3 Important Partner Takeaways from Microsoft Inspire 2019
By Matthew Putzulu, Vice President, MartinWolf Global M&A Advisors
Microsoft’s Inspire conference brought more than 40,000 IT industry professionals to Las Vegas last week. This was my fifth consecutive year participating in the three-day summit, and it was the most vibrant and positive one yet. Over the course of more than 40 meetings with partners of all sizes, I heard one consistent theme: the Microsoft of today is very different than the Microsoft of the past — and everyone we spoke with couldn’t wait to see the Microsoft of tomorrow.
Here are a few key takeaways from my meetings and the broader conference as a whole:
1. The Microsoft partner relationship remains strong. A week before Microsoft Inspire was set to kick off, Microsoft made a series of program change announcements, most notably rolling back Internal Use Rights from partners. What ensued after the announcement was anger among the partner network, and vocal uncertainty surrounding Microsoft’s commitment to its partner network. In response, Microsoft opened the conference with channel chief Gavriella Schuster apologizing to partners for underestimating the value of internal use rights and reversing the decision. As one partner put it, “I wasn’t surprised. I knew Satya [Nadella] would not let the response go unaddressed. If he had, it would be going back on every cultural change he’s made in the last five years.” The immediate response from Microsoft to listen to its partners underscores the value and importance Microsoft places on them.
2. Cash in the cloud. There has been no question about Microsoft’s strategy moving forward. As the company has continued to focus on and invest heavily in its cloud platform, the market has rewarded it to the tune of more than a trillion dollars. According to Constellation Research, the hybrid cloud market is worth about $63 billion and could grow to more than $155 billion by 2025. Though Microsoft remains No. 2 in the cloud infrastructure market, its growth rate continues to eclipse AWS and its market share percentage continues to climb. The past month has been packed with new partnership announcements like those with Oracle, ServiceNow and OpenAI — bolstering Microsoft’s cloud footprint and prominence. The company also continues to announce large deals like its $2 billion contract with AT&T, which act as endorsements and proof-of-concepts for Azure-focused partners. Partners emphasized to me the close attention and importance with which Microsoft treats its cloud partners, allowing them to bid competitively and supporting them as they compete against AWS and other competitors. Even large cloud contracts like the Pentagon’s 10-year, approximately $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract are seen as attainable, either as direct wins, or reassignments later due to Microsoft’s superior ability to execute.
Looking ahead, Azure partners expect faster consolidation among AWS competitors than they do in the Microsoft space. A core perceived difference is that AWS partners are seen as purely cloud-focused and inherently similar, especially as compared with Microsoft’s diverse network of legacy solution partners that have become active players in the cloud market. However, with Microsoft’s increased focus on Azure and Dynamics 365, future consolidation could become simpler and more appealing for partners in the ever-changing software and services market.
3. Wheeling and dealing. As an M&A advisory firm, we spent much of our time at Inspire talking about valuations and market activity in the Microsoft partner ecosystem. We’re seeing historically high valuations – and record M&A activity as a result – thanks to …