Microsoft Cloud Partners Nearly Double Profits, Growth: Study

By Darryl K. Taft  |  Posted 2013-07-08

Microsoft Cloud Partners Nearly Double Profits, Growth: Study

HOUSTON – Microsoft maintains that partners selling hybrid cloud-based solutions benefit from higher gross profit, more new customers, higher revenue per employee and faster overall business growth, according to a new study.

The study commissioned by Microsoft and conducted by research firm IDC featured 1,300 partners and indicates that adding cloud services to their mix of offerings works wonders for partner growth in certain areas. Microsoft released the result of the study at its Worldwide Partner Conference 2013 here on July 8.

The study underscored the transformation taking place in the business world as more and more organizations of all sizes move their technology infrastructures to the cloud. In fact, according to the findings, cloud-oriented partners, defined as those that generate more than 50 percent of their revenue from the cloud, grow at double the rate, accrue new customers two times faster and generate double the revenue per employee compared to non-cloud-oriented partners.

The study also revealed customer buying preferences that highlight the importance of the role of partners in the overall industry cloud transition, including that: 63 percent of customers expect to have a single cloud service provider to meet their needs, 67 percent expect to purchase a wide variety of cloud services from a single vendor, and 74 percent expect their cloud service provider to be able to move a cloud offering back on-premises if needed.

Cloud-oriented partners are seeing faster customer acquisition of 2.4 times higher than the non-cloud-oriented partners. They’re also seeing revenue per employee of almost twice that of non cloud-oriented partners. They have gross profit margins 1.6 times higher than non-cloud. And when you add these data points together, it’s 2.4 times faster growth for the cloud-oriented partners over the non-cloud-oriented partners, the IDC study showed.

What the IDC study proves out is the question that people have been asking since the industry entered the cloud era, and that’s “what is the opportunity for partners,” said Jon Roskill, corporate vice president of the Worldwide Partner Group of Microsoft.

“Microsoft is very divergent from all of the competition out there,” Roskill told eWEEK. “We very clearly, like we always have, have taken a path to pursuing the cloud services business with and through partners as a primary channel. Always, 95 percent of Microsoft’s business has been with and through partners. And as we look at our cloud business, the same is true. That’s very different than anybody else operating in this space.”

“We’re at the point in the industry’s overall cloud transition where partners that don’t move to the cloud won’t survive. However, the most successful partners aren’t just high performing because they’re selling cloud–it’s because they’re putting cloud into the mix to sell hybrid solutions,” said Darren Bibby, program vice president of Channels and Alliances Research at IDC, in a statement. “The cloud transition doesn’t mean partners need to abandon their on-premises expertise; selling them both will provide a competitive advantage. By offering a hybrid approach, partners are able to provide a more customizable suite of solutions for customers in order to meet their needs.”

Microsoft Cloud Partners Nearly Double Profits, Growth: Study

Moreover, “IDC’s data reveals that businesses prefer to buy end-to-end IT solutions from a single cloud vendor and want to work with a company with whom they have an established relationship,” Roskill added in a statement. “With Office 365 now on a $1 billion annual revenue run rate and Windows Azure reporting $1 billion in revenue as well, our partners are in a prime position to support this. “This research validates our belief that the most successful partners are the ones who are offering a hybrid approach to IT. Microsoft is the only vendor equipped to help partners offer their customers a suite of on-premises and cloud solutions in both public and private cloud environments. By offering a hybrid approach, it better addresses customer needs and in turn, helps our partners make more money.”

Chris Dunning, CEO of TechQuarters, a Microsoft cloud partner, told eWEEK selling hybrid solutions is key to his company’s success.

“Before I setup TechQuarters, my previous business used to sell lots of Small Business Servers, now TechQuarters is highly addicted to decommissioning them in many SMBs,” Dunning said. “Our solution gives SMBs a decision, depending upon their present setup. We generally migrate email to Office 365 and some data to SharePoint, then we decide on whether to keep some data locally or place it on either a private Virtual Cloud Server with TechQuarters or Windows Azure.”

Meanwhile, for his part, Nick Vossburg, CEO of Cloudbearing, another Microsoft cloud partner, said Cloudbearing also supports organizations that rely on public cloud services but also maintain on-premise operations for workloads such as line of business applications.

“Some of Cloudbearing’s customers want to take advantage of the public cloud’s scalability and cost-effectiveness, but prefer to maintain other types of data on premises,” Vossburg said. “However, when it comes to email, collaboration software, and document management solutions, we find many customers eager to off load the expense of on premise operations to a more stable, secure, and cost effective solution with Microsoft. Cloud computing, both private and public, is fundamentally shifting the IT industry and a primary driver of that trend is economics. We anticipate by 2018 we will see cloud computing as the industry standard for common IT workloads like email.”

Microsoft’s WPC, with more than 15,000 attendees, is Microsoft’s largest event annually, and once again this year, the cloud will weigh heavily in the messaging. Microsoft has been driving hard at cloud services for many years, having started off with the Business Productivity Online Suite (BPOS) five years ago. The company has since moved strongly into Office 365 in the last year and a half. And over this last year, the terminology Microsoft is using is that it is now a devices and services company. And services are clearly cloud services.

Roskill said Microsoft multi-billion dollar performance in cloud related revenue signifies tremendous momentum entering the new fiscal year and partners are trailing along for the ride.

“Organizations are moving to the Microsoft Cloud at a very fast rate, and we are growing rapidly due to that shift,” Vossburg said. “Microsoft is a supportive partner to partners like Cloudbearing. Microsoft provides key benefits to its cloud partners like internal-use software rights, training, partner support, and exposure to customers in their product directories. Microsoft approaches cloud services as a way to help customers move toward better business agility, economics, and experiences both inside and outside their company walls.”

Microsoft Cloud Partners Nearly Double Profits, Growth: Study

Cloudbearing provides consulting and implementation services for Office 365, which includes Microsoft Office, Microsoft Exchange, Microsoft SharePoint and Microsoft Lync, and the company also offers solutions for Windows Azure. Cloudbearing is in the process of becoming a Value Added Reseller to sell Microsoft cloud products, like the Office 365 Mid-Size Business Plan, directly to its customers, Vossburg said.

Partners who had more than 50 percent of their revenue related to the cloud were outperforming on a series of different key performance indicators (KPIs) versus partners who had 50 percent or less of their revenue coming from cloud-related services, Bibby said.

However, “when we did the surveys, the best performing partners had clearly already gone to the cloud first,” he said. “That’s a pretty interesting finding. My main thought on this is not necessarily that cloud has changed their business and made them more profitable. I think cloud has helped. I think the best partners have gone to cloud first – just as they went to virtualization first or they went to client-server computing first. The high performing partners are seeing those trends first and knowing to invest early.”

Historically, partners will sell software in whatever form is going to make them the most successful, Roskill said. This study shows that if you want to be in this fast-growing segment of partners you’ve got to be moving to the cloud, he added.

Harking back to the early days of Microsoft – the company’s legacy – when Bill Gates, Steve Ballmer and Paul Allen started the company, it was a partner-oriented model from the start, Roskill said.

“And Microsoft has always had partner literally in its veins,” he noted. “So I don’t think there was ever a question that we would have a partner oriented cloud model, I do think there was some question, both inside and outside of Microsoft of was where partners could be successful in a cloud business. Would cloud be the transition that caused software to become a much more vendor direct model?”

However, in a discussion with Microsoft CEO Ballmer a couple of years ago, Ballmer told Roskill, “It’s software, and whether it’s running on the private cloud, the company’s servers, whether it’s running in a partner hosted cloud or whether it’s running in our public cloud, you still need partners to sell it, and package it, deploy it and customize it,” he said. “And at that point we had super clarity that we should continue to drive hard on this partner oriented model and we have done so.”

Microsoft now has more than 150,000 partners in the Microsoft cloud programs. That’s a scale nobody in the industry is close to, Roskill claims.

Yet, even with 150,000 partners, “there are still a lot of partners out there that haven’t re-oriented their business,” Roskill said. “So a big part of this is to say the time is now, the opportunity is clear, this is no longer theory and projections. This is a study of 1300 real partners that have been doing business over the last year in cloud oriented workloads and in non-cloud oriented workloads. And you can very easily see what the difference is.”

Microsoft Cloud Partners Nearly Double Profits, Growth: Study

Based on the IDC study showing that cloud-oriented partners gain 2.4 times more new customers, Microsoft is pointing to the empowerment of a new set of customers that cloud services enables as part of that shift.

With cloud services, “it is very clear that that line of business leaders – the CXOs, the chief marketing officer, the chief operating officer, the chief sales officer, they’re getting much more involved in these cloud services purchases,” Roskill said. “And what we found in this study is that these cloud-oriented partners have figured this out and they’ve latched onto this trend and they’re driving hard. So part of this is we’ve got to learn how to speak to a different customer. It’s no longer about speeds and feeds.”

Added Cloudbearing’s Vossburg: “We also know that for today’s CIOs and business leaders, the cloud presents an opportunity to redefine the role that the IT and non-IT business functions play in implementing a business’ strategy. Because of its power to fundamentally change how businesses operate and compete, the cloud is a game changer for many companies.”

Meanwhile, the IDC study also showed that cloud-oriented partners earn higher revenue per employee. Roskill said he believes this is because cloud-oriented partners have learned to restructure their delivery teams – moving away from traditional hierarchical structures to a new centralized services model that pushes the senior technical leaders out to be more customer facing.

He also noted that Microsoft made a conscious decision several years ago that it would not ask its partners to change their business models to sell Microsoft’s cloud offerings, but that the company would offer our cloud services in many different business models so partners could pick the model that best fits their business.

“So we have an advisor channel with more than 20,000 partners in it that are typically solution partners offering cloud solutions through the distribution model,” Roskill said. “We have the classic distributor/VAR, which has been participating through a program we have called channel developer for distributors. And we put Office 365 out there in our open licensing program. We have Office 365 and other cloud offerings like Azure and CRM available inside the enterprise agreement for our large account resellers that sell to EAs. And then we clearly have relationships with partners like telcos that we have a syndication offering that is typically sold through that partner type. And lastly we have hosters and we work with them with our service provider licensing.”

He said Microsoft entered into this model thinking about the breadth of its partner ecosystem and how it could we make its cloud offering accessible and resalable through partners’ business models rather than have them change their business model to comply with Microsoft.

Roskill said last week marked his twentieth year at Microsoft and he has been through several transitions -- from client-server, into the Internet and now the cloud.

“We’re not going through this cloud transition to come out intact and poking along,” he said. “We’re driving hard to come out stronger and grow the Microsoft business through partners even greater.”

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