News

Microsoft's New Commerce Experience Puts Limits on Customers, and Financial Burdens on Partners

• By Kurt Mackie
• 07/28/2022

Microsoft's New Commerce Experience (NCE) subscription model offers less flexibility for commercial customers by steering them toward annual commitments, but it's maybe even worse for Microsoft's Cloud Solutions Provider (CSP) partners.

CSPs will get stuck with the bills should a customer fail to complete an annual commitment under the NCE and stop paying. In essence, Microsoft's favoring of annual commitments under NCE terms means that partners can bear greater liability with regard to Microsoft's service contracts.

"The Microsoft Partner Agreement says partners are held to the obligation of the subscription term and owe, even if their customers go bankrupt, etc.," one partner told me, who wished to remain anonymous.

NCE subscriptions affect organization signing up to use Microsoft services such as Dynamics 365, Microsoft 365 and the Power Platform (Power Apps, Power BI, Power Automate, etc.).

Microsoft hasn't said much publicly about the NCE. There was some talk back in December about it, but the NCE did not get mentioned at Microsoft's recent Inspire event for partners, held this month, even though that event was all about selling Microsoft's cloud services.

This week, Microsoft's partner blog noted a couple of minor NCE program changes, such as that "partners now have seven calendar days to cancel or reduce seats after ordering or renewing new commerce subscriptions in CSP." Also, "Microsoft has indefinitely extended auto-renewals of legacy CSP subscriptions, which were previously scheduled to end on July 11."

NCE Limitations
The unfair circumstance of Microsoft's CSP partners having to pay for incomplete NCE customer contract terms started to become public knowledge after Microsoft began switching subscriptions over to the NCE model, which happened on March 10, 2022 for new subscriptions.

It used to be possible for so-called "legacy" subscribers to commit to a one-month subscription term before that March date. These monthly commitments were just deviations from annual terms, Microsoft has told its partners. Now, with the NCE, customers face some form of annual commitments, although they can pay 20 percent more if they really want to keep the monthly arrangements.

In June, Microsoft made a small concession to existing monthly term legacy subscribers by announcing that it would not block them from renewing their legacy subscriptions. However, Microsoft also upped the monthly term renewal cost by 20 percent. Microsoft originally had planned to force these subscribers onto the NCE model on July 11, but rescinded that stipulation, and hasn't yet specified another date.

CSP partners receive financial incentives on these legacy customers. However, those legacy incentives will cease on Dec. 31, 2022, Microsoft has indicated.

Clearly, CSP partners are tasked with steering customers to the NCE model, but it's a less happy sales prospect for them, and replete with financial liability. Meanwhile, the customer gets less flexibility under the NCE, with the monthly option becoming costly to use and the inability to decrease license quantities during the subscription term.

Also, switching service providers was easier for customers under the legacy subscription plans. They could just switch the CSP. With the NCE, CSPs need to know that a customer still has an NCE commitment in effect with another CSP partner. Without such knowledge, customers could get double billed for the licensing. Worse, in such a scenario, both CSPs would be on the hook financially should that customer fail to fulfill the NCE's annual commitment.

What Customers Should Know About the NCE
The NCE just applies to qualified commercial tenants subscribing to Microsoft services, and it's in effect for them now. The so-called legacy subscription model still exists for Microsoft's government, nonprofit and education customers.

The NCE currently has three subscription-term commitment options:

• Annual term with annual billing at list price
• Annual term with monthly billing at list price, and
• Monthly term with monthly billing, but at a 20 percent higher price.

All three options let organizations increase the subscription quantity at any time. Customers will have to wait until the subscription's end, though, to decrease the quantity.

All three NCE subscription options also have a 168-hour cancellation period for new subscriptions. If customers try to cancel after that period, then they get locked into the billing term.

In general, customers subscribing to Microsoft's services should be aware of, and perhaps sympathetic to, the financial liability that CSP partners undergo with NCE subscriptions. It may seem incredible that partners are on the hook financially should a customer fail to pay Microsoft, but that circumstance appears to be true.

For that reason, it can be expected that CSP partners will carry out financial checks on prospective NCE customers.