Microsoft to drop margins on Dynamics ERP, CRM perpetual licenses

November 12 2019

This article was updated on November 14 with perspective from Microsoft in response to

questions from MSDW .

Microsoft is planning new Dynamics initiatives aimed at encouraging the embrace of Dynamics 365 in the public cloud by partners and customers.

In one recent move, the company announced that reseller margins for perpetual licenses for Dynamics 365 Business Central, NAV, GP, and SL, as well as CRM/Customer Engagement will be decreasing in 2020. Details are available in PartnerSource and other Microsoft sources, partners have confirmed.

The decrease in discounts will be 10% for each discount tier, so absolute decrease will vary depending on a partner's tier, but it . For example, a reseller that is buying Dynamics NAV or Business Central perpetual licenses for $55 today could begin paying at best $65 on April 1, 2020.

Microsoft general manager Toby Bowers explained more about the change and the FY20 incentives:

Partner incentives support Microsoft’s strategy by sending financial signals to our partner community about which sales motions and products to emphasize. In recent years, incentives for Dynamics have shifted gradually from on-premise licenses to cloud services. Last fiscal, Microsoft lowered the new license discount rates by 10% for Dynamics AX sold via DPL/the SPA channel globally (except for customers located in China, India and Russia). As part of the FY20 incentive program refresh, we continue this journey by reducing the new license discount rates for Dynamics NAV, BC, GP, SL and CE/CRM globally. As such, the new license discount rates for Dynamics NAV, BC, GP, SL, CE/CRM and AX (with the exception for AX customers in China) will be aligned on April 1, 2020. 

And Bowers explained that additional incentives for online customer adds and Dynamics on-prem to cloud migrations have been introduced:

To support the these changes and help partners focus on Dynamics 365, the Online Services Advisor Sell (OSA) incentive for new D365 customer-adds under Enterprise Agreements now includes a 20% accelerator on all new seats added during the first year. This is on top of the base rates of 50% for F&O, and 20% for CE. For the CSP program, a new D365 new customer-add accelerator was introduced at 20%, and an additional 5% strategic product accelerator for Business Central, on top of the CSP base rates. These new cloud incentives apply for customers choosing to migrate from Dynamics on-premises products to Dynamics 365.

One partner aware of the upcoming change stated that the move was the right decision from Microsoft as it brings perpetual license margins in line with CSP subscription rates and will discourage a tendency among some partners to continue leaning on perpetual licenses. This person stated:

Too many partners have given away 10% of their margin on first ask by a prospect, which has distorted perpetual's competition with subscription. They have only themselves to blame that Microsoft have taken it away. Now their salespeople will be forced to put subscription on the table to be competitive, despite the fact their commission plans may take a hit. Those with the ethics to do what’s right for the customer won’t suffer this unfair competition.

Another partner in the NAV and BC space agreed that the change should come as no surprise, adding that the cut makes sense as a way to alter reseller behavior. The only resellers who may really be hurt by the move are those in regions with lower SaaS market adoption, such as rural markets.

New migration tool investments

In other news, Microsoft has also reportedly shifted some Business Central R&D resources from core product development to the creation of new Dynamics GP to BC migration tools.

The GP user base was estimated at more than 47,000 organizations in 2015.

Microsoft faces other pressures with GP now, like the move to the new modern lifecycle policy for support. Starting with the version of GP released in 2019, the change moves customers onto a 12 month support timeframe for each version. Dynamics NAV and Business Central on-premises have adopted a similar approach to the modern lifecycle policy.

The GP to BC migration opportunity ought to benefit both GP and NAV partners that have already ramped up BC practices and can speak about both the core product and ISV solutions.

Microsoft director of product marketing Errol Schoenfish noted in an interview earlier this year that the development of materials (as opposed to technology) for partners is already well underway.

There's still a massive opportunity for the right customers to transition to a managed-by-Microsoft, full multi-tenant cloud solution. In last couple months we have stepped up our portfolio of content to help partners deliver that message to customers if it makes sense to do that. Many are taking us up on that.

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Photo by Vincent Botta on Unsplash

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