Microsoft’s Cloud Solution Provider (CSP) overhaul will have major implications for CSP partners, according to Australian analysts contacted by techpartner.news – though they had mixed views about how much the changes will impact small partners.
Late last week, Microsoft’s global chief partner officer announced it would make changes to its CSP program on October 1, 2025, including an increase in eligibility requirements for CSP authorisation and incentives.
This will include an increase in the minimum CSP-billed trailing twelve months (TTM) revenue required to be a direct bill CSP partner in FY26 – up from USD$300,000 in FY25 to USD$1 million in FY26.
The minimum CSP-billed TTM revenue per authorised region to be a CSP-authorised distributor will increase to USD$30 million.
Microsoft will also offer three-year subscription terms for Microsoft 365 E3 and E5 in CSP, with or without Teams, as well as Teams Enterprise licenses in CSP on June 1, 2025.
Gartner’s senior principal analyst, Domenico Scriva, told techpartner.news that smaller partners – those with between USD$300k to USD$1 million CSP spend per annum - may not feel a large impact from the increase in direct-bill eligibility requirements, as they may already be using a distributor.
“The only real issue is the loss of margin if they are currently direct and moving to the tier 2 model,” Scriva said.
“Bigger partners who are already $1m + will most likely not feel too much of an impact. The only impact could be an admin one i.e. providing annual confirmation that you are buying a support plan and passing annual assessments.”
FY26 direct bill partners will require “complete business vetting”, an annual assessment, and at least one solutions partner designation for solution areas.
However, IBRS advisor Joseph Sweeney predicted that many partners won’t have the time, people or capital needed to meet Microsoft’s new eligibility criteria, resulting in many losing their direct relationship with Microsoft, impacting their margins and forcing them to work with a master channel partner.
“The result will be increased competition among the indirect master channel partners, such as Crayon, Dicker Data and Ingram Micro, as they vie to capture the newly disenfranchised Microsoft partners,” Sweeney told techpartner.news.
Sweeney expected that smaller partners smarting from the loss of the direct relationship would look for a master channel partner that can provide the additional services they need to expand service offerings without direct investment.
Smaller partners might also look to broaden their capabilities into new cloud offerings, Sweeney predicted.
“I've already spoken with a few Microsoft partners looking to the Google Cloud Platform to offer 'lower-cost options' for basic cloud services to their Azure clients, and this change by Microsoft may only help drive that shift,” he said.
“AWS will also look to capture some of these partners. These partners have close and trusted relationships with their clients, and they often have regular meetings with clients to recommend ways to extract more value from cloud investments or lower operational costs. Now they have an additional incentive to offer an alternative Cloud.”
Gartner’s Scriva suggested that tier 1 partners that need to move should do an RFP with all distributors. He provided some suggested to consider.
“What support will the distributer provide?”, and how much will that cost, Scriva asked.
“How much margin are they going to keep? It might be best to get all the distributers to provide a unit price of Microsoft 365 E3 and E5 so you can compare who's is cheapest.
“Are they currently a distributor for other hardware/software vendors? If so, can we leverage this to get better deals with the other vendors?”
M&A driver?
One avenue Microsoft partners could explore is merging with or buying organisations to gain the revenue needed to meet the new requirements.
IBRS’ Sweeney considers this a “less successful option”.
“These smaller partners are valued and successful because of their niche capabilities,” he said.
“From our research into what makes a high-performing and stable technology partner, we identified that being niche and working with a network of aligned partners is a source of resilience and profitability.”
Sweeney said that remaining tightly focused on a specific type of client or set of technologies and working with others results in reliable and consistent service quality.
“Trying to bulk up to meet Microsoft's requirements could destroy the very traits that make smaller partners so effective,” he said.
“Strengthening of partner incentives”
Brad Clarke, founder of technology partner advisory Channel Guru, said that Channel Guru was “excited to see the strengthening of partner incentives for CSPs focused on the SMB space.”
“Tech partners are grappling with profitability as customers demand more value and better pricing, so this is a significant step by Microsoft,” Clarke told techpartner.news.
“We're also pleased to see the operational improvements and continued investment in Partner Center. This will enhance partner productivity and support ongoing investments across the Microsoft product stack, driving better outcomes for SMB customers.”
Arinco CTO David Lee said as an indirect CSP partner, Arinco don't have any concerns about the changes and believe that the new criteria around designations and assessments will lift the bar on the quality of partners providing the service.
"In general, we see the CSP model in Microsoft has always having iterative changes, and why we've always believed in just offering the right solution that fits our customer needs," said Lee.
"In some scenarios this is a CSP model, in other's its a direct relationship with Microsoft - we're fully supportive of either."
Three-year M365 E3/E5 term is “huge change”
Gartner’s Scriva saw a three-year term for Microsoft 365 E3/E5, with or without Teams, as a “huge change” for partners.
At either midterm or renewal, CSP partners will be able to change E3 and E5 subscription terms for customers who have EOS SKUs of Microsoft 365 and Office 365 Enterprise suites with Teams to the new three-year EOS terms.
Effective July 1, 2025, a three-year subscription for Microsoft 365 E5 Security and E5 Compliance mini suites will also be available.
“Microsoft has made it clear that they want to move more customers off the Enterprise Agreement and onto a more direct program like Cloud Solution Provider (CSP) or the Microsoft Customer Agreement - Enterprise (MCA-E),” Scriva said.
“The biggest issue that partners face is that CSP only had a one-year option, meaning customers would not have price certainty.
“With the introduction of a three-year option, this means customers can move to CSP and have peace of mind that prices won't change for three years."
Scriva noted that at the beginning of 2025, Microsoft made a “major reduction” in the incentives a partner would get on the EA – “currently sitting at approximately 0.75 percent”.
Partners may now have a viable option to give customers a three-year CSP option, with a more competitive price than what they would get on EA, Scriva said.
“It's a win-win situation,” he said.
“Partners get to keep a higher-than-the-incentive-rate margin, and customers can lock in a competitive M365 E3/E5 price for three years.”
“Keep in mind though … unlike on an EA, [the customer] will not be able to do any license reductions throughout the three-year term.”
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