Microsoft: Cloud services present risks and rewards for third-party firms

IT channel partners who offer cloud-based solutions are more successful than their peers, according to Microsoft’s partner guru– but playing in the cloud computing space can require significant adjustments.

Phil Sorgen, corporate vice president in Microsoft’s worldwide partner group, said that the most successful Microsoft partners are those who invest in extending its Azure cloud services further.

“Partners who are building more first-party IP, more capabilities of their own that they can monetize and that wrap around or extend services like Microsoft’s, are who we see being extremely successful early on in the cloud,” Sorgen said.

“That can be in the realm of managed services, IT services, or being an ISV, or writing SaaS extensions,” he continued. “Even just creating repeatable methodologies given the predictability of the back end that the cloud represents.”

Adapting to cloud-based solutions may be harder for some than others, though. Some resellers who haven’t developed the capability to add value to the cloud may find it difficult to differentiate themselves.

“There are those that have more experience building IP that are finding this to be an easier transition,” he said. “And there are some that didn’t provide the skills to their customers that we described, that are having to do more change within their organisations and build capabilities that they haven’t traditionally had. For them, they do find the transition more challenging.”

One challenge affects resellers who traditionally sold software solutions for an initial capital outlay. The transition to a different business model in which cashflow is more continual can be difficult. Customers moving from capital to operational expenditure will often pay smaller amounts, more frequently, in an ongoing arrangement.

Microsoft Cloud Partner StatisticsIt can be difficult to build an annuity business that mixes the partner’s own intellectual property with Microsoft’s public cloud, Sorgen said. “You have to build that phase, and you build it through accelerated customer acquisition, and by continuing to cross-sell and upsell.”

According to Microsoft, the benefits of selling cloud services are worth the effort. In an IDC white paper sponsored by the company, the research firm interviewed 700 partners worldwide. It found that partners with more than half of their revenue coming from the cloud made 1.5 times the gross profit of other partners. They also made 1.6 times the recurring revenue as a portion of total revenue versus other partners, and scored 1.3 times more customers than the rest.

IDC also forecast that public IT cloud services spending will reach almost $108 billion in 2017, up from $47.4 billion in 2013. Companies in Canada will be spending $21.2 billion on public cloud services in 2017, the firm predicted.

Most of the money spent on public cloud services will come from SaaS, but platform as a service and infrastructure as a service will grow faster over the next five years.

Finally, Sorgen had some advice for channel partners looking to extend their cloud capabilities:

  • Focus on your core competency, figuring out your unique differentiator. Sell the thing that set you aside from other partners.
  • Evolve your customer acquisition process. Focus on vying for new business.
  • Expand your digital marketing capabilities to improve customer acquisition. Captalise on the fact that cloud computing extends into different geographies.
  • Make sure that you compensate your sales force appropriately for a cloud computing model. If you are moving to monthly billing, for example, paying your sales people on revenue represented in one month may be less useful, and could even penalise staff.
  • Have a pipeline of innovation. The innovation cycle in cloud computing is accelerating, and partners should always be looking at the next public cloud service that they are going to extend.

Sorgen’s cloud comments are particularly pertinent to the Canadian market this week. On Tuesday, Microsoft announced that it will be providing cloud services for Azure, Office 365 and Dynamics CRM locally from its Toronto and Quebec City datacentres from next year.

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Danny Bradbury
Danny Bradbury
Danny Bradbury is a technology journalist with over 20 years' experience writing about security, software development, and networking.

Related Tech News

Tech Jobs

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Tech Companies Hiring Right Now