What You Need to Know about Direct vs. Indirect Microsoft Resellers

December 30, 2022
IT Microsoft

Interested in learning more about NPI’s services?

Contact Us

The Microsoft reseller ecosystem is large and complex – but, for many enterprise customers, resellers are an integral part of the Microsoft relationship. To better understand how the vendor does business with its largest accounts, it’s important to understand the differences between Direct and Indirect Microsoft Resellers.

Microsoft offers several volume licensing agreements for large corporate customers. They fall into two categories – Direct and Indirect. Enterprise Agreements, Enterprise Subscription Agreements, and Server and Cloud Enrollments are all Direct licensing agreements. Direct licensing agreements are direct contractual relationships between Microsoft and the customer where Microsoft sets the pricing. All invoices come from Microsoft and the customer pays Microsoft directly.

With Direct licensing agreements, a reseller is often an integral part of the equation. They include Large Account Resellers (LAR), License Service Providers (LSP), and Enterprise Software Advisors (ESA).  The responsibilities of these resellers include preparation of the contracts for customer acceptance, submitting contractually required true-up orders to Microsoft on the customer’s behalf, reconciliation of any online subscription reservations, management of the contract, and overall servicing of the customer’s account.

Direct resellers are paid an ESA fee by Microsoft to manage the Direct licensing agreements on behalf of Microsoft, and perform the duties listed above. In years past, some customers would negotiate with the reseller to get back a portion of those fees. However, since Satya Nadella took over as CEO of Microsoft from Steve Ballmer in 2014, the ESA fees paid to resellers have steadily declined. Resellers now only get paid on the first year’s order, true-ups and net-new license purchases.

Nowadays, resellers and services partners are heavily incented to sell Microsoft professional services to help the customer deploy the Microsoft solutions they are licensed for. If professional services are required, Microsoft will sometimes offer incentive funds to help mitigate the cost of deployment. There are some resellers who now charge customers to manage their Enterprise Agreements, although these are usually Level D Enterprise Agreements (15,000+ users).

When it comes to selecting a LAR/LSP/ESA, the most important factor is the quality of the dedicated account representative and their team who will support you and manage the agreement. While it may sound mundane, important activities for a reseller include running reports on license purchases, detailed invoice reports, and activation of Software Assurance benefits.

Knowing the reseller is being paid by Microsoft to manage the contract, you should negotiate a level of service commensurate with your needs. Here are some things to consider:

  • Will they provide a dedicated account representative?
  • Is there an inside team to support you?
  • Can the reseller run reports detailing the purchases you have made across multiple agreements?
  • Does the reseller provide support in all of the geographies in which you do business?

So now let’s turn to Indirect licensing agreements. Currently, the only choice of an Indirect licensing agreement is the Microsoft Products and Services Agreement (aka MPSA). In the past, customers could purchase through another Indirect licensing agreement – the Select Plus agreement – but those customers are now being transitioned to the MPSA.  There are still some legacy Select Plus customers, but no new Select Plus Agreements are being created.

It’s the reseller that sets the pricing. Microsoft supplies the reseller with List price and Cost price and the reseller will price it somewhere in the middle. The reseller will invoice the customer directly, not Microsoft. For customers who procure their Microsoft licensing via an Indirect licensing agreement, it is advised to negotiate a ‘cost plus’ pricing term for the life of the agreement.

What Happens If You’re Not Happy with Your Microsoft Reseller?

While a LAR/LSP/ESA is a required part of Direct licensing agreements, if a reseller’s performance in managing the agreement is substandard, you can change resellers mid-stream. The process is called a “Change of Channel Partner” and there are 2 options.

Option 1 – the customer and the new reseller can both sign a Change of Channel Partner form, which will go into effect 90 days after the customer’s signature dat. For this option, it is advised to take note of the date the change will take effect and how close it is to the anniversary of the agreement because of the contractually required activities (true-ups, reconciliation of online reservations, etc.).

Option 2 – To switch resellers without waiting for the 90-day holding period, there is an amendment which Microsoft can supply. This amendment requires signatures from the customer, the new reseller and the old reseller, and the customer can specify what date the change will occur. The old reseller will have very little motivation to sign this form, especially if the only business they do with the customer is managing the Direct licensing agreement.

Getting the Most Out of Your Microsoft Reseller Relationship

There are few software estates as critical to most large enterprises as Microsoft, which underscores the importance of having a strong, collaborative relationship with your Microsoft reseller. Most Microsoft resellers take great strides to create lasting relationships with their enterprise customers, and provide excellent service and support. But there is a bit of a conflict of interest when it comes to license and cost optimization, so that is an area where there is typically opportunity for improvement. Microsoft license and cost optimization often reveals 7- and 8-figure savings for enterprise-scale footprints. It also provides an opportunity for resellers to realign their partnership based on the customer’s current and future-state requirements.

If you are looking for ways to optimize your agreement with your Microsoft reseller, NPI can help. Contact us to learn more.