The ISV Revenue Sharing Addendum Review

The ground is shifting under Microsoft Business Applications ISVs. Only time will tell if it is shifting forward or backward. Regardless, to continue existing, you will need to sign a new document, so let's take a look at it.

A room full of Elephants Microsoft's new "Business Applications ISV Connect Program" hopes to be a comprehensive program for ISV success, yet it's most often referred to by partners as the "Revenue Sharing Program", due to its prickliest aspect. But sharing 10% or 20% of your revenue with Microsoft is not the only thing you need to understand. In fact, that's probably the simplest thing to understand.

Reversals I recently wrote a post highlighting Microsoft's plan to eliminate IUR benefits. In that post I said that I did not think they would back down... and they backed down the next day. I have been assured that this was not to make me look like an idiot. When I first wrote about the new ISV program, I also said I did not think Guggs would back down, and it looks like he is going to prove me right. So I have a 50% accuracy rate on back down predictions!

The Addendum Between now and October, ISVs will need to agree to the compulsory ISV Addendum in order to continue to offer solutions (apps) that are built on, connected to, or extend Microsoft's Business Applications platform including Dynamics 365 and PowerApps, and where there is a revenue opportunity, Microsoft Flow. Microsoft Business Central and Power BI are exempt, for the time being.

The Whole Truth It's not enough to just review the Addendum, as it references other documents, including the ISV Program Policies, as well as the Publisher Agreement. I am not a fan of spreading terms across multiple documents. The Addendum is 9 pages and the Policies are only another 5 pages, with a lot of duplication between them. Why was this not a single document? This is so they can change the policies whenever they need to, without having to get you to re-sign anything. Classic lawyer games.

The Publisher Agreement is an additional 47 pages, but my quick scan of it seems less related to the specifics of the Bizapps ISV Connect Program. So while everyone seems to be focused on a single aspect of this program, let's take a look at some of the other terms of these agreements. I am not a lawyer, but I do know how to read, and I'll share my "Business Owner" interpretation.

Tiers Tiers are per app, and while the "Standard Tier" (10%) is compulsory, the "Premium Tier" (20%) is optional... for both sides. While there appear to be some specific requirements, Microsoft has maintained the discretion to accept or deny your Premium Tier request arbitrarily. I expect that this will cause some drama, but I see the rationale. The primary additional benefit of the Premium Tier is the activation of Co-Sell. This means Microsoft's own internal sales teams out there hawking your app, and being spiffed for doing so. Obviously salespeople, and hours in the day are both finite resources that Microsoft would rather not waste on "crappy" apps. But who judges "crapiness"? I would assume that any ISV solution that generates the sale or activation of Microsoft product licenses will pass muster, regardless of its intrinsic value, but what else? What about an app that reduces the need for additional Microsoft licenses?

If you determine that you are not getting value for an app from the co-marketing and co-selling motions of the Premium Tier, you can "Down-Tier" that app back to the Standard Tier. It is not clear what percentage you will pay for any deals closed for that app while it was previously in the Premium Tier. Nor is it clear what you will pay for prior deals after you "up-tier" an app. There also does not appear to be any language preventing you from have having two versions of your app, one on each tier, possibly at different prices... I'll let that settle into your brain.

What Counts? The definition of a "Business Application", that falls within this agreement is quite comprehensive. It also includes so-called "free" apps, that connect to paid services you offer, so no Trojan Horses.

Fees Some math is required to figure out how much you're supposed to pay Microsoft, regardless of the tier. Basically, the total amount of your customer bill, less taxes and "non-recurring" services you perform, and your cost of any CSP licenses you may have included. So this includes your license margin also, if you sell Microsoft licenses as a part of your solution. It really feels and sounds like Microsoft does not think ISVs need to make any margin on Microsoft licenses, and while most don't... some do. It also appears to me to include any and all recurring revenue, like for example monthly or annual support plans, or any sort of managed service type offerings related to your solution. So as an ISV, if I offer a monthly support plan to the customer, I have to pay the fee, but if a reseller of my app offers the same monthly support...