March 21, 2012
profitInstead of expecting to generate big profits directly from Office 365, VARs should focus on building cloud integration business practices while also exploring application-centric opportunities. On the one hand, those recommendations are fairly obvious. But on the other hand, the comments addressed the elephant in the room during a cloud road show hosted by HP and Axcient in New York last week.
The comments, which I’m paraphrasing, came from long-time VAR and guest speaker Howard M. Cohen. He told a room of roughly 100 VARs that Office 365 profit margins are too low to generate real wealth for partners. But Cohen still saw real opportunity to advise customers on IT decisions going forward — regardless of whether the decision process involved on-premises hardware and software, or cloud services.
Over and over again, Cohen respectfully told attendees not to get caught up in the “cloud” word. Instead, think of how you will deliver applications and services going forward. And cloud is only one of many delivery mechanisms, he noted.
Eye on SharePoint
On the Office 365 front, Cohen mentioned that there will be growing opportunities for VARs and channel partners to add value at the application level. He noted that as Microsoft makes SharePoint customization capabilities available on the cloud, the IT channel will be able to cash in on that opportunity.
Indeed, there on-premise SharePoint market has scores of ISVs that plug into the Microsoft collaboration platform. That ecosystem will extend into the cloud much as SharePoint is extending into the cloud, and customers will need associated application help, Cohen told attendees.
Still, Cohen told attendees that they’ll never build a sustainable, high-growth business by focusing purely on recurring revenues from Office 365. He wasn’t criticizing Microsoft. Instead, he was setting expectations in the room based on his own experience running a VAR.
The Microsoft cloud platform, I believe, offers partners a 12 percent margin on the customers’ first-year payments to Microsoft, plus a 6 percent renewal fee every year as long as the customer retains Office 365 without changing the Partner of Record. Microsoft recently cut some Office 365 prices, which ultimately squeeze the hard dollars in those 12 and 6 percent margins.
Ultimately, the discussion at the HP-Axcient cloud event focused on long-term success rather than get-rich-quick schemes involving cloud computing. The key takeaway for many attendees: Axcient CEO Justin Moore described how VARs and MSPs can gradually — over a five-year period — build a $720,000 recurring revenue business by adding two cloud customers per month for 60 months.
Five years is a long time. But recurring revenues are forever — assuming customer satisfaction goals are met.
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