Vendor Rebates Move to AI Growth—Anurag Agrawal Details the Margin Fallout for MSPs

Dave Sobel (0:14)

On October 1st, Microsoft's new Partner Incentives took effect. The flat rebate a CSP partner earned for a customer that simply renewed modern work or dynamics is gone. The money now pays for seat growth and for AI workloads the customer adopts. Six days earlier, our friends at Tech Isle published a survey of 5,450 channel partners. Seventy-two percent of vendor incentive money lands at the moment a deal closes. Forty-one percent of an MSP's revenue comes from renewals. The vendor pays at the signature. The MSP lives on the years after it. The analyst who wrote that survey sent over 15 questions for today. It ran from what partners want out of vendors to token shock, to why he thinks the CISO is now the most powerful person in an AI deal. He's here and we're going to take him on on most of these questions in order. Mostly. Welcome to The Business of Tech Lounge. This is where we break down what's changing in the IT services market, what it means for providers and vendors, and what to actually do about it. If you're running or supporting an MSP, this is about making sense of the environment you're operating in, not just the headlines. Now, to make this conversation possible, a message from our sponsor.

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Anurag Agrawal is the founder and chief global analyst at Techile, a global research firm focused on small business, the mid-market, and the channel partners who serve both of them. Both of the pieces we're discussing today have already made it onto the Daily Show. Today, we get the author. Anurag, welcome back to the show.

Thank you.

Anurag Agrawal (2:38)

Absolutely fantastic to be here. With you again, Dave, and this time, we made it quicker than before.

Dave Sobel (2:46)

Well, we did because we always have such fun talking about things on this show. We agreed we just need to do it more often. So I really appreciate you joining back to Mix It Up. And if you're watching us live, you want to put something in question or comment in, put it in the chat because it's open and we'd love to hear from you. Now let's start with that survey.

5,450 partner firms, 24 countries. I read the pieces that come out of it. I got to ask, what surprised you most of that data?

Anurag Agrawal (3:16)

So obviously we covered many, many different topics, but honestly, Dave, what stopped me was how far ahead the partners are. Let me explain that. We went into the survey, we started to analyze the data, expecting to measure how well vendors were enabling partners on AI.

What came back is that nearly three-fourths of partners are already using AI in their own go-to-market. Some at a very rudimentary level, but at least they are using it. They are writing proposals with it, qualifying leads with it, running their service desks on it. Meanwhile, a lot of vendor portals are still offering an intro course in what a large-language model is. So the enablement gap has flipped.

So what surprised me most was that AI stopped being a practice area. It is the practice. And actually the partners are teaching the vendors now.

That is what it is. So the scarcest resource in the channel today is attention. And the vendor who makes the partner's life simpler wins it, but they are not doing it. And that's where the partners are leading the vendors. That's what surprised me the most.

Dave Sobel (4:55)

Wow, okay, so I love the flip. As somebody who always sticks up for the small providers in here, I love the fact that the community, the IT providers are leading the vendors. But I also was fascinated by this transition, that what came through from the data was that all the old labels, VAR, MSP, SI Consultant, they stopped predicting how partners behave. Because you split the channel into two economies, an advisory economy that invests before the sale, and an operational economy that earns after it.

Help me out, what replaced the labels and why does it matter which economy a partner is in?

Anurag Agrawal (5:39)

Yeah, that's a great question. For the last 20, 30 years, we have described partners by what they did with the product, whether it was MSPs, SIs, and now most of the vendors are talking about, and the analysts are talking about bills, sales, service, and now they have added it as run. These are all very clean answer. The trouble is the question underneath has changed.