Microsoft's Collection Agency

Microsoft has a small business problem. Selling to them directly, managing the billing relationships, handling the renewals, absorbing the support questions, educating clients every time the tier structure changes — that is expensive, friction-heavy work that doesn't scale cleanly from Redmond.

So Microsoft built a channel to do it for them. That channel is you. And your cut is twenty percent.

You bill the client. You remit to Microsoft. You manage the renewal conversation. You explain the licensing tiers. You field the call when the client's mailbox stops working. You pay for the seats and hope that you are billing your customer for all of them. You absorb the confusion when Microsoft rebrands a plan, restructures the pricing, or discontinues a tier that three of your clients are on.

You are the relationship Microsoft decided wasn't worth having directly.

In exchange they give you twenty points, a partner portal and an expensive partner support service that is politely ineffectual.

A collection agency does less work for roughly the same margin. The difference is a collection agency knows what it is.

Take a typical SMB Microsoft 365 deployment. The MSP bills the client monthly, remits to Microsoft, keeps the margin. On paper: twenty percent. In practice the overhead comes out of that twenty.

The PSA time to manage the licenses. The technician hours for seat changes and password resets and MFA enrollment and the monthly call from the client who can't find their email. The renewal tracking. The client education. The support tickets that Microsoft's own support won't touch because the client is too small to matter to them directly — but not too small to matter to you.

Run the math honestly and the net on Microsoft licensing isn't twenty percent. For many MSPs it is closer to zero. For some it is negative when the support overhead is counted at actual cost.

Microsoft knows this. The margin was never designed to make you profitable on licensing. It was designed to make you willing to sell it.

Microsoft has the product. Teams, Exchange, SharePoint, the identity layer, the compliance tooling, the roadmap that your clients' businesses are now dependent on. The switching cost is high and Microsoft set it that way deliberately.

You have the client relationship. The trust. The years of knowing which partner at the law firm refuses to use the mobile app and which one needs a call instead of an email when something changes. The context that makes the technology work for this specific group of people in this specific organization.

Microsoft priced the arrangement like the product is what matters.

You accepted that pricing and built a business on top of it.

The product does matter. But the relationship is what keeps the client from calling someone else when the renewal comes up. Microsoft gets paid for the product. You get paid for the relationship. They have priced your work at twenty percent of theirs.

Microsoft calls this a partnership. Partnerships imply shared risk and shared reward. When a client churns, Microsoft keeps the product. You lose the relationship you built and the revenue that came with it. When Microsoft changes the pricing, Microsoft captures the increase. You have the conversation with the client who wants to know why their bill went up.

When something goes wrong at the Microsoft layer — an outage, a licensing error, a feature that disappeared in an update — you are the one on the phone. Microsoft is not on the phone. Microsoft is not in the room. Microsoft is not available at the margin they gave you to cover the cost of being in the room.

You are not a partner. You are a contractor working on Microsoft's behalf at a rate Microsoft set, managing relationships Microsoft didn't want to manage, absorbing costs Microsoft didn't want to carry.

The margin is twenty percent. The obligation is everything else.

Nothing in this piece argues that you should stop selling Microsoft. The product is real, the demand is real, and your clients need it whether you provide it or someone else does.

What this argues is that you should stop pretending the margin is the business. The licensing margin is not the business. The relationship is the business. The knowledge is the business. The context you carry about how your clients actually work is the business.

Microsoft figured that out. That is why they built the channel instead of managing the relationships themselves. They knew the relationship was where the work was. They just didn't want to do it.

You do the work. Price accordingly. Stop letting the vendor define what your work is worth.

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The MSP Contrarian: Unstacking the Business Model

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