The days of huge profit margins reselling Office are long gone, but that doesn't mean there isn't money to be made.

Kris Blackmon, Head of Channel Communities

April 5, 2019

5 Min Read
Cash, U.S. currency

Ah, Microsoft Office. The ultimate bait and switch of the IT channel. When the software that launched a thousand VARs in the 1990s evolved to the cloud offering Office 365 in 2010, it began devouring the very profit margins it had created in its on-premises days.

These days, O365 is somewhat of a necessary evil to most channel partners. There are more than 155 million Office 365 users worldwide, with more than 3 million users added every month. It’s become a ubiquitous mainstay of business applications, and that presents an irritating conundrum for resellers and managed service providers (MSPs). You can’t not offer it, but at a profit margin hovering around 15 percent, it’s hard to make money reselling it.

Lately, there’s been a lot of energy around ways to change that. There are O365-specific backup and disaster recovery solutions, for example, and many partners concoct a magic combination of Office 365, CRM, email protection and other basic services into a tidy bundle that’s higher margin with relatively low effort. But at the end of the day, it really boils down to two ways to monetize Office 365: Resell on volume or make money on tangential services.

So says Ned Bellavance, director of cloud solutions at tech consultancy and reseller Anexinet. The issue with the resale tactic is that in order to really make profit, you’ve got to move a crazy amount of licenses. It’s a volume play, and only larger MSPs can afford to chase the thin margins that come with being a volume cloud service provider (CSP). But if you’ve got the resources, it can be a nice little moneymaker, especially when you roll the Office 365 licensing into an existing MSP practice.

Microsoft’s latest brainchild, Microsoft 365, makes it easier. M365 is a subscription-based integrated bundle of Office 365, Windows 10, and Enterprise Mobility + Security (EMS) — a three-letter acronym that holds a slew of ancillary Microsoft and Azure products and services like Azure Active Directory, Microsoft Intune and Azure Advanced Threat Protection. It’s an office in a box.


Anexinet’s Ned Bellavance

“Add a managed services play for Office 365 and workstations, and you’ve got yourself a pretty sweet managed services gig,” says Bellavance.

But he cautions partners to remember that the only way to make such a play profitable is to sell on volume.

“Microsoft is only going to discount the list price so much, so everyone’s markup is going to be about the same. … Smaller players usually get squeezed out of the market or take a small deal here and there.”

For smaller systems integrators, MSPs, value-added resellers (VARs) and independent consultants, the way forward is to offer migration and enablement services on top of O365. It may not be the sexiest opportunity, but it’s a big one. While a lot of organizations have made the jump to Office 365, there’s still plenty that have not, and many of them (if they’re smart) are reluctant to take on the pain of running a migration themselves.

Bellavance says that’s especially true of all the shops still running IBM’s collaborative client-server software platform Notes and Domino, which Big Blue acquired in 1995 when it bought Lotus and then sold to HCL late last year.

“If the writing on the wall wasn’t clear enough before, now it’s in 40-foot, flaming letters: Notes and Domino [are] on life support,” says Bellavance.

There’s another factor driving urgency behind O365 migrations. Exchange 2019 was recently released, and Bellavance says Microsoft has made it pretty obvious that …

… the era of SMBs running Exchange is basically over. Once long-term support ends for Exchange 2010 – on Jan. 14, 2020 – a lot of companies still running that platform are going to be looking to finally make the plunge to Office 365.

“It’s not just migrations, though. Once companies make the move, there are lots of areas they are going to need help with,” offers Bellavance. “Developing for SharePoint Online is a different animal than SharePoint on-premises. Office 365 has cool bells and whistles like Azure Information Protection, Privileged Identity Management and Intune. Implementing good security and best practices on Office 365 is no small feat. Customers are looking to implement these services, and they are going to need the help of partners to get there.”

But offering migrations is easier said than done. It isn’t a quick and easy process by any means, and it involves a lot of customer handholding, walking employees who don’t understand why it’s necessary to learn new processes and technologies through the changes.

“I cannot overstress the importance of proper planning, design and preparation in a migration effort. Doing the hard work upfront is going to ensure a relatively smooth migration and a happier customer,” Bellavance explains. “Part of the preparation has to be training and education of the customer’s staff … I recommend partnering with a training company who can help the organization get ready for and embrace the migration, as opposed to seeing it as yet another case of IT changing things for the sake of changing.”

In Bellavance’s view, that’s one of the biggest potential pitfalls to an Office 365 migration project: the failure to align customer expectations with reality. It’s all about having full transparency on expectations, responsibilities and process. Each project must begin with the partner and customer working together to define its scope and make sure everyone is on the same page. Just as important as technical know-how is top-notch project management skills. With enough preparation and planning on the front end, migrations don’t have to be a nightmare. And really it just takes practice, just like anything. The 10th migration is easier than the first.

Cloud has and is continuing to change the rules of the channel game, upending longstanding business models, erasing once-profitable offerings overnight and altering the nature of the partner-customer relationship. Once a stalwart of managed services in its on-prem days, Office in its SaaS iteration requires a different type of thinking and a different approach to monetization. The good thing is that as long as there are big IT headaches people want to outsource, partners who know how to handle them will always have clients.

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About the Author(s)

Kris Blackmon

Head of Channel Communities, Zift Solutions

Kris Blackmon is head of channel communities at Zift Solutions. She previously worked as chief channel officer at JS Group, and as senior content director at Informa Tech and project director of the MSP 501er Community. Blackmon is chair of CompTIA's Channel Development Advisory Council and operates KB Consulting. You may follow her on LinkedIn and @zift on X.

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