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ORLANDO, Fla. -- Today at the Vision Keynote at Microsoft's Worldwide Partner Conference (WPC) 2015, Phil Sorgen, corporate vice president of the worldwide partner group at Microsoft, shared some insight on what makes a successful channel partner during this time of industry transformation.
He formulated his findings based on data gathered across the Microsoft partner ecosystem in partnership with research firm IDC. The data was divided into two buckets: partners who do more than 50% of their business in the cloud and partners who do less than 50% of their business in the cloud. The result: Partners focusing more of their business on the cloud are outpacing their peers who are doing less.
More specifically, cloud-focused partners acquired 1.3 times more customers than other partners, while realizing revenue growth 1.4 times greater than those companies less involved with the cloud. Overall, cloud-oriented partners are making 1.5 times the profit of the rest of the industry. In addition, partners who did more than 50% of their business in the cloud had a company valuation of 5-to-14 times earnings before interest, taxes, depreciation and amortization (EBITDA) versus 2-to-4 times for the rest of the industry.
Phil Sorgencorporate VP of the worldwide partner group, Microsoft
Just what's going on inside these high valuation partner firms?
Sorgen found four characteristics that consistently differentiated the high valuation companies:
- intellectual property differentiation;
- digital marketing;
- high customer acquisition and retention strategy; and
- how they adjusted their internal measurements.
Sorgen outlined these differentiation approaches for WPC 2015 attendees.
Intellectual property differentiation
Partners following this path are building an annuity business based on multiyear contracts.
"But more importantly, their business is rooted in their first-party [intellectual property]," Sorgen said. "Their own capability is a key component of a solution."
Sorgen noted that what these business leaders are doing is building an innovation culture, which sets them apart from their competitors and is a key driver of their profitability.
Partners who are building their own intellectual property are increasing their business and generating new revenue streams, according to the Microsoft executive. Some examples of how partners are monetizing their own intellectual property: Software as a service extensions packaged as a subscription service, intellectual property integrated into a managed service or developing repeatable methodologies that extend project services work.
These companies are savvy when it comes to digital marketing. They have a strategy to create a digital profile and they use assets such as social to build their business, while tapping reputation engines and peer reviews to establish credibility.
What makes these strategies a differentiator for these successful firms goes back to the buyer of cloud solutions, who increasingly is the line of business (LOB) buyer. According to IDC research, LOB buyers will influence 80% of net new IT investments by 2016.
How buyers find solutions has also changed. They're more likely to search online and utilize peer reviews and reputation engines to do research before they contact a partner business.
"For these reasons, it's important that your digital profile connects to your potential buyers who you don't yet have a relationship with -- whether that's locally or in another geographic location," Sorgen said.
Customer acquisition and retention
Because leading cloud partners exploit their intellectual property and are savvy marketers, these firms have learned that the sales and marketing functions must be tied at the hip in order to respond quickly to new leads and new opportunities.
"These firms have also learned that the greatest value in cloud economics is customer lifetime value," Sorgen said, which means retooling retention processes to insure that the customers stick around for a long time. As many partners know, once you have a customer, you have the opportunity to upsell and cross sell to boost revenue and provide ongoing value for the customer.
Adjusting internal measurements
New business models require new thinking. Selling cloud services and growing an annuity business required these firms to rethink and change how they compensate their sales teams. These companies were also tasked with getting their sales teams on board with a new compensation scheme.
At WPC 2015, Sorgen explained how one successful cloud firm made changes to its compensation model and won over its sales team. In order to incentivize the partner's sellers to be in sync with the company's goal to grow its cloud business, it went from a quota-based model to a portfolio percentage growth model.
"That move insured that max earnings were achieved with the right mix of solutions that they wanted to sell, and it insured that they were putting a cloud incentive with their sellers every month given the revenue recognition realities of the subscription model," he said.
This cloud firm also tuned its leadership team's dashboard.
What's clear is that transformation touches all aspects of a partner's business and successful cloud companies tackle it head on.