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Microsoft is pursuing deeper connections with its channel allies, from Microsoft Azure partners to independent software vendors, a move that could compel partners to develop higher-value services and more sophisticated offerings.
In an update on Microsoft's partner strategy this week, Gavriella Schuster, corporate vice president of the One Commercial Partner program at Microsoft, cited examples of a new channel approach that moves beyond transactional reselling. She pointed to developments such as the growth of the Microsoft co-sell program and Cloud Solution Provider (CSP) licensing model. Schuster also cited examples of partners building offerings on top of Azure and greater partner investment in the Microsoft relationship.
"We have moved from partnering to partnerships," Schuster said in a press briefing.
Consider the following:
- Microsoft Azure Expert Managed Services Providers (MSPs), a program the vendor kicked off in July 2019, put 32 of its top Microsoft Azure partners through a third-party audit with the goal of creating consistent and repeatable managed services on Azure. In the process, Microsoft found that the Azure Expert MSPs were able to generate more than $100,000 per month in Azure business and some generated $2 million per month. In contrast, a Microsoft Gold-level partner is required to book $100,000 per year in Azure business. That program for Microsoft Azure partners has since grown to 43 companies.
- The Microsoft co-sell initiative, which rewards Microsoft's field sales force for selling partner solutions, generated $8 billion in partner revenue in the first 18 months of its existence. Schuster said co-sell deals close three times faster and are about six times larger than deals outside the program.
- Accenture, Microsoft and the companies' Avanade joint venture unveiled the Accenture Microsoft Business Group on Feb. 4. Schuster said the group represents the "largest investment any partner has ever made with Microsoft" and the largest group of Microsoft solutions experts in the world -- more than 45,000 professionals.
- In March 2019, ISV partners will be able to publish their offerings on Azure Marketplace and AppSource, Microsoft's online marketplaces, and directly access the Microsoft partner ecosystem, as well as customers. Microsoft said those venues will let ISVs "publish to a single location" and gain access to Microsoft customers, sales people and tens of thousands of partners.
Schuster also pointed to a broadening Microsoft partner ecosystem, which she said includes ISVs, MSPs and systems integrators in addition to traditional resellers. Unconventional partners, in general, are challenging the established players. She also pointed to partnerships with customers such as grocery chain The Kroger Co., which will work with Microsoft to build a retail-as-a-service offering on Azure. The companies will jointly market the product to retail industry customers.
New licensing agreement
Microsoft's latest partnering tack comes as the company readies a new licensing process, which will let customers buy Azure services directly from Microsoft. The new approach, the Microsoft Customer Agreement, is to go into effect in March 2019. Microsoft said the simplified new agreement spans 11 pages. The Microsoft Customer Agreement is geared toward customers who want to assert maximum control over their Azure services and don't need the level of administrative support embedded in Microsoft's Enterprise Agreement (EA), according to Microsoft.
Jason Woodrum, director of the public cloud architecture team at Ensono, a managed services and cloud provider, said small and medium-sized businesses (SMBs) can quickly sign the 11-page digital agreement and get Azure services along with third-party software via the Azure Marketplace. He noted the EA has become a lengthy contract.
Gavriella Schustercorporate vice president of the One Commercial Partner program, Microsoft
"One of the things Microsoft was really focusing on was how can I make it easier for the SMB market to essentially contract directly for Azure services," he said.
But while facilitating direct sales, the Microsoft Customer Agreement still fits within the company's partnering strategy, the company said. Toby Richards, general manager of partner go-to-market and programs at Microsoft, said that strategy is embedded in the buying process whether the customer purchases through field sales, via self-service or through the CSP program. The latter is Microsoft's fastest-growing licensing model.
"We are simply giving choice to the customer, and improving an already low-value function in the license transaction, while still relying on our partnerships to drive value," Richards said.
Microsoft partner ecosystem impact
Woodrum said the new customer agreement shows the software vendor wants Microsoft Azure partners to focus on services, rather than just helping to execute a cloud licensing transaction.
"We will see a lot of partners who were maybe just focusing on the transaction ... pivot in the way they are operating so they can get back to truly adding value to the client," Woodrum noted.
Woodrum said the new Microsoft policy will have limited effects on Ensono, which already provides cost optimization, architectural best practices and other value-added services on Azure projects.
"Overall to Ensono, it is really business as usual," Woodrum said.
However, Vadim Vladimirskiy, CEO at Nerdio, a cloud IT management platform for Microsoft Azure and private cloud, said Microsoft's licensing service providers or licensing solutions partners (LSPs) could see an impact. Transactional-only LSPs will likely see a decrease in business volume due to the introduction of the Microsoft Customer Agreement, he noted.
"Microsoft is making it easier for end customers to purchase Azure directly if they know what they want," Vladimirskiy said. "Using an LSP for transacting Azure today is beneficial because the process is flexible. With [the Microsoft Customer Agreement], these customers will be able to bypass the LSP and transact with Microsoft directly without the need for an EA or LSP."
MSPs, on the other hand, will see little effect as a result of the Microsoft Customer Agreement's introduction.
"These partners exist to service those customers who are not sufficiently technically enabled to buy Azure themselves," Vladimirskiy said. "They need a partner to help them scope, size, deploy, manage and support Azure."
Because the Microsoft Customer Agreement doesn't enable end customers to do any of those things, they will continue to buy Azure through service providers, Vladimirskiy said.