Beyond the seat: what Nadella’s consumption pivot means for CSP partners

On 29 July Microsoft closed its 2026 financial year with fourth-quarter revenue of $90.0bn (£67.2bn), up 18%, and Microsoft Cloud revenue of $59.3bn, up 27%, according to the company’s results release. Azure and other cloud services revenue grew 43%. The line that matters to the UK channel came on the earnings call that followed, when Satya Nadella, chairman and chief executive, said: “In addition to this, we are also evolving our business model beyond per-seat to per-seat-plus-consumption, further expanding our TAM and delivering more customer value.”

TAM is total addressable market, and the sentence deserves a slow read. Microsoft built its commercial cloud, and the partner channel that sells it, on the user subscription. Its chief executive has now told investors that the unit of growth is the user subscription plus whatever that user’s agents consume.

Microsoft 365 Copilot now has more than 30 million paid seats, Nadella said, with net seat additions more than doubling quarter on quarter, so the seat is hardly dead. What has changed is what runs on top of it. “Earlier this month, we added usage-based billing to Cowork, with thousands of customers already paying for and actively using it,” he said. The data estate, in his account, is moving from supporting applications used by people to supporting agents, and the agents are arriving fast: “Just two months in, Agent 365 now has nearly 40 million agents registered across tens of thousands of companies.” His quote in the results release is shorter: Microsoft is “advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results”.

Tokens are consumed. Seats are renewed. A seat is a fixed price for a fixed period. A token is metered and billed by the vendor for whatever the customer’s agents did that month. Microsoft has just said its growth is moving to the second thing, and the UK Cloud Solution Provider (CSP) channel was built on the first.

CSP was built to resell subscriptions

Take Microsoft’s own description. The CSP overview on Microsoft Learn, updated in June, says direct-bill partners “purchase Microsoft products and subscriptions directly from Microsoft and sell them directly to their customers”, while indirect resellers buy through a distributor that handles billing and support. Every sentence is about subscriptions bought and resold: a margin on a per-user price, predictable at renewal.

Now put Cowork beside it. Microsoft’s blog post announcing general availability on 16 June says Cowork requires a Microsoft 365 Copilot user subscription license and that users are then billed for it “on a usage-based basis, with charges determined by the tasks they run”. The price of each task is calculated from four inputs – model use, context retrieval, tool calls and runtime – and pay-as-you-go is $0.01 per Copilot Credit, or less on a pre-purchase plan. Administrators set budgets and user-level caps inside billing policies.

Read the two side by side. The seat is sold by the partner. The tasks are metered by Microsoft, priced by Microsoft, capped by the customer’s own administrator and billed on usage the partner can see only if it is inside the tenant looking. A CSP reseller that earns its living on the license has just watched the growth Nadella described move to a line it does not control.

Not every vendor is moving as fast with him. On 22 July Bill McDermott, chairman and chief executive of ServiceNow, told analysts on his company’s second-quarter call that ServiceNow keeps seat-based pricing because customers prefer the predictability. He is describing the customer the channel knows. But ServiceNow does not run the CSP program. Microsoft does, and Microsoft has chosen.

Agent 365 is a comfort and a trap

There is a comfort here for the reseller, and a trap. Microsoft still sells the control plane per user. Agent 365 costs $15 (£11) per user per month, according to Microsoft’s announcement of general availability on 1 May, and Nadella described it on the call as a control plane that extends a company’s existing governance, identity, security and management frameworks to the agents it builds. A partner can quote that on a CSP invoice.

The trap is that a governance seat is worth buying only if someone runs the conversation it exists to govern: which agents are registered, what they are allowed to consume, what the credit budget is and who gets the alert when one department burns through it. Microsoft’s account teams will have that conversation. They hold the consumption data. The question is whether the partner is in the room first.

The consumption conversation belongs to the partner

So the response to Nadella is neither to mourn the seat nor to pretend it is still the story. It is to own the consumption conversation before Microsoft does, and a UK partner can start in August with three pieces of work.

First, usage forecasting. Cowork prices a task on four inputs the customer cannot see in advance. A partner that can model a department’s likely monthly credit burn, and put a number on it before the finance director asks, has turned an unpredictable bill into a service.

Second, agent governance. Nearly 40 million agents registered in two months, on Nadella’s figure, means the customer’s registry will fill faster than its policy does. Someone has to decide which agents are allowed, what data they touch and what they may spend. That is a managed service with a monthly fee, and the reason to sell the Agent 365 seat at all.

Third, cost control. Budgets, caps and alerts exist in the product. Setting them and explaining the invoice is work the customer will pay for, because the alternative is a bill they did not forecast from a vendor whose growth now depends on it.

Nadella has told the market where Microsoft’s growth now lives. Partners that keep selling the seat will still be paid for it, just not for the growth. The margin has moved to the meter, and the meter belongs to whoever reads it first.