NCE Reaches Seat-Based CSP: The 20% Monthly Premium, the Lock-Ins, and What to Do First

Microsoft just changed how every seat you sell gets bought, billed, and canceled. The New Commerce Experience, first announced back in 2019 for Azure, is Microsoft's consolidation of the various channels where a customer can transact, pitched as a simplified journey where the partner sells value-added services on top of Microsoft's cloud. The news for the channel and CSP providers: NCE now extends into seat-based offerings such as Microsoft 365, Dynamics 365, and Power Platform.

New Commerce is constantly evolving; this breakdown reflects updates through March 20, 2022.

The substance of the announcement is in the terms. Microsoft is positioning pricing to push the community into annual or multi-year contracts: a month-to-month term in CSP carries a 20% premium. Cancellation policy tightens too, restricting cancellations to a 7-calendar-day window. Microsoft's marketing frames this as greater customer profitability through commitment terms and more operational efficiency for the MSP, since you should be doing fewer moves, adds, and changes through the year.

There is a price increase riding along regardless of term. Starting March 1, 2022, these SKUs go up:

• Microsoft 365 Business Basic (from $5 to $6 per user)
• Microsoft 365 Business Premium (from $20 to $22)
• Office 365 E1 (from $8 to $10)
• Office 365 E3 (from $20 to $23)
• Office 365 E5 (from $35 to $38)
• Microsoft 365 E3 (from $32 to $36)

How is NCE different from the legacy CSP model?#

The simplified view: month-to-month costs 20% more, and no refunds are provided after the first 7 calendar days of purchase. Trials now auto-convert to paid subscriptions, where the legacy model required manual conversion. And NCE introduces multi-year agreements, much like traditional EA agreements have offered.

Drilling into the terms themselves:

• Annual and multi-year plans allow monthly payment.
• Cancellation rules only let seat counts move upward mid-term; decreases wait until the renewal date.
• Annual terms keep the same renewal date even when you add seats mid-term. The increment is prorated for the remainder of the term and lands on the monthly invoice.
• Both annual and 3-year plans come with price locking, which shields customers from the March 2022 increases.

Given the premium, here is how we would map terms to workers: monthly terms for seasonal staff, annual terms for most full-time employees, and 3-year terms where employee churn is low. Month-to-month buys flexibility, and now that flexibility has a sticker price.

The diagram above shows billing for an annual term paid monthly: renewal dates stay constant throughout the subscription history, prorated charges apply to seat additions, and seats can be decremented at the end of the term with no penalty.

What do the promotions buy you?#

In November 2021, Microsoft announced two promotional offers to push partners toward NCE:

1. 5% off annual terms. Transition to NCE before the March 1, 2022 price increases and you discount those licenses for a full year while locking in current prices.
2. Monthly subscriptions at annual rates. This one is really about buying the community time: you do not have to absorb the big monthly-term changes until July 2022, which extends the transition runway.

Why your PSA tool is the real project#

The operational overhead of NCE lands squarely in your PSA, both during the transition and in how you bill afterward. The high-level considerations:

1. Product catalog updates. NCE products carry co-terms, so you could be selling a monthly term and an annual term of the SAME product to a single customer (full-time employees versus seasonal staff, for example). You will need new products in the PSA to capture each term you support, and the rate plans differ by term: monthly runs a 20% premium over annual, and annual can be paid monthly or prepaid.
2. Adjusting agreements and contracts. The monthly price gap will push customers toward annual terms, which likely means moving them to annual contracts for 365 licensing and re-adding line items when they transition to NCE.
3. Adjusting existing line items. You will probably want to close-date or cancel existing 365 licensing line items so you can start fresh with the new NCE products from step 1.
4. Managing renewals. Each customer gets a unique anniversary date under NCE, and you could end up with many different anniversary dates across the base. Renewals become harder to manage, not easier.

The fine print worth knowing#

• Anniversary sprawl is real: different anniversary dates per customer subscription. We recommend a documentation tool like IT Glue to track them.
• You can, and likely will, hit the scenario where one customer needs monthly and annual terms for the same product. Your PSA invoicing has to accommodate it.
• Windows 365 Cloud PC is included in NCE but is not subject to the 20% monthly premium, for now.
• New incentives for Silver and Gold partners arrive October 1, so watch for what replaces today's kickbacks.
• Products with overages, like calling plans, get new handling: instead of forcing an extra purchase like communication credits, Microsoft will bill overage usage by the minute.
• Microsoft has teased hybrid use benefits, home use programs, and multi-geo add-ons (supporting different regions under one tenant, mostly for compliance) under NCE, with details still to come.

The six moves to make now#

1. Interrogate your distributor about their NCE rollout#

The questions worth asking:

• When will you be able to convert your subscriptions?
• How can you convert your subscriptions?
• Will they allow purchasing the same product twice with two separate terms?
• Are they running promotions to help during the transition period?
• Will trials auto-convert?
• Will subscriptions auto-convert?
• If they integrate with your PSA, how can they help automate the transition?
• How do mid-term upgrades work for eligible SKUs?

2. Update your MSA before the liability lands on you#

This is the number one concern in the whole transition. You need customers on annual contracts to avoid the 20% monthly premium, and you need them committed so the liability sits where it belongs. Customers can still pay monthly on an annual term, but if a customer on your annual commitment leaves or goes delinquent, you are on the hook for the rest of the year.

Evaluate whether you assume that risk or have the customer go direct to Microsoft. If they want monthly flexibility, it now comes at a cost. We cover liability reduction in more depth in this post on reducing New Commerce liability.

3. Move customers before March 1, 2022#

Customers moved to NCE annual commitments (still payable monthly) before March 1 avoid the price increases on Business Basic, Business Premium, Office 365 E1/E3/E5, and Microsoft 365 E3 listed above, and capture the 5% promotional discount. Make it black and white for the customer: convert before March and lock existing rates for a year, or convert later and absorb the increase.

4. Sequence the PSA work#

• Decide which commitments you will sell across customers: monthly, annual prepay, annual paid monthly, 36-month prepay, 36-month paid monthly, 36-month paid annually.
• Create or change agreements in the PSA to match those commitments.
• Create new product catalog entries for the different rate plans per term.
• From January through March, use the promos to transition customers, converting existing subscriptions at end of term. If a customer is not figured out yet, convert to monthly NCE terms; you have until the end of June before monthly prices rise by 20%.
• Put cancellation dates on, or close, existing subscription line items in agreements and contracts.
• Add new line items for NCE products across transitioned customers.
• In March, adjust products with updated rate plans. The increases hit monthly-term products only; annuals purchased before that date have price locking.
• In July, adjust monthly subscriptions to factor in the 20% premium for customers staying monthly, or convert them to annual terms.
• If you bought annuals at the 5% discount with auto-renew on, the subscription updates to the standard rate plan the following year and will need adjusting then.

5. Document anniversary dates and automate renewal alerts#

The one-time migration push will not keep itself current as you add subscriptions and customers. Populate anniversary dates in a documentation tool like IT Glue or Hudu and create alerts ahead of renewals. Build some automation around the renewal workflow: email notifications to customers at 60, 30, and 7 days before annual renewals, so quantities get adjusted on the renewal date rather than after it.

6. Use NCE Tracker#

NCE Tracker (opens in new tab) is an app we built to help manage the transition from legacy products to NCE across customers. It is simple by design, and useful for organizing all of this complexity in one place.

Reference links#

Resources we have found helpful:

• November Partner Center updates about New Commerce (opens in new tab)
• August Partner Center updates about New Commerce (opens in new tab)
• September Partner Center updates about New Commerce (opens in new tab)
• Blog post: New Commerce coming to CSP (opens in new tab)
• New Commerce incentive resources (opens in new tab)
• New Commerce readiness map (opens in new tab)