Microsoft increases Office 365 partner margins

Microsoft has changed the Office 365 channel program to make the online productivity suite more of an opportunity — and less of a competitor — for partners.

Under Office 365 Open, partners will be able to bill their customers directly for Office 365, bundling additional services in with the software in a single invoice. And with the Office 365 Advisors Program update, margins have increased to 23% in the first year of Office 365 sales for partners who sell 2,500 seats. Partners who sell more than 500 seats get 22%, and 150 seats garners a 20% margin. The 12% margin is staying the same for smaller sales, but the renewal fee is decreasing from 6% to 4%.

Microsoft CEO Steve Ballmer joined Microsoft Office division president Kurt DelBene during the announcement at the Worldwide Partner Conference (WPC) and said that Office 365 is “exploding in momentum,” but the company is not releasing any sales numbers at this time.  The Office 365 Open and Advisors Program updates  are designed to help spur momentum in the channel, Ballmer said.

At the WPC on Wednesday, in what would best be described as a cheerleading session, Microsoft COO Kevin Turner pushed Office 365 to partners.

“Winning with Office 365 is the single most important thing we need to do within the enterprise,” Turner said.

He also fired some shots at Google.

“Google is pitching our customers, but fortunately they don’t win much,” he said. “When they pitch Google Apps at $50, you need to help customers look below the surface and understand there’s a whole lot of cost associated with making their solution work.”

This decrease in renewal fees may be a pain point for partners, who in passing have said that low recurring revenue is part of what made Office 365 a non-starter for their practices. If you’re a Microsoft partner, what do you think of these changes to Office 365? Do you have a hard time selling it against Google Apps? Leave your comments below or send me a note at [email protected].