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Microsoft's channel strategy shows value is more than a margin call

Microsoft's channel strategy shows value is more than a margin call

When selecting a Microsoft CSP distributor, it can be tempting for partners to chase the one offering the deepest discounts or highest margins. But should price and margin be the deciding factors? A growing body of evidence suggests that focusing solely on immediate financial gains can undermine long-term success. Instead, partners should align their choice of distributor with their business objectives and the distributor’s ability to add value – both to the partner’s goals and to Microsoft’s value chain.

Distribution, done differently will prioritise strategic alignment and capabilities over short-term cost savings.

 

Price-First Pitfalls

Price-First Pitfalls

 

 

 

The changes to the CSP Program are a timely reminder that value has a cycle.

Right now, Microsoft is consolidating value within its channel ecosystem.

For any partner with a goal to continue growing and thriving with Microsoft, think through where your distribution provider is or should be contributing into your value chain.

Have frank and fearless discussions on this front and decide – through the most pragmatic lens – if price-driven selection of your distribution providers will serve your long-term objectives.

 

 

Margin Erosion and Race to the Bottom.

Margin Erosion and Race to the Bottom.

In a highly competitive cloud marketplace, a singular focus on price can trigger a race to the bottom.

If every partner undercuts the next, margins shrink for all, leaving little profit to reinvest in growth or service quality.

Many tech partners are already grappling with profitability as customers demand more value and better pricing. Simply chasing the lowest costs exacerbates this pressure, potentially eroding margins further over time.

Hidden Costs.

You get nothing for nothing, we all know this. Going direct may provide a lower cost on licenses but also carries heavy operational burdens. Partners have to be prepared for upfront investments into providing 24/7 technical support and a robust customer billing structure.

Or, if you’re trading your provider down on price and up on margin, the result may be less responsiveness when you need support.

When low price is the prime objective, there’s going to be a value trade-off somewhere.

When cost or risk is shifted back to the partner as a result, perceived benefits and upfront savings can quickly evaporate.

 

Failure to meet Microsoft's Evolving Expectations.

Microsoft’s partner ecosystem is evolving toward rewarding depth of capability and customer impact, not just transactions. Recent Microsoft policies signal that partners are expected to invest in skills, support, and customer success. CSP Program changes now require direct-bill CSP partners to undergo business vetting and have at least one Solutions Partner designation in a solution area – a clear move to ensure partners have proven competencies. A partner who selects a distributor solely for cheapest pricing might find little enablement support to achieve such competencies or to hit Microsoft’s performance metrics (like customer adds, Azure consumption, or solution certifications). The risk is falling out of sync with Microsoft’s direction – missing out on incentives, co-selling opportunities, or even losing direct status in the future if the partner can’t meet the new standards. In the worst case, a partner overly focused on margin today could become ineligible for programs tomorrow, as Microsoft “raises the bar” on what it takes to succeed as a partner.

Lack of Value-Added Services

A distributor competing on rock-bottom price may not offer robust value-add services like technical pre-sales support, training, marketing assistance, or solution development help. This absence can leave a partner on their own. When service quality and advisory capability are lacking, price-only partnerships breed customer churn.

Strategic Alignment over Short-Term Savings

Strategic Alignment over Short-Term Savings

A good distributor will always come to the table when price is the best lever to pull in support of your business. A great distributor will back that up with the infrastructure to scale, the insights to retain customers, or the co-sell relationships to grow accounts.

In an ecosystem where value creation is increasingly tied to service depth, partner enablement, and ecosystem alignment, seek for a true strategic partnership with a distributor that will think outside the margins and get you what you need to succeed.

 

Contributes into your Business Goals

Contributes into your Business Goals

The right distributor should actively help grow your business, not just fulfill orders. This includes providing sales leads or deal matchmaking, assisting with marketing campaigns, and offering training that aligns with your service portfolio.

This goes beyond just passing along funding for campaigns and events. Or even hosting enablement webinars and bootcamps on new Microsoft offerings that can help partners to expand their expertise.

A great distributor will directly invest into understanding your end-customer target market. They will provide independent studies that will help partners understand what is driving changing buying behaviour, and insights that can inform your GTM strategies and plans.

A distributor that invests in your growth may not offer the cheapest licenses, but the payoff is a partner that can have a force multiplier effect on your business objectives.

Swaps the Margin Trap for Innovation

Interestingly, a distributor that helps you diversify and innovate can protect you from future margin squeezes. Many Microsoft partners are learning that margins on basic reselling are shrinking, and real profit comes from services and unique IP.

Various studies and channel data releases from Microsoft have highlighted partners who develop their own solutions or services on top of Microsoft cloud generate a significantly higher revenue multiple than those who focus only on reselling licenses.

A great distributor will identify your opportunities to develop value-added offerings and support you with resources along the way.

The merits of a distributor who acts as a business advisor as well as a supplier cannot be overstated.

 

Aligns with Microsoft’s Value Chain

Microsoft’s cloud business is not just about selling licenses; it’s about driving consumption, customer success, and innovation. The best distributor for a partner is one that actively aligns with these Microsoft goals. This might mean the distributor has programs to drive Azure consumption (through credits or optimisation tools), initiatives to help partners land Microsoft’s strategic products (such as Teams Phone, Security suites, or new AI offerings), and a track record of co-selling with Microsoft. Such alignment can make the partner part of Microsoft’s “inner circle” on new opportunities. It positions the partner to benefit from Microsoft’s own investments, such as relaying Microsoft funding programs or incentives through to you. A strategically aligned distributor ensures the partner is plugged into Microsoft’s ecosystem of incentives, marketing pushes, and solution development. The result is a partner better able to meet Microsoft’s benchmarks (e.g. achieving that Solutions Partner designation, or driving Azure growth to earn incentives), which in turn drives long-term success.

Builds Sustained Value with Programs and Services.

A value-added distributor can augment a partner’s capabilities through services that let you scale without having to build everything in-house. For instance, if a distributor offers services for identifying and mitigating the risk of Azure fraud, you can extend that service to your customers. Or, if you have opportunities in a solution domain you’re not internally geared up for, they’ll introduce you to solution partners with the expertise to bring the deal home. The changes to the CSP Program are steering success for partners that can take on larger or more complex customer engagements, so your choice of distributor should be one that will enable this outcome.

What you weigh up can change the way up with Microsoft

What you weigh up can change the way up with Microsoft

Microsoft’s channel strategy is clearly shifting toward quality and sustainability. The company is pushing partners to deliver customer value, adopt new technologies, and maintain high standards in support and competency. Partners should mirror this mindset in their distributor relationships. A distributor that aligns with Microsoft’s long-term vision – by helping partners build capabilities in areas like cloud migrations, data & AI, security, and more – will ultimately position those partners for greater success in Microsoft’s value chain.

Price and margin should be one factor, not the factor, when selecting a Microsoft distributor. In an era when Microsoft is raising the bar for its partners, those who raise their own standards – with the help of the right distribution partner – will be the ones to thrive.

Your choice of distributor is a weigh up between the margin on the price sheet and the margin of value they add to your business.

 

Let's talk about what comes next

Let's talk about what comes next

The CSP program is changing – but with the right approach, it doesn’t have to be disruptive.

At Crayon, we’ve built the people, platforms, and experience to guide partners through this evolution.

If you want to stay competitive in the Microsoft ecosystem, now is the time to act.

Open to exploring what Crayon can do for you? Simply leave a few details with us, and our team will be in touch to discuss your needs.

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