Microsoft Business Applications ISV Program

Microsoft recently introduced a new program for Business Application ISVs that includes a 10-20% revenue sharing component. The justification for revenue sharing is to ensure high quality applications for Dynamics customers (through app certification) as well as to offset the cost of running ISV applications in Microsoft’s Dynamics tenant. Revenue sharing isn’t new to Salesforce partners but this is a significant departure for Microsoft which has always led with a platform pull-through strategy for ISVs.

Historically Microsoft has encouraged partners to drive usage of their cloud platforms in exchange for account management and sales & marketing support. This landed clearly with Azure ISVs (in January 2017), providing Microsoft field sellers quota recognition for selling Azure-based partner solutions. Note that Microsoft quota recognition is not paid by the Azure ISV partners but rather is factored into Microsoft’s internal quota setting process.

Microsoft announced the intention to extend field co-sell support to Dynamics ISVs at the July 2018 Inspire conference, but it did not roll out broadly due to overly narrow requirements for Dynamics embedded.

The benefits for new Dynamics revenue sharing are similar to what already exists for Azure co-sell ready ISVs (without revenue sharing). At the 10% standard tier, benefits are programmatic and better suited for small partners. The 20% premium tier offers co-sell support plus partner enablement & marketing programs. I am surprised the premium tier doesn’t include explicit marketing funding to justify the revenue share.

AppSource as a marketplace doesn’t produce substantial revenue for most partners. Enterprise customers require POCs for evaluation so are less reliant on a marketplace to make a purchase decision. Leads from “Contact Me” listings are minimal unless the partner spends substantial effort to promote the marketplace listing (instead of direct lead generation).

Salesforce has offered ISV AppExchange for many years and their revenue sharing model is well established. I suspect this new Microsoft approach will be a shock to Dynamics partners who have been championing Microsoft platforms and now feel they are being monetized. This may be status quo, but the initial reaction will be net negative.

The question for partners is whether the ongoing 20% revenue impact is something they can absorb. Another way to think of it is whether Microsoft will drive an incremental 100% company growth over the next 5 years. Partners will need to determine what the sales implications are of being an “uncertified” Dynamics application or if AppSource certification and the corresponding marketing and co-sell benefits warrant the revenue sharing proposition.

Note that some Microsoft partners are both Dynamics and Azure ISVs (they integrate with Dynamics and host on Azure). Those partners may choose to co-sell with Azure and defer co-sell for Dynamics.

The program is set to launch in July. I’m sure we’ll hear more about the program in detail at the Inspire partner conference. Inspire is also a good forum to confer with other partners on their approach.