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Microsoft CSP explained part II: Direct vs Indirect Resellers

I’ll kick off this second blog on the topic of Microsoft’s Cloud Service Provider offerings by explaining the differences between a Direct and Indirect Reseller. The reason why they are two categories of CSP Reseller is to allow partners of different skill levels and sizes to be CSP Resellers.

Microsoft CSP explained part II: Direct vs Indirect Resellers

Let’s examine the differences between the two programs and flip things around to start with the simpler scenario:

Indirect CSP Reseller

For partners just starting out selling CSP, becoming an Indirect Reseller is usually the most sensible option.  The requirements for Indirect Resellers are relatively simple.  Indirect Resellers establish a relationship with an Indirect Provider or Distributor. The Distributor maintains the relationship with Microsoft. The Indirect Reseller maintains the relationship with the Distributor. Because there is a Distributor between the Reseller and Microsoft, they use the term “Indirect Reseller”. Here is a diagram that illustrates the relationships in this model:

Indirect CSP Reseller

The reason why it is easier for a partner to become an Indirect Reseller is because the Distributor provides various support services to the Reseller. Some examples of these services include:

  1. Provide technical training and assistance
  2. Marketing products and services
  3. Provide financing and credit terms
  4. Provide integration with Microsoft’s API to place order for cloud licenses 

Many younger or smaller partners are unable to provide these services on their own. It makes sense for these partners to rely on a Distributor to help. Approximately 90% of companies that sell CSP are Indirect Resellers. Many Microsoft Distributors sell other products besides Microsoft. As a partner, this enables you to provide a full package of offerings. For example, an Indirect Reseller might want to include an offer for new tablets with an Office 365 license purchase. Another example could be providing Jabra headsets with a purchase of Microsoft Teams. 

Distributors vary by country. If you are interested in becoming a CSP Reseller and you need to find a Distributor in your local market, please visit the Microsoft partner website.

For more information about how to become an Indirect Reseller, please visit the Microsoft partner website.

Direct CSP Reseller

Larger and more mature partners will often opt to become a Direct CSP Reseller. This means that the partner deals directly with Microsoft. Here is a diagram that explains the relationships in this model:

Direct CSP Reseller

The requirements on a Direct CSP are more involved. The partner needs to be able to provide 24x7x365 support. The partner must have an electronic billing system in place to support their CSP business. They also must be able to develop a customer portal which calls into the APIs provided by Microsoft to provision cloud licenses into a customer’s tenant. Finally, the partner must have a Microsoft Gold Partner Competency, be a Microsoft Managed Partner, and commit to selling a certain number of licenses per year. 

Because of the more stringent requirements, approximately 10% of Microsoft partners who sell CSP are Direct Resellers. If you are just starting out as a partner, becoming an Indirect CSP Reseller is the more popular option.

CSP Pricing

Many customers want to know how CSP pricing works. Who decides what the sell price is of a Microsoft product? Is it the CSP Reseller or Microsoft?  Does it make a difference in the price if the customer purchases from an Indirect or Direct Reseller?

When Microsoft sells licenses via CSP, they provide two prices:

  • CSP buy price
  • Recommended retail price (RRP)

Microsoft sets the CSP buy price. This is not something that the CSP can negotiate. This effectively sets a floor on the price that all CSPs charge. The RRP is a recommendation or guideline from Microsoft.  CSPs can sell above or below this price. If they sell below RRP, it obviously cuts into their margin.  Some CSPs may be willing to sell below RRP in exchange for other services from a customer. In some cases, a CSP would sell above the RRP because the licenses are bundled with other complementary services. For example, some partners sell licenses via CSP as part of a larger managed services offering.  This is one of the reasons why prices can vary across CSPs.

When it comes to Indirect vs. Direct, the situation is slightly more complicated. With an Indirect CSP, there are two partners involved in the transaction: The Indirect CSP and the Distributor. In this case, they would split the margin on the sale. In the case of a Direct CSP, they can keep the full margin for themselves.  Direct CSPs have a higher cost to sell and transact a license because they take on more responsibilities before, during, and after the sale. Microsoft provides them with a higher margin to compensate them.  Indirect CSPs have less responsibilities because the Distributor provides them with significant amounts of help.  Both parties need to be compensated for their role in the transaction. This means that the Indirect CSP gets a lower margin. 

Which model is best?

Because Indirect and Direct CSPs determine the price that they charge customers, it is difficult to make any blanket statements about which model would offer better pricing to customers. In my view, this is not really the best way to decide on a CSP partner. 

Instead, you need to do your homework to determine what services and benefits a CSP partner provides you beyond simply selling a license.  Many customers make the decision on which CSP to work with based purely on price. This is a very sensible approach if all you are buying is a license. But purchasing on CSP is more than just a simple license.

Where does Intergen fit in?

Some CSPs like Intergen come from a very strong Consulting Services and Managed Services background. That makes us a Direct Reseller. If you want to learn more about the history of Intergen, you can read more about it here.  Unless a customer has a large internal IT staff with years of Microsoft Cloud implementation experience, it is very likely they are going to need help from a partner to implement or support the platform. 

It often makes sense to choose a CSP partner that also has a strong services capability. It can be more cost effective to buy your licenses and services from the same partner, providing significant cost savings for the customer and simplifying the procurement process. Moreover, it can be very frustrating for a customer when they have a problem with a Microsoft Cloud platform and there are multiple vendors pointing fingers as to who caused the problem. Working with a single partner who is fully accountable for the solution can help to avoid this negative experience.

 

This blog is part of a three-part series about the Microsoft Cloud Solution Provider (CSP) program and Microsoft Licensing for the cloud

Microsoft Cloud Solution Provider and licensing

Posted by: Harris Schneiderman, Regional Sales Manager, Seattle | 07 August 2019

Tags: Office 365, Cloud Solution Provider, CSP, Microsoft Licensing, Microsoft Licensing for the cloud


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