Microsoft’s Enterprise Agreement Shake-Up Hits Resellers

Microsoft’s decision to bypass long-standing partners in its Enterprise Agreement (EA) renewals is sending financial shockwaves through the global IT channel, with UK-based Bytes Technology Group among the first major casualties.

Reshaping the Channel

For years, Microsoft relied on a network of accredited Large Service Providers (LSPs) to handle the sale and renewal of its three-year Enterprise Agreements, i.e. the long-term software licensing contracts tailored to large organisations. These deals provided LSPs with steady commission income and a foothold in enterprise IT procurement. But that model is changing.

Microsoft has begun reclaiming control of these high-value contracts, handling renewals directly through its own sales force rather than via partners. The change, first noticed in 2023, is accelerating fast. For example, Microsoft reportedly took back control of around a third of EA renewals last year and is expected to reclaim almost all of them by January 2026.

It seems that the company is not just shifting processes but is cutting off financial incentives too. For example, global EA commission payments to LSPs stood at approximately $2.5 billion in 2023, according to US Cloud, a Microsoft support partner. That figure dropped to $1.67 billion in 2024 and is expected to fall to just $583 million in 2025. By 2026, payouts are projected to stop entirely.

Bytes Bitten

For Bytes Technology Group (BTG), one of the UK’s largest Microsoft resellers and a London Stock Exchange-listed firm, it seems the effects have been immediate and severe. For example, shares in BTG recently plummeted over 25 per cent after the company issued a profit warning, citing delayed buying decisions, a difficult macroeconomic environment, and lower commission income from Microsoft.

BTG had previously forecast double-digit gross profit growth for the 2025–26 financial year. But its latest update painted a far more cautious picture, with gross profit now expected to be flat and operating profit lower than anticipated. The company made £2.1 billion in gross invoiced income in the year ending February 2025, with Microsoft sales accounting for around 50 per cent of its gross profit.

“The impact of changes to Microsoft enterprise incentives is weighted more to the first half due to high levels of renewals in March and April around the public sector year end and June around Microsoft’s year end,” BTG noted in a statement ahead of its AGM.

Why is Microsoft Doing This?

From Microsoft’s perspective, the shift is basically strategic. For example, reclaiming direct control over renewals allows it to improve pricing discipline, deepen customer relationships, and retain more margin, particularly at a time when the company is investing heavily in generative AI, including its Copilot tools for Microsoft 365, which are priced at $30 per user per month.

According to US Cloud, the move could deliver a 0.39 per cent annual EBITDA increase for Microsoft, which may sound modest but still adds measurable value to a business currently worth around $3 trillion.

Microsoft’s direct sales in EA accounts are rising fast, growing from $833 million in 2024 to an estimated $1.92 billion in 2025, and expected to reach $2.5 billion by 2026. By cutting commission payouts and increasing its direct footprint, the company is effectively reshaping its entire enterprise sales model.

A Reseller Role Rewritten (or Removed)

LSPs like BTG have spent decades building their businesses on the back of EA renewals, not just processing transactions but also guiding clients through complex licensing environments. Their role has often been compared to that of a financial adviser, providing independent insight and advocacy in negotiations.

“The analogy is losing your trusted financial advisor and being told to work directly with Wall Street,” said Mike Jones, president of US Cloud. “Sure, you’re cutting out the middleman, but you’re also losing valuable guidance.”

This advisory role, critics argue, can’t easily be replaced by Microsoft’s in-house teams, particularly for organisations that lack in-house licensing expertise. There’s concern that some enterprise clients may end up over-buying, under-utilising, or mismanaging licences as a result.

Restructuring to Survive

Faced with declining revenues, BTG and others are now rethinking their go-to-market strategies. For example, BTG has announced it is transitioning from a generalist sales approach to specialised, customer-segment-focused teams, a change it says will help it deliver more tailored solutions and build long-term service-based income.

However, that transition is likely to take time and come with risks. BTG’s CEO Sam Rudd acknowledged as much, stating: “In recent weeks, we’ve navigated a more challenging macro environment, compounded by the near-term effect of transforming our corporate sales team. While this has affected trading, our value proposition remains strong.”

Analysts are less confident. Indraneel Arampatta of Megabuyte said he suspects the changes in Microsoft’s partner model “are starting to bite,” adding that investors may be growing wary of BTG’s exposure to Microsoft and its ability to diversify.

Wider Implications for the Market

It should be noted that the situation is not unique to BTG. For example, similar providers across the UK, Europe, and North America are likely to be affected, especially those heavily reliant on Microsoft’s EA commissions. While some are already shifting towards managed services, cybersecurity, or cloud consultancy, not all will move fast enough to offset the financial loss.

This also raises questions about the future of Microsoft’s partner ecosystem. By sidelining its LSPs, the company risks alienating partners who have long championed its products and helped drive adoption at scale. In more complex environments such as hybrid cloud, AI implementation, or public sector transformations, trusted partners often play an indispensable role.

Some observers also warn of regulatory scrutiny. For example, Microsoft has already faced antitrust pressure in Europe over cloud licensing practices, and a further consolidation of sales control could draw additional attention from competition authorities.

Not All Businesses Will Benefit

While some enterprise clients may welcome direct engagement with Microsoft, it’s likely that others may struggle without LSP support. Navigating EA licensing terms, ensuring compliance, and optimising cost-efficiency can be daunting without expert guidance.

Also, while large organisations with in-house procurement and IT legal teams might manage, mid-sized businesses and public sector organisations could find the transition more difficult, especially as licensing complexity continues to increase alongside Microsoft’s evolving AI offerings.

Meanwhile, rivals such as Amazon Web Services and Google Cloud Platform may seek to capitalise on the disruption. LSPs looking to diversify may find receptive partners elsewhere, potentially shifting allegiances and deepening competition in the enterprise IT space.

What Does This Mean For Your Business?

What this means, in practice, is that a long-established revenue model for service providers is being dismantled at pace, while Microsoft tightens its grip on the most profitable parts of the enterprise customer lifecycle. The financial and operational consequences are already being felt, and the transition is unlikely to be smooth for most. Companies like BTG, with deep exposure to Microsoft licensing, now face a period of structural change where business models built around commission income must be replaced with higher-value services that take longer to scale. That puts pressure not only on margins but also on investor confidence, staffing, and client retention.

For UK businesses, particularly those without large internal IT procurement teams, the loss of hands-on licensing support could create some real challenges. The promise of simplified, direct relationships with Microsoft may sound appealing on paper, but the practical reality of negotiating large-scale EA renewals without experienced intermediaries may introduce risk and additional overheads. While some may adapt successfully, others could find themselves over-licensed, under-supported, or locked into costly configurations that don’t fully align with their needs.

For Microsoft, the short-term gains are measurable and aligned with its strategic goals. Greater pricing control, improved account oversight, and reduced channel leakage all strengthen its position, particularly as it looks to monetise AI offerings like Copilot and Azure-based services more aggressively. However, there is a risk that weakening partner engagement will erode long-term channel goodwill, which has historically underpinned Microsoft’s global reach and sustained competitive advantage.

The broader enterprise IT ecosystem also has a stake in this outcome. For example, if LSPs lose their relevance, the value of multi-vendor, consultative support in complex deployments may decline, or shift towards rival platforms. That creates an opening for Amazon, Google, and others to attract not just customers, but former Microsoft partners seeking more favourable terms. For regulators, meanwhile, the growing dominance of Microsoft’s direct sales model and its impact on channel diversity may increasingly warrant scrutiny.

Ultimately, Microsoft’s move is a calculated reshaping of its enterprise engagement model, but the disruption it causes is real and immediate for those in the channel. As LSPs rush to reinvent themselves, the winners will likely be those who can pivot quickly to new value propositions. The losers, by contrast, may be left watching as a decades-old business model slips quietly out of reach.