Microsoft ecosystem value: new data reveals partner paths to profitability and growth
Today, nearly every aspect of business and society is facing some type of disruption, and, as a result, it is more important than ever to accelerate innovation. At Microsoft, we find ourselves at the center of this transformation with our partners. Earlier this year at Microsoft Inspire, we shared that we are committed to working with partners to help our customers address today’s digital imperatives by infusing technology and cloud-based solutions into every business process. Every day, more than 400,000 Microsoft partner organizations make small businesses more productive, nonprofits more effective, multinationals more competitive, governments more efficient, and much more.
As customers undergo digital transformation, we must continue to co-innovate and jointly go to market with tailored solutions. To better understand the value of Microsoft to our partner ecosystem, we commissioned a study with IDC that examined key drivers of partner profitability and growth. This eBook is the result of in-depth research with our partners, including a survey of 765 Microsoft partners globally and interviews with 12 Microsoft partners. This research found that partners realizing the greatest economic benefits with Microsoft are those who have invested the most in their Microsoft relationship, offer their own intellectual property (IP), and take advantage of co-selling opportunities.
“We believe in the better-together story. PROS and Microsoft deliver a better-together, ‘one plus one equals something greater than three’ approach for our joint end customers.” —John Connolly, Global Vice President, Alliances and Partners, PROS
Partner economic value creation
When segmenting the Microsoft partner ecosystem by partner revenue and the activities that partners perform to drive that revenue, the surveyed partners are in three categories: resale-led, services-led and software-led. It is important to observe that the different partner activities have different levels of economic value in their relative relationship with Microsoft. And, since partners tend to have a unique revenue mix from these activities, every partner may, as a result, have different economic outcomes.
For example, resale-led partners derive the bulk of their revenue from reselling, but also generate some revenue from their own services and/or software. The same logic applies to services-led and software-led partners. IDC established that for every $1 of Microsoft revenue, partners derive a multiple in their own business based on their specific activities or revenue share of those activities. A key insight from the research highlighted the differences in these multiples, with regards to expanding economic value and pathways to growth – they found that service-led partners make $7.63, and software-led partners make $10.11.
Partners that develop their own software and services to meet unique customer requirements are positioned for greater growth and profitability. In addition, building these solutions provides partners with greater opportunity to realize a greater impact to their overall economic prosperity relative to Microsoft.
“Margin related to our Microsoft business is much higher for software, at around 60%, than it is for services, at 35%. We expect our own software business to grow 40% this year, and our services business to growth 35%.” —Tom Patterson, Chief Commercial Officer and President, North America, Flintfox
Deeper engagement, differentiated outcomes
One of the main differentiators between partners is the level of investment they make in their Microsoft relationship. The survey found that partners who invest in differentiated solutions and bet big on Microsoft tend to outperform others. This can be measured not only in pure financial investment but in dedication of time, focus, and energy. Those that put more into sales, engineering, and go-to-market resources are in a better position to take advantage of opportunities in the market.
A good indicator of a partners’ level of investment is the number of Microsoft solution areas in which they engage. Of sampled partners, those that focused on six solution areas enjoyed higher levels of growth in 2021 (26% growth, compared with 15% for those engaged in only a single solution area) and expected to have higher growth in 2022 (47%, compared with 25%). Microsoft Cloud solution areas include Modern Work, Security, Azure Core, Digital & Application Innovation, Data & AI, and Business Applications.
“We’ve doubled our Microsoft investment in the last year, which has led to a near tripling of our revenue via Microsoft. We expect to do the same this year.” —Don Jones, Senior Vice President of Ecosystems, Palo Alto Networks
Co-selling and going to market with Microsoft
A key advantage of partnering with Microsoft is access to a variety of go-to-market resources, including the commercial marketplace, Microsoft Azure Consumption APIs, and other assets. The survey found that most successful partners engage with these offerings, with a special emphasis on Microsoft field-sales engagement. This allows partners to develop differentiated, value-added approaches to customers in alignment with our overarching strategy.
“We need that trusted relationship with the Microsoft field so that we can go to customers together. Customers listen to Microsoft because they’re providing and creating the technology. It’s a much stronger story to have a Microsoft rep calling a customer and bringing us in.” —Nicholas Waxman, Vice President, Microsoft Alliances and Programs, Crayon
Our work with partners impacts every facet of what we do; from conception of ideas with our customers, to how we inspire and design and how we execute in the field and drive deals together. And, most importantly, it impacts how we help customers realize the value of our technology. Microsoft is committed to the success of our partners, and I hope you’ll explore the complete study to identify the most impactful actions for your business in the coming year.
Source: IDC eBook, sponsored by Microsoft, Microsoft Ecosystem Value: Partner Paths to Profitability and Growth, doc #US49292222, July 2022