concerned with both competition and interoperability. Should partner disenfranchisement and reduced choices for customers spur formal complaints, Microsoft’s new approach could attract additional oversight or even sanctions.Additionally, Amazon and Google will no doubt seek to exploit any partner unrest, offering generous migration and alliance terms to talented LSPs looking for a new home.
Summary Table: Winners and Losers in the New EA Era
| Stakeholder | Near-Term Impact | Long-Term Outlook |
|---|---|---|
| Microsoft | Increased margin, control | Must avoid channel/market backlash |
| LSPs/resellers | Loss of crucial revenue, need to adapt | Opportunity for reinvention, risk of obsolescence |
| Enterprise clients | Potential efficiency gains, but risk losing guidance | Need to invest in internal expertise or trusted advisors |
| Investors (LSP) | Volatile, negative sentiment for EA-exposed firms | Stabilization for firms that adapt, risk for laggards |
| AI adoption (Copilot) | Uncertain, depends on partner buy-in | Could accelerate, stall or diversify depending on channel dynamics |
Conclusion: The Next Act for Microsoft—and Its Ecosystem
Microsoft’s bold move to reclaim Enterprise Agreement renewals signals a new era for the global software channel—one where efficiency and margin meet the complicated reality of partner-driven ecosystems. While the near-term winners and losers are already apparent, the full consequences on innovation, customer experience, and market structure may take years to play out.For Microsoft, the challenge will be to leverage its enhanced control without stifling the dynamism and reach that a healthy partner network provides. For LSPs and their stakeholders, the coming months and years are nothing short of critical: survival, let alone growth, demands urgent reinvention.
Most importantly, for the end customer, the real test will be whether the promise of streamlined, direct engagement outweighs the subtle but vital advantages that skilled reseller-advisors once brought to the table. In the rapidly evolving worlds of cloud and AI, the only certainty is change—and those who adapt fastest, on both sides of the equation, are most likely to thrive.
Source: theregister.com Microsoft Enterprise Account renewals move hurts resellers