Microsoft Channel Chief: Cloud Makes IURs Unsustainably Expensive

Editor's Note: Due to partners' negative reaction to these changes, Microsoft on July 12 announced that it was rescinding the plan to end the internal use rights benefit. See RCP's coverage here.

Gavriella Schuster has come full circle on internal use rights (IURs).

In media briefings this week in advance of the Microsoft Inspire partner conference, Schuster, Microsoft's channel chief, addressed a major brewing controversy in the Microsoft partner community. Earlier this month, Microsoft quietly disclosed that it was ending IURs, the partner program benefit that allows partner companies to run their entire business on Microsoft software and services.

For the price of a Microsoft Action Pack Subscription, a Silver Competency fee or a Gold Competency fee, Microsoft partners have historically been able to get enough not-for-resale licenses and subscriptions to run their entire business on the Microsoft stack. The benefit supported a 10-person partner company with the Action Pack, a 25-person company with the Silver Competency and a 100-person company with the Gold Competency, saving partners thousands to tens of thousands of dollars per year or more in operating expenses. Additionally, the programs encouraged channel familiarity with advanced features and elements of the Microsoft stack that only light up when multiple premium Microsoft products are used in combination.

The reaction among Microsoft partners has been angry, swift and surprisingly broad. Like most vendors' channel communities, Microsoft partners rarely complain publicly due to the perceived need to stay in the company's good graces for perks, referrals and other discretionary benefits. Yet in this case, a highly critical Change.org petition emerged quickly and had garnered about 5,400 digital signatures as of Thursday.

The petition, titled "Disapprove Microsoft Partner Network Changes," declares, "In announcing these changes it's clear Microsoft is going to war with its Partners. [For the] Partners who have been so loyal to the Microsoft Business and to help it achieve the status of being the most valuable business in the world to be now treated like this is just not fair."

Specifically, the petition opposes three changes:

• The July 1, 2020 retirement of IUR in the Action Pack and in competencies. "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," Microsoft's statement says.
• An Oct. 1, 2019 change to make product licenses included with competencies specific to the competency the partner attains.
• Microsoft is shutting down the on-premises support incidents for partners in August 2019. Previously, the Action Pack included 10 incidents, a Silver Competency covered 15 incidents and a Gold Competency allowed 20 incidents. Partners with renewal dates before August will retain their incidents until their next anniversary date. Details are here.

Although Schuster has only been in her current role as corporate vice president of the Worldwide Partner Group (now called One Commercial Partner) for three years, her connection to IURs goes way back to the beginning of the benefit.

"My first job at Microsoft in 1995 was to make a global solution provider program," Schuster said this week in a pre-Inspire briefing for media. "When I, when I did that, I was like, 'OK, so what do you deliver to partners in that?' And it was, 'Well, we want them to use our products.' So we created these use rights, and we said, 'We want you to use our products.' And at that time, nobody even knew what our stuff did. So we needed them to learn how to use it. And, and delivering product use rights for software is pretty much free."

That has changed dramatically with the cloud, Schuster contends. Although cloud services like Office 365 or allowances in the Azure platform seem ephemeral, Schuster argues that the costs of delivering cloud services as IURs to partners were starting to eat into all of the other benefits of the Microsoft Partner Network (MPN).

"As we moved into cloud services, we really didn't think it through that much until recently, when the bills were getting very big," Schuster said. "We can't actually afford to run every single partner's organization all around the world anymore, because it's not free."

According to Schuster, the speed of growth in the MPN (with about 7,000 partners joining per month), the internal cost in datacenter capacity and the lack of spending discipline that the IUR program encourages are all combining to make IURs unsustainable.

"Because we have so many more partners joining the network, and our partners are getting so much more of their businesses running on cloud services, there's a real cost associated with us giving you IURs on cloud services. There's a high, high cost of sale for us. And yet, we're not making any money on it," Schuster said. "When partners aren't paying for something, they're also not as cautious as if they were paying for it. And so the example would be if you were living in a house where you didn't have to pay for utilities, you may not really pay attention to whether you're turning down the heat and turning off the lights. And the bill goes way up, and you don't really care. That was really what was happening with a lot of partners in terms of the dev test environments and the devops that they were doing in terms of scalability in their solutions. It was costing us a lot."

Schuster acknowledged that ending the IURs was a hard choice. "I had these cost overruns this last year where I had to reshuffle a bunch of things and take services away from the partners to pay for that. But I factored out that if we continue the level of growth, and our partners continue to grow like they have been, then I would basically not be able to provide the partners any other service other than IURs," she said.

Schuster downplayed the importance of IURs to the partners that she talks to regularly. "When you talk to a partner, that's not even what they talk about as being valuable. What they talk about as being valuable is [Microsoft connecting] them to customers, when we can generate business for them, when we invest in helping them build new services and practices," Schuster said. "I would rather spend the money to provide them all those other things than to help them run their business on  IURs."

The 175 comments left behind so far by signatories to the Change.org petition, however, suggest that the IURs remain a headline benefit to many partners, especially smaller ones.

By removing the core of the benefit that she once helped create, Schuster is facing one of the biggest controversies in the Microsoft channel since Microsoft's decision to shut down Windows Small Business Server.

Posted by Scott Bekker on July 11, 2019