Microsoft partners balk at new licensing scheme, dent growth

Software giant calls out impact of slow transition to New Commerce Experience amid strong results


Microsoft's partners appear to have pushed back against Redmond's "new commerce experience" licensing scheme, as the software giant noted a slower-than-expected transition to the arrangement in its Q3 2022 earnings.

The company today announced typically robust results: Q3 revenue reached $49.4 billion, an 18 per cent year on year jump. Cloud revenue jumped 26 per cent to reach $19.1 billion, with Azure and other cloud services growing 46 per cent.

Dynamics grew 22 per cent. Office's commercial incarnation increased revenue by 12 points, one ahead of Office's consumer services. LinkedIn grew by 34 per cent. Windows surfed the PC boom to record 11 per cent growth from sales to computer-makers, while commercial Windows products added 14 per cent to Q3 2021's revenue haul.

The company remains wildly profitable. Net income was $16.7 billion – an eight per cent improvement.

All the numbers above would have been even better had it not been for exchange rate shifts – and if partners had been more enthusiastic about Microsoft's newish licensing arrangements.

The licensing scheme was announced in September 2020, when Microsoft pitched "a simplified approach and greater flexibility in how you purchase software licenses in a way that's easy to understand, that directly improves licensing asset management, and with predictable costs."

The scheme de-emphasized sales of perpetual licenses in favor of a "new commerce experience" that focuses on fixed-term subscriptions to cloudy products and makes paying month-to-month more expensive.

But the scheme has worried some members of Microsoft's partner community, who fear it could leave them on the hook for some customer purchases.

Channel-centric analyst firm Canalys has rated the new scheme as more beneficial to Microsoft than its partners or customers. The analysts also noted that the change includes significant price rises, and opined it "has drawn significant ire from partners around the world."

Those partners appear to have expressed their ire by not using the new scheme – even though it became Microsoft's default offering early in 2022.

"Our on-premises transactional licensing revenue across both the Office and Server businesses was more negatively impacted than expected due to the transition from our open licensing program to our cloud solution provider program," CFO Amy Hood reported on Microsoft's Q3 earnings call.

"It's just taking us a little longer to onboard all of this community to make sure that they can transact the way they want to in the program," Hook added. "So I do think it's going to take us longer than we thought. We're going to continue to see that impact in Q4."

Microsoft CEO Satya Nadella weighed in with his opinion: "This change is super good for both the partners, the customers, and Microsoft long term. So there's execution ahead but we want to do this because it benefits everybody."

For now, some clearly struggle to see the benefits, and that's hurting Microsoft's bottom line – to sufficient extent to rate a mention during quarterly results. But by the same token it was just a mention alongside otherwise rapid growth, and the extent of the impact was not quantified. ®


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