Microsoft’s recent strategy shift in how it handles Enterprise Account renewals has sent ripples through the IT industry, especially among the constellation of “Large Service Providers” (LSPs) that for decades played a pivotal role in transacting, managing, and supporting Microsoft’s biggest customers. These changes, designed to bring more direct sales revenue into Redmond’s coffers while marginalizing the long-standing partner ecosystem, have begun to bite—with tangible impacts already visible in both partner financials and broader market dynamics.
Shaking Up the Microsoft Licensing Ecosystem
Historically, Microsoft relied heavily on accredited LSPs to sell, renew, and advise on its flagship Enterprise Agreements (EAs)—three-year licensing contracts that underpin the software infrastructure of the world’s largest corporations, government entities, and educational institutions. In return, these LSPs earned a small but significant slice of commission revenue per transaction, creating a classic symbiotic channel relationship: Microsoft gained reach and local expertise, while LSPs banked on predictable, high-volume commissions and forged deep advisory relationships with customers.But Microsoft’s priorities have shifted, prompted by a combination of new market conditions, changing customer buying behaviors, and its own internal ambitions. According to multiple reports and confirmed by statements from affected resellers, Microsoft has begun reclaiming direct control over EA renewals, particularly for large corporate accounts—a move that fundamentally disrupts the traditional sales and support paradigm.
One prominent casualty: Bytes Technology Group (BTG), a leading LSP listed on the London Stock Exchange. On the eve of its annual general meeting, BTG stunned investors with news that its profit was being “dented” by both delayed customer buying decisions (a result of a “challenging macroeconomic environment”) and, crucially, by lower financial kickbacks from Microsoft EA renewals. In a statement to investors, BTG acknowledged that Microsoft’s new approach is “impacting” its operating profit, with gross profit for the first half of fiscal 2026 expected to stay flat, and operating profits predicted to decline.
The Numbers: From Billions to Zero in Commission
The raw numbers underscore the scale of the shake-up. According to US Cloud, a specialist Microsoft support provider, the commission pool paid by Microsoft to its global LSP network for EA renewals has crashed: from $2.5 billion in 2023 to $1.67 billion in 2024, is projected to sink to just $583 million in 2025, and is expected to hit zero next year. These declining figures correspond with Microsoft’s aggressive move to bring EA renewals—once the heartland of the LSP channel—in-house. Meanwhile, Microsoft’s estimated direct sales revenue from these accounts is projected to surge from $833 million in 2024 to $1.92 billion this year, and could reach $2.5 billion in 2026.Industry observers estimate that about one-third of all large EA renewals—representing the richest and most complex customer accounts—were reclaimed by Microsoft from LSPs between 2023 and 2024. The channel shockwaves are severe: LSPs are predicted to endure a further 65 percent haircut in EA commission revenue in 2025, with the entire book of major EA business believed to be fully transitioned to “Microsoft Sales Direct” by January 2026.
For LSPs whose entire business model has revolved around harvesting recurring, predictable revenue from licensing renewals, the implications are existential. BTG itself revealed that Microsoft sales account for about half of its gross profit. Its gross invoiced income was reported at £2.1 billion (about $2.88 billion) for the year ended February 28, 2025, underscoring the sheer scale of volume running through the system.
Why Is Microsoft Making the Change?
Microsoft’s motivations are plain. The global EA market is estimated at around $200 billion for three-year contract terms, with LSPs previously earning a 1.25 percent commission rate. By clawing back the transactional piece, Microsoft not only captures additional direct sales revenue, but also reduces commission payouts—estimated by US Cloud’s analysis as translating to a 0.39 percent annual EBITDA boost. For a $3 trillion company, this amounts to billions more in the corporate war chest.But there are strategic reasons, too. Microsoft is in the midst of one of the most aggressive product transformations in its history: the pivot to cloud, the infusion of AI into every product line (notably the $30-per-seat Copilot add-on), and the drive to establish itself as the essential fabric of the modern digital workplace. Own the customer, the thinking goes, and you own their digital future.
By dealing directly with enterprise customers—especially “whales” with complex, multi-country deployments—Microsoft not only locks in revenue, but also positions itself to have more meaningful conversations about new cloud, security, and AI offerings, up-selling and cross-selling without a channel middleman taking a cut or, potentially, steering customers to competitors or alternative approaches.
The Human (and Business) Cost for Service Providers
The sudden elimination of millions (and ultimately billions) in commission revenue is no abstract change: public market reaction to BTG’s disclosures was swift and brutal, with shares collapsing more than 25 percent in a single morning of trading. LSPs across North America, Europe, and beyond are now embarking on significant reorganizations: BTG, for example, is pivoting from a “generalist” sales model to specialized, customer-segment-focused teams in hopes of shoring up profit through more relevant, targeted services. But the damage is immediate and, for many, irreparable.Megabuyte analyst Indraneel Arampatta assessed the impact bluntly: “The Microsoft partner change elements are starting to bite.” For investors, there is growing unease that channel players such as BTG, which derive a large proportion of their business from Microsoft, remain dangerously exposed. LSPs who have not diversified—by offering managed services, security, or bespoke consulting around cloud, data, and AI—are especially at risk.
The attrition is happening on two fronts. First, simple commission math: losing core EA revenue puts pressure on the bottom line. Second, the transformation to new business models—managed services, cloud infrastructure, hybrid support—requires both investment and a cultural shift. Not all resellers are equally prepared for this, and those lagging behind may find themselves unable to compete, especially if Microsoft aggressively promotes its own direct consulting and support practices.
What About the Customers?
For enterprise customers, the impact of these changes is nuanced.On the positive side, dealing directly with Microsoft could theoretically bring benefits: access to up-to-date product knowledge, swifter responses, and tighter integration with Microsoft’s worldwide cloud, security, and AI counsel. Large customers may appreciate the ability to negotiate directly with “the source,” cutting out intermediaries and perhaps extracting better enterprise-wide deals. Microsoft’s own scale, especially when it comes to custom licensing for multinational deployments, could translate into more streamlined negotiations, bundling, or support.
However, there is a compelling argument that something valuable is being lost. As Mike Jones of US Cloud observed, direct relationships with Microsoft may mean losing the “trusted advisor” role that LSPs historically played. It’s akin to being told your financial advisor is being replaced by direct Wall Street access: you might save on commissions, but lose advocacy, context, and local expertise. LSPs often acted as translators between Microsoft’s sometimes labyrinthine licensing rules and an organization’s specific needs, helping to prevent over- or under-licensing, strategize cloud migrations, and ensure compliance.
Moreover, while Microsoft has invested heavily in customer success and technical account management, the scale of the change raises doubts about whether every EA customer will receive the kind of hands-on support to which they’re accustomed. The risk is that less sophisticated buyers—especially those outside the Fortune 500—may feel underserved or lost in the shuffle.
Is This Just the Beginning? The Channel’s New Reality
Analysts and channel insiders see Microsoft’s move as part of a broader channel transformation sweeping the software industry. As cloud adoption matures, vendors want to own more of the customer relationship, reduce costs, and maximize upsell opportunities across high-margin services like cybersecurity, data analytics, and of course, generative AI.But the changes extend further than commissions. Across the Microsoft partner universe, there are further rumblings of continued upheaval. Sources indicate that even more changes are expected around the structure of the “Solutions Designations” program—Microsoft’s way of accrediting specialist partners for cloud, security, and digital transformation. The risk, warn analysts, is that the very partners who helped build Microsoft’s enterprise dominance could be left behind unless they adapt rapidly.
For some, this means mergers and acquisitions—smaller LSPs banding together to survive, or acquiring managed services specialists to broaden their value proposition. For others, it’s a more existential crossroads: pivot and build deep expertise in areas such as AI, cloud migration, or industry-specific solutions, or risk being rendered obsolete as the partner channel is reimagined for the cloud-first, AI-driven future.
Microsoft’s High-Stakes AI Gamble
Looming over all of this is Microsoft’s bet on generative AI, led by massive investments in partnership with OpenAI and the rollout of features like Copilot at $30 per user seat. The company has not disclosed the exact revenue contribution or adoption rates from these AI-powered offerings, but insiders suggest the sums involved are already “eye-watering.”Bringing EA renewals in-house not only boosts margins, but lets Microsoft steer more customers directly onto new AI licenses and subscriptions—a profoundly strategic play as enterprise customers weigh the costs and benefits of next-generation productivity tools.
It’s a high-risk, high-reward strategy. If AI adoption takes off in the enterprise at the pace Microsoft anticipates, the channel upheaval will be seen as a smart move. If customers balk, or if incumbent partners are unable to adequately support the new AI-centric offerings, there may yet be unforeseen consequences for customer satisfaction and support.
Critical Analysis: Winners, Losers, and What Comes Next
Notable strengths of Microsoft’s approach:- Margin Expansion: By eliminating commission payouts, Microsoft boosts its profit margins directly—translating to billions on the bottom line for a company of its scale.
- Tighter Customer Control: Managing EA renewals directly gives Microsoft more “touch points” with strategic customers, aligning upsell and cross-sell opportunities, especially around emerging cloud and AI products.
- Alignment with Cloud and AI Future: The move accelerates Microsoft’s transformation from a software licensing vendor to a comprehensive cloud, security, and AI provider, tightly integrating product and support.
- Partner Alienation: Microsoft’s partner ecosystem has been a core contributor to its decades-long enterprise dominance. Gutting LSP commissions could breed resentment, reducing partner investment and loyalty, or even driving some customers to rival platforms with more channel-friendly models.
- Advisory Gap: As direct transactions increase, customers may lose out on bespoke advice and support historically provided by LSPs. Microsoft must ensure its own field teams are equipped to guide customers through the intricacies of licensing, compliance, and strategic IT planning.
- Customer Backlash or Fatigue: If the transition is perceived as merely a cash grab, with diminished support or higher costs, more price-sensitive or risk-averse customers could explore competitive alternatives, eroding Microsoft’s share in key segments.
- Resource Bottlenecks: The scale of hundreds (or thousands) of newly direct customer relationships could strain Microsoft’s enterprise sales and support teams, at least in the near term.
The Channel’s Path Forward
For LSPs and channel partners, the writing is on the wall: dependence on legacy commission models is no longer viable. Survival means evolving rapidly—shifting to managed services, vertical specialization, security, cloud optimization, and most pressingly, advisory and enablement services around AI and data. Some will falter; others will emerge stronger, more nimble, and—ironically—potentially more valuable to customers looking for independent guidance in an ever more complex Microsoft universe.BTG’s CEO Sam Rudd expressed cautious optimism, citing a “healthy pipeline” and plans to build a future “better aligned to meeting our customer needs.” But the proof will be in the execution. For those who can make the leap, opportunities abound in redesigning service offerings, investing in automation, and becoming architects of digital and AI transformation. Laggards, however, may simply be outpaced by the relentless velocity of Microsoft’s go-to-market evolution.
Strategic Ramifications: An Industry In Flux
Microsoft’s play is being watched closely by the entire tech industry. Its success or failure will color how other hyperscalers—Amazon, Google, Oracle—treat their own channel partners. Will vendors see justifying the cost of large indirect networks as a luxury, not a necessity? Or will we see renewed innovation in partnerships, with vendors focusing on automating administrative tasks, letting partners concentrate on value-added services and deep specialization?Channel transformation and partner consolidation are already underway. Those with deep expertise, adaptability, robust service portfolios, and a willingness to embrace new technologies (especially AI) stand to survive and perhaps thrive. But everyone—from vendors to customers—should heed the cautionary tale unfolding right now among Microsoft’s traditional service partners.
Conclusion: The End of an Era, The Dawn of Something New
The rapid withdrawal of EA renewal commissions, and Microsoft’s eager embrace of direct enterprise sales, has irreversibly altered the channel landscape. For affected LSPs like Bytes Technology Group, the financial pain is immediate and acute—reflected in both profit warnings and a brutal stock market response. But the broader story is one of adaptation: a test of who can transition to the next era of technology services, and who will be left behind.For Microsoft, the move is rational—if ruthlessly efficient. With billions at stake in cloud, security, and, above all, generative AI, Redmond no longer sees value in subsidizing the old guard. Yet as the dust settles, enterprise customers and the entire channel ecosystem will watch closely: will the new “direct” regime deliver the hands-on support, strategic guidance, and flexibility that organizations crave? Or will removing the middleman leave more questions than answers?
As with so many tectonic changes in the technology world, there will be winners and losers. The only certainty is that for Microsoft partners and the customers they once served, the days of business as usual are over. The future belongs to those agile enough to adapt to the new world order—and bold enough to capitalize on the opportunities it presents.
Source: theregister.com Impact of Microsoft taking over Enterprise Account renewals starts to 'bite'
