Understanding Microsoft’s New Commerce Experience for seat-based offerings

Cast your mind back to 2019. You may remember Microsoft launching the New Commerce Experience for Azure. The aim of this launch was for partners to improve their value-added services and encourage customers to commit to Azure.

Microsoft recently announced it was extending the New Commerce Experience to include seat-based subscriptions. The seat-based model is specifically for licenses and subscriptions used with Microsoft 365, Dynamics 365, Windows 365, and Power Platform.

“Microsoft is investing in product innovations, better tooling, and access to new business opportunities that enable partners to grow their CSP revenue and provide more options to customers,” explains Dan Truax, General Manager, Global Partner Solutions, Microsoft.

The reason for this extension is because Microsoft wants partners to align their way of license purchasing. It will also help them to forecast profits more accurately, improve margins, and secure customer contracts for longer.

We know Microsoft loves to continuously evolve; but this major news has come as a surprise. Partners should start looking at these changes and understand how the extension will affect their current way of working.

What exactly is the New Commerce Experience for seat-based offerings?

1. It is a series of changes, new SKUs, and business models to help simplify and standardize Microsoft’s offerings.
2. Its role is to streamline and improve the end-customer experience of using Microsoft services, buying and managing subscriptions from Partners.
3. It affects how customers are billed for their licenses and subscriptions, but not how they interact with their license selection.
   

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And the benefits? 

• It gives Direct Partners more opportunity to sell or upsell larger seat numbers.

• There will be new tools to reduce management costs and licencing complexity.

• More flexibility to manage services.

• Simplified billing experiences.

• It encourages long-term business strategies.

• NCE will help to forecast revenue more accurately.

• There are new pricing, add-on options, and discounts.

• Microsoft will launch incentives to direct Partners, indirect providers, and indirect resellers within the CSP program. (Note that any Microsoft Partner who doesn’t make the transition to the NCE may lose their incentives on their current legacy offerings.)

• Trials will auto-convert, meaning fewer manual conversions to paid subscriptions.

And the big change?

Microsoft has brought in fixed commitment terms for one-to-three-year contracts. The longer the term, the bigger the discount.

If you choose to stay on a monthly term option, there will be a 20% premium added to this mode of payment.

This 20% cost is something Partners will need to absorb if they don’t shift to annual contracts.

It’s crucial to think strategically about this commitment. Month-by-month may be a more flexible way of licensing, but it now comes at a price.

The breakdown

Let’s dive a little deeper into the key takeaways. There are a few things to be aware of.

1. Month-by-month contracts now come with a premium

Partners are going to want to relook at the way they manage their subscription and license business.

Microsoft is adding a 20% premium onto month-by-month terms in the CSP Program and trying to force the community into annual or multi-year contracts.

In addition, there will be a 15% increase on all products in 2022. So, that’s actually a whopping 35% increase if customers stay on month-by-month contracts.

Not all customers will be able to make this shift, however moving customers to longer-term contacts will bring greater profitability for CSPs. There will be less seat changes needed during the year with no added premiums.

2. Cancellation policies are changing

There is a new enforced cancellation policy for customers to avoid prorated refunds on subscriptions. There will be no refunds given after seven days. You can increase seat numbers and changes throughout the year, but you can’t decrease.

3. Billing is easier

The New Commerce Experience gives Partners a more simplified billing experience. With the new billing experience you can:

• Consolidate your billing and invoicing using your businesses currency.
• Have consistent monthly billing dates rather than mid-month billing dates that vary across multiple tenants.

Something to note: Annual prices will stay the same even if you increase seats mid-term. They will just be prorated for the remainder of the term which will show on a monthly invoice.

 4. Put March 2022 in your calendar.

 By March 2022 any new subscription in M365, D365, W265, and Power Platform will automatically start as a New Commerce Experience plan.

You have from October 21 to March 22 to explain to customers how the new billing and commitments work and get them to agree to move to annual contracts.

What to do next?

The NCE for seat-based offerings will be available to Microsoft Partners from 14 October 2021 with Partners needing to make the transition by March 2022. There is a big task at hand, so the sooner you start looking at this, the better.

“Though you can take a phased adoption approach, keep in mind that new subscription orders, offers, and renewals for seat-based offers in the CSP program will be exclusive to the new commerce experience beginning in March 2022—so it’s critical to plan accordingly,” says Dan Truax, General Manager, Global Partner Solutions, Microsoft.

Here are our tips to getting on top of the New Commerce Experience:

1. Move month-to-month contracts to yearly terms, (if customers agree.)

• Talk them through the benefits of the annual agreement.
• Avoid the 20% month-by-month premium.
• Look at the number of full-time users and seasonal users to help advise on the contract type and percentage of annual vs. month-by-month users.

2. Work with your distributor to learn how they are managing the rollout.

• When and how can you convert subscriptions?
• How can you keep costs down?
• Talk about terms.
• Are there any transition promotions?
• Will trials auto-convert?

 3. Get organised

• Avoid multiple anniversary dates. If you can, move subscriptions to NCE on the same date.
• For invoicing peace of mind, manage your customers well. Some will need the same product on both monthly and annual term contracts, and it could get confusing.

Cloud User Hub can help

Besides our Microsoft 365 license-based support, Cloud User Hub will be adding support for the new seat-based offers allowing you to transition the remainder of your cloud portfolio to the new commerce experience. We will integrate support for seat-based offers in Cloud User Hub with a gradual roll-out.

Try Cloud user Hub today or book a demo.