It’s been eight months since the close of Microsoft’s Worldwide Partner Conference and I wanted to get an update on what’s top of mind within the Microsoft brain trust.
In this edition of The Doyle Report, I get a first-hand update on the Microsoft worldwide partner ecosystem from Phil Sorgen, Microsoft’s “channel chief.” As corporate vice president in charge of the company’s partner empire, which numbers more than 100,000 worldwide, Sorgen “sets the channel strategy for a broad network of diverse partner companies” and is responsible for the recruitment, enablement, management and performance of everyone from ISVs to consultants to VARs to MSPs to cloud service providers and more.
Sorgen took the job in September 2013. By almost any measure, Microsoft’s relationship with the partner community was strained then. Partners were angry that they weren’t included in strategic initiatives such as selling the Surface tablet and disheartened by some of the policies that compromised their influence.
A lot of reasons explain why Microsoft (MSFT) changed. First there was the urgent need to develop a comprehensive response to the growing existential threat that cloud computing represented. (At the time, the bulk of Microsoft’s biggest efforts around cloud computing, including Office 365, Azure and other initiatives, were being developed independent of the Microsoft Partner Network.)
Then there was the realization that cloud computing could be big business. Make that very big business. Microsoft now believes that the total addressable cloud market for partners, including the sale of hardware, software and services, will grow to $500 billion by 2020.
To capture as many of these dollars as possible, Microsoft recognized that it had to become more partner friendly. After introducing new cloud competencies and optimizing benefits for cloud partners including offering unlimited support, Microsoft made helping “partners transition their business models to meet the needs of our customers in a mobile-first, cloud-first world” a top corporate priority.
Since then, Microsoft’s partner loyalty and satisfaction have improved considerably. Today, for example, partners say there is less friction when doing business with Microsoft. Partners can find their way around its programs more easily, and they can make more money with fewer restrictions and greater flexibility than before. This includes Kevin McMillen, founder of RyanTech Inc., a Microsoft partner of the year in 2012 and 2014. “The programs, platforms and policies have aligned in perfect harmony to create one of the best opportunities for partners in a long time,” McMillen told me recently.
In my interview with Sorgen, we covered a lot of ground. For the purposes of this article, I’ll focus on a few highlights. First up: an update on the Microsoft Cloud Solution Provider Program (CSP), which was launched at the last Worldwide Partner Conference in July 2015. The program, Sorgen says, took a collection of Microsoft products including Office 365 and Azure and provided a better framework around which partners could build Microsoft cloud franchises. This includes many longstanding Microsoft allies as well those who have never participated within the Microsoft ecosystem before. They have been lured to the program by Microsoft’s decision to offer an Azure solution for Red Hat software, SQL for Linux, Skype on Android among other things.
When launched, Microsoft architected the CSP to accommodate partners of different size and focus. A minority within the program have the ability to integrate with Microsoft’s APIs, support the Microsoft Management Console and scale to an enterprise level work directly with Microsoft. The rest work with cloud distributors including Ingram Micro, Tech Data and others in a two-tier model. Since its introduction, the program has expanded significantly. It now counts more than 10,000 members worldwide and it includes more Microsoft technologies. Two weeks ago, Dynamics AX for Azure was added to the program.
“This is a North Star platform for how we will bring cloud services to market where our partners can extend value, build on the APIs and drive their customer reach,” Sorgen says.
From the Cloud Solution Provider Program, we turned next to the ongoing transition underway within the channel. It was here that Sorgen pointed out that Microsoft has what is arguably one of the largest and oldest partner ecosystems in the industry. Rarely, he adds, has it ever seen so much change.
“We have a distinct interest in helping our partners move to this vision of a mobile-first, cloud-first world,” he says, “…but I’ve often said that that ecosystem may look different than it did in the past. It’ll have inherently different business models more prominent within it.”
To prepare for this, Microsoft has poured millions of dollars into in sales and technical readiness and other initiatives. It started with a campaign to explain “why to go to the cloud.” That was followed with a eBook launched in conjunction with IDC that explained “how to go to the cloud.” More recently, Microsoft launched a five-part series with IDC that goes even further.
The first installment of the next eBooks, launched a mere few weeks ago, focuses on real-world customer cloud experiences. It will be followed by additional installments that will roll out between now and the next Microsoft Worldwide Partner Conference slated for July in Toronto. They will cover differentiation (achieved through home-grown intellectual property development), sales and marketing (measured by a company’s digital profile, social media prowess and sales engine), operational excellence (repeatable methodologies) and customer value (buyer experiences and loyalty).
The partners that are strongest in these areas, Sorgen notes, are the ones with the highest valuations, revenue growth, customer acquisition, recurring revenue and profitability within the Microsoft ecosystem.
When he looks at the ecosystem as a whole, Sorgen says partners tend to fall within three buckets with regards to their transition to the new cloud world. A percentage of the community has evolved to the point where more than 50 percent of their business is derived from cloud technology sales. They have full-fledged practices, SaaS extensions and MSP-like services for almost all of what they do. These companies are at a tipping point in terms of growth and innovation acceleration, he says.
Another group of partners sell cloud solutions and are developing cloud competencies. Some have achieved market differentiation among their target audiences. Their pipelines for selling additional cloud solutions are growing and they are holding onto customers eager to migrate at least a portion of their IT operations to the cloud.
Then there is the third bucket, which is comprised of organizations that have not made investments to transition their businesses to the cloud. They have minimal cloud sales and very little in the way of recurring revenue. In many ways, their business operate much as they did five years ago. More than a few, Sorgen notes, are meeting their P&L objectives and satisfying customers. But they are operating on borrowed time, he fears, because technology and buying preferences are changing rapidly.
These organizations are vulnerable to cloud specialists and those who are making rapid transitions to hybrid business models that can accommodate customers no matter their buying preferences.
When he looks at the four basic business models that partners pursue today (product resale, systems integration, managed services or outsourcing, and software development) he believes the latter two offer the channel their best opportunity for growth. The cloud, he adds, accelerates and optimizes these business models, giving the companies that pursue them greater lift.
Lastly, Sorgen addressed what has become clear to a lot of us who follow the channel: blurred lines. In today’s world, vendors are partners and partners are vendors. Thanks to evolving business models, a great many of the business distinctions that once defined the market have gone the way of the fax machine. Take Microsoft’s ISV Hub, which launched in January. Ostensibly designed as a training hub for software developers, the website is open to any partner that creates intellectual property (IP). On the site, Microsoft provides guidance for project ideation, technical enablement, architectural design and go-to-market strategies. As it evolves, Sorgen fully expects it will attract greater numbers of VARs, MSPs, cloud services providers and more.
The point, Sorgen notes, is that the channel is on the move like never before. Where it goes is anyone’s guess. But he’s damn determined to provide a beacon for those who wish to follow Microsoft.