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Microsoft appeared to cross a cloud rubicon this year when Office cloud revenues surpassed traditional licences for the first time, but as the software giant’s move to the cloud continues to gather pace, what does this mean for its channel partners? How can they preserve and strengthen their place in the Microsoft ecosystem going forward? What opportunities does Microsoft’s cloud strategy present and are there any threats they will need to negotiate?
Richard Ellis, Microsoft Office Division lead, says much of the impetus behind the growth in the company’s cloud business has been driven by the success of its cloud solution partner (CSP) programme. “The CSP framework is a great example of the huge opportunity for partners,” he says, “giving them the ability to bill, invoice and provide managed service and support to Office 365 customers using our infrastructure. It allows partners to set their own pricing, their own support contracts and work with ISVs to add value.”
There are 35,000 CSP partners globally and the number is growing at the rate of 6,000 a month. “CSP is enabling partners to grow their revenue share with customers,” Ellis claims, revealing that CSP partners enjoyed 10% year on year average revenue per user growth.
He believes most partners are aware of Microsoft’s shift to the cloud and are taking advantage of it. “It’s for every partner to assess what their own services are and what their value proposition is to their customers. That’s always been crucial and it will be crucial going forward. Partners need to be very clear what value they are adding.”
The announcement of Microsoft 365 Business, which wraps Office 365, Windows 10 and mobility and security into a single package, at the vendor’s Inspire channel event, is also likely to provide additional opportunities for partners. “We’ve done the integration so it’s easier for partners to offer as an integrated service to customers. We see tremendous value in that,” Ellis comments.
Dwayne Earl, Tech Data software business unit manager, says the distributor has “had a great deal of success” with the CSP programme. Tech Data has already introduced partners with complementary skills to each other to find ways to fill the skills and capacity gaps they have. “Quite a lot of our more established CSP partners are finding their ability to grow is only limited by a shortage of skills and personnel,” he notes.
Earl warns that partners aiming to have a strong position in the cloud-orientated channel ecosystem developing around Microsoft “need to get involved now and start to develop their skills and capabilities in Microsoft cloud solutions and form partnerships with other companies that are already active within that ecosystem”.
Dominick Birgelen, CEO at one click AG, believes that Microsoft’s cloud strategy “presents great opportunities to the market” and gives partners the ability to “reach a huge global audience of potential customers”. However, he adds that they “need to work hard to continue to add value to customers”.
In general, the cloud ecosystem encourages businesses to directly engage with customers, but partners are doing well with Microsoft because more and more users are signing up to Microsoft cloud through specialised managed service solutions. He thinks the recurring model will also help resellers “to preserve and strengthen their position going forward”.
Chris Hill, business development director at Barracuda, is nothing but blunt about the implications of the shift from traditional licences to the cloud model: “If the channel doesn’t adapt to Microsoft’s evolving revenue model, it will be left behind and suffer financially.”
But he believes Microsoft is doing its bit to help partners adapt. “Microsoft has put its money where its mouth is by investing heavily in one of the biggest restructures it has gone through in a decade and ensuring its partner network continues to play an essential part in its go-to market plans.” Hill cites one commercial partner (OCM) as an initiative that has simplified a previously complex model by providing a single point of contact to address Microsoft’s internal teams on a partner’s behalf.
Like Earl and Bargemen, he praises the CSP programme, arguing it has allowed partners “to be more creative with Microsoft solutions, positioning multiple products from the vendor’s portfolio as unique propositions to the user. The channel partner that embraces this change will be able to take advantage of new billing options, wider ranging solutions such as cloud security and networking, deeper professional services engagements and not be tied to standalone products with one off licences”.
Hill suggests that this flexibility in solution delivery enables the partner to play a greater role in the overall solution required by the user. “It removes the previous limitations where partners could only participate in some areas of the sales cycle, and effectively allows them to ‘own’ the entire process,” he states. In turn, this “opens up more ‘trusted advisor’ opportunities, and allows the channel to walk the customer through every step of deployment as opposed to individual parts”.
This is particularly important in the current climate where the threat of cyber attack is so pronounced. Users may have had to source different parts of their solution from different providers, “which can potentially leave them with significant gaps in their security. A channel partner that can advise them on Microsoft Azure’s shared security model and provide a combination of solutions from multiple vendors to achieve a secure environment without leaving any areas exposed is invaluable to users”.
Earl at Tech Data notes that once resellers are established in CSP, the evolution of their business “starts to take on a life of its own. The ones who are most advanced are becoming much more involved in delivering managed services and monitoring of customers’ IT; they are also becoming more strategically engaged and, in some cases, they are starting to work with customers on data strategies and in areas such as business intelligence”.
As for potential pitfalls, he thinks that if there is a threat, “it’s not getting involved early enough. Yes, they will need to negotiate the transition from product and licence sales to services and subscription income, but we have resources to support them on areas like monitoring and billing. And in our experience, resellers make the transition very well indeed”.
Ellis at Microsoft concludes by saying the vendor’s cloud strategy represents a “huge channel opportunity and some of that is already being realised by partners making a success of CSP. The momentum is building and we continue to see partners delivering, innovating and driving value to customers under the CSP programme”.