I’ve had the pleasure of working with Microsoft partners for the last seven years of my career. The first four of those years, I focused on building programs to help ISVs in the U.S. build on the Microsoft platform, go to market with Microsoft and build effective partnerships. Nearly three years ago, I joined the Worldwide Partner Group and took ownership of the Microsoft cloud programs.
Now that we have made cloud core to the Microsoft Partner Network (MPN), I am excited to be taking on the role to lead partner profitability for the Worldwide Partner Group. In the coming months, I’ll be publishing a series of blogs, as well as developing new content and tools, to help partners better understand how they can transform their business to be profitable in the cloud.
I want to know what questions you are grappling with as you work through this transition and what help you need from us on this topic, so please feel free to reach out to me via email jsieger@microsoft.com or Yammer. With that, I’ll kick off my first topic!
It’s no surprise that the way our partners do business is fundamentally changing, and that the cloud is opening up new opportunities to drive profitability. It’s becoming increasingly challenging to put solution providers into traditional business model buckets as the ways of doing business in the cloud blur the lines. In fact, according to the IDC Successful Cloud Partners 2.0 eBook, about half of U.S.-based partners said they were already offering managed services, and there is a shifting mix of revenue-generating activities such as resale, professional services, software development and others. Also according to that survey, 43% of those who are not offering managed services today plan to at some point in the next year.
If you are considering building or growing a managed service practice, you may want to consider how Azure fits into that strategy. If you are not convinced on the opportunity with Azure, let me share with you a few compelling points. Azure has a 99.95% availability SLA, and 57% of Fortune 500 companies are already using Microsoft Azure. According to 451 Research’s Hosting and Cloud Study 2014, 50% of large enterprises will have hybrid cloud deployments by the end of 2017, and 72% of customers are currently leveraging cloud for their applications – from pilots to production apps. Azure has outstanding momentum with over 3,500 applications already built, 1,100 images in the Azure Virtual Machine Depot, and over 800 applications and data services in the data marketplace.
Now, how can Azure help you build or grow a profitable managed service business? There are two key ways: by offering you a recurring revenue opportunity and by increasing your margins. Let’s explore these a bit more.
As you may have read in Josh Waldo’s previous blog Recurring Revenue: the new Killer KPI, recurring revenue is extremely important in building sustainable profitability because it builds a steady stream of reliable revenue and can help build your company valuation. Consider that your Microsoft Enterprise Agreement allows you to build in value-added services so you can earn more revenue for each client you move to the Azure platform. As an example, clients pay your hourly service rate when you provide a managed data storage solution; this covers your licensing cost and adds profit for your accompanying services. According to the IDC Successful Cloud Partners 2.0 eBook, cloud partners (partners with more than 50% of revenue from cloud) have 1.6X the recurring revenue as a portion of total revenue versus other partners.
Another way Azure can drive more profitability in your business is through increasing margins by extending efficiencies that help manage your costs – for example, remote delivery, lower-compensated resources and automation tools. Repeatable methodologies also help gain efficiencies.
Many partners have begun seeing success by adding a managed service practice to their business. For example, Ensyst, a traditional on-premises systems integrator out of Australia, decided to offer cloud solutions with managed services. They saw the cloud as another environment in which they could do what they do well: shield customers from the complexity of technology so that they’re free to enjoy its benefits. Ensyst now offers its customers large-scale datacenter transformations centered on Microsoft Azure and StorSimple as hybrid storage solutions. Since then, deal sizes have tripled, cross-selling and upselling is up, and the company’s investment in selling StorSimple became profitable after just one year.
If you are approaching your enterprise agreement anniversary or expiration date, you may want to consider how an investment in Azure will help position your practice to talk to clients about their cloud strategy. I’d encourage you to learn more by reading the Azure Partner Managed Services eBook or accessing the Azure Partner Resource Community.
My best wishes for a happy holiday season!