Microsoft bans SME resellers from government cloud framework: conspiracy or cock-up?

Microsoft partners who applied for a place on the government’s soon-to-be launched “SME-friendly” Cloud Compute 2 framework are fuming at the news the software giant has banned them from reselling its services through it, Caroline Donnelly reports

Microsoft’s decision to ban SME IT suppliers from reselling its services through the soon-to-be launched Cloud Compute 2 framework has left its partner network reeling, Computer Weekly revealed this week.

The government’s procurement arm, the Crown Commercial Service (CCS), termed it “unwelcome news” for Microsoft’s SME reseller partners, but it has also come as quite a shock to many of them too.

The news came to light a week ago, on Friday 17 November, which is when CCS contacted the companies that had applied for a place on Cloud Compute 2 to tell them if they had succeeded or not.

A handful of SME IT suppliers, who have invested huge amounts of time, money and energy in building tech businesses that exclusively specialise in the provision of Microsoft services and support, got told they had failed to land a spot on the framework.

Initially, this led to an (ever so slightly) erroneous tip-off being passed Computer Weekly’s way by one of the affected parties that Microsoft had either not applied for a place on Cloud Compute 2 or had its application rejected by CCS.

This assumption was made based on how this Four Lot framework is structured. Basically, no IT supplier can resell the cloud services of a hyperscale provider who has not secured a spot of their own on Cloud Compute 2. So the affected partners assumed Microsoft wasn’t on the framework.

It then transpired that, yes, Microsoft was on the framework, it had just exercised its right (as detailed in the terms and conditions of Cloud Compute 2) to ban anyone else from selling Microsoft services through this public sector procurement vehicle.

This means the only option for public sector buyers that want to use Cloud Compute 2 to acquire Microsoft Azure public cloud services (and the like) is to deal direct with Microsoft, which is a stance that seems at distinct odds with the “pro-partner” rhetoric the firm’s senior leaders often spout.

For example, at Microsoft’s global partner conference Inspire in July 2023, the software giant’s CEO Satya Nadella spoke at length during his keynote about how valuable and appreciated the company’s partner network is – particularly when it comes to winning public sector deals.

“Our partner ecosystem… [means we] can reach every community in every country, in every sector of the economy, both public and private,” said Nadella.

Furthermore, one thing the public sector analyst community often remarks on is how difficult it can be to get an accurate read on just how much public sector IT spend Microsoft traps a year because so much of it gets funneled through its partner network.

Publicly available figures, published via the CCS Digital Marketplace portal, state that since the start of the UK government’s G-Cloud procurement framework in 2012, Microsoft has secured more than £191m in public sector cloud spend by dealing direct with IT buyers.

And for the past five years, the company has averaged a yearly direct spend with public sector IT suppliers of £28m through G-Cloud.

That’s just one framework, of course, but a cursory look through the government’s Contract Finder portal reveals sizeable, single deals secured by Microsoft partners that far exceed how much money it brings in via G-Cloud each year, including a hefty £68.1m contract involving the provision of Microsoft Azure to the Department for Education in May 2020 by Microsoft partner Bytes.

Given how much public sector money its partner network makes Microsoft, the decision to stop Microsoft resellers from profiting from the Cloud Compute 2 framework does seem perverse.

And that is why Microsoft partners and government procurement experts are of the view that maybe the company’s decision to ban the resale of its services via Cloud Compute 2 was made in error by someone who ticked the wrong box or something during the procurement process.

If it was a deliberate choice,  it would constitute a marked shift in go-to-market strategy for Microsoft. but it would also be a pretty ballsy move to make by a company whose operations are subject to an ongoing anti-trust investigation by the UK competition watchdog…

The suppliers who have succeeded in securing a space on the framework have been notified and the procurement process has entered the standstill phase, which is due to end Monday 27 November. This period is usually the time when disgruntled suppliers can contest the outcome of the competition award. And it is fair to assume there might be a few people doing that in the Microsoft partner community right now.

For this reason the Crown Commercial Service (CCS) and Microsoft have both declined to comment on the situation, but once the standstill ends here’s hoping partners get some closure and clarity on why Microsoft has carved them out of getting a slice of this £1.35bn framework agreement.