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Microsoft leaves SME resellers in the dark over Cloud Compute 2 framework snub

SME IT suppliers are calling on Microsoft to explain why it has banned them from reselling its services through the government's new £1.35bn Cloud Compute 2 framework

Microsoft has been accused of leaving its SME IT supplier partners in the dark over a decision to ban the resale of its cloud services though a newly-launched government procurement framework.

More than a week has passed since Computer Weekly revealed that Microsoft had exercised its right to prevent reselling of its services via third-parties through the UK government’s Cloud Compute 2 framework.

The decision has resulted in at least half a dozen pure-play Microsoft reseller partners being denied a place on the £1.35bn purchasing agreement.

Microsoft partners permitted to resell the services of the framework’s other hyperscale cloud providers, which include Amazon Web Services (AWS), Google Cloud and IBM, can still participate in Cloud Compute 2 but are prohibited from reselling Microsoft services.

Affected partners told Computer Weekly that Microsoft indicated a week ago that a “communication” will be forthcoming to set out the rationale behind its decision, but – at the time of publication – no formal explanation has been offered.

“I don’t know what’s happened or understand what Microsoft is doing, because we’ve had no communication from them at all,” one of the affected partners told Computer Weekly, speaking on condition of anonymity.  

“We were told there would be communication to give partners some clarity about what was going on last week, but that message definitely has not got to anyone at all in our business.”

Similar feedback was also shared with Computer Weekly by several other firms who have, on the back of Microsoft’s reseller ban, found themselves excluded from Cloud Compute 2.

“It is so frustrating that they’ve made this decision in isolation and are yet to be transparent about the reasons behind it,” said another partner, who also spoke on condition of anonymity.

Cloud Compute 2 framework: An explainer

Cloud Compute 2 is the second iteration of a UK government framework that is intended to provide public sector IT buyers with a simplified route to large-scale public cloud deployments.

The three-year framework went live on 28 November 2023, and is pitched by the government's Crown Commercial Service (CCS) as being an SME-friendly public sector cloud procurement vehicle on account of the fact more than one-third of the suppliers involved are classified as being small businesses.

“The Cloud Compute 2 agreement aims to build on the progress made by Crown Commercial Service on making it easier for small and medium-sized enterprises to become suppliers,” said CCS, in a statement.

The first iteration of the framework consisted of a single "Lot" and was, as detailed by Computer Weekly in August 2023, introduced to counteract the problem of large, high-value deals being awarded directly to the hyperscale cloud giants through the SME-focused G-Cloud framework.

While CCS does not keep or share data on how much business is transacted through the Cloud Compute framework, sources have previously told Computer Weekly the framework was underused because it is difficult and cumbersome to negotiate. Cloud Compute 1 is due to expire in May 2024.

The second iteration has seen the number of Lots on the framework extended to four and gives public sector IT buyers the option to buy cloud services directly from the hyperscale cloud providers or through their third-party reseller partners. According to CCS, those changes were introduced to make the framework more accessible to SMEs.

“We have reduced barriers to entry for SMEs operating within the cloud market supply chain by providing additional lots and expanding the agreement's scope,” the CCS statement added.

A deliberate choice

There had been speculation the exclusion was the result of an administrative error at Microsoft while applying for a place on the framework’s “Core Services” Lot, which is aimed at public sector IT buyers that want to buy cloud services directly from hyperscale cloud providers. The suppliers in this Lot must give permission for their services to also be sold by authorised resellers in the framework’s “Value-Add Ancillary Services” Lot.

The government’s procurement body, the Crown Commercial Service (CCS), confirmed to Microsoft resellers who unsuccessfully applied for a place on Cloud Compute 2 that the software giant did not grant permission for its services to be resold through the framework.

Computer Weekly further understands that some partners have been told directly by Microsoft representatives the ban was not made in error, but was a “deliberate policy choice”.

Computer Weekly contacted Microsoft to query why the company had made the “deliberate” choice to exclude its reseller partners from Cloud Compute 2, and to confirm other details in this story, but the company declined to comment.

The Microsoft reseller ban means the only way that IT buyers can procure Microsoft cloud services through the Cloud Compute 2 framework is by purchasing directly from the company, which is at odds with how Microsoft historically conducts its business in the public sector.

For this reason, partners have raised concerns that the Cloud Compute 2 reseller ban could indicate that Microsoft is planning a dramatic shake-up of its go-to-market strategy that will see it side-step its reseller partners in other sectors too.

“I don't understand the strategic drivers behind this decision at all,” said another of the affected partners. “It's a big strategic shift and we don’t know if this is something they're going to pursue outside of the public sector as well. There is no transparency or communication at all, which is strange.”

Nicky Stewart, former head of ICT at the Cabinet Office, described Microsoft’s behaviour as both puzzling and disrespectful to its partners, given the time and energy they would have devoted to applying for a place on Cloud Compute 2.

If Microsoft knew from the outset it did not want partners reselling its services through Cloud Compute 2, the company should have made partners aware of this in advance, Stewart said - especially in light of past complaints about the high barrier to entry onto the framework for SMEs, and despite CCS describing the new deal as being more “SME-friendly” than the previous iteration.

“It’s hardly respectful to the partner ecosystem to allow them in good faith to invest significant time, effort and money in a highly complex and fundamentally SME-unfriendly tender, where there was zero chance of success from the outset,” she said.

The timing of the ban is notable because Microsoft – along with fellow public cloud giant AWS – is the subject of an anti-trust probe into the UK cloud market by watchdog the Competition and Markets Authority (CMA) and its actions here could be considered anti-competitive.

“It won't do buyers any favours, with limited choice and lack of access to partner innovation and the outstanding customer service that smaller companies can provide,” added Stewart.

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