2013-07-05 idc microsoft cloud infodoc

8/12/2019 2013-07-05 IDC Microsoft Cloud InfoDoc

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SuccessfulCloud PartnersHIGHER, FASTER, STRONGERAn IDC InfoDoc, Sponsored by Microsoft

What IT Solution Providers Need To Know To Build High-Performing Cloud Businesses


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An IDC InfoDoc Sponsored by Microsoft

SuccessfulCloud Partners HIGHER, FASTER, STRONGER

In This Study p3

Executive Summary p4

Chapter 1. The Market Opportunity for Cloud p6

Chapter 2. Managing Your Business for Cloud Success p15

Chapter 3. Organizing Your Business for the Cloud p28

Chapter 4. Insights and Profiles By Partner Type p39

Essential Guidance p48

Methodology p49

CONTENTS

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Cloud services represent a growing opportunity for partners of all types in a

wide array of activities across resale, services, and development. However,

its of key importance that partners have an understanding of the what,

where, how, and why of cloud services prior to embarking on wholesale

business strategy change.This IDC study, commissioned by Microsoft, examines the implications of

becoming a successful cloud partner in 2013. Developed with insight

garnered through in-depth conversations with leading Microsoft cloud

partners and backed by supportive survey data (see methodology for further

details), it provides a profile of the potential upside of integrating cloud to

a partners mix of solution offerings.

Finally, it concludes with guidance as a partner begins, or continues, their

journey into the cloud.

In This Study

Data in this InfoDoc comes from IDC studies from 2012 to 2013.Home
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IDC has worked with Microsoft on under-

standing profitability and success in the

cloud. Insight from IDCs research reveals the

proven potential of leading with the cloud,

and provides helpful advice from top-per-forming partners.

Top Partners Take a HybridApproach to Success

Cloud growth is 5X that of the IT industry

overall. Though, the reality is that customers

will continue to have on-premise technolo-

gies for a long time to come. Top partners

take a hybrid approach to success.

Cloud Partners Are The BestPerforming Partners

In multiple surveys, cloud-oriented partners

significantly outperformed their peers: Higher

Revenue/Employee, Higher Gross Profit, High-

er Customer Acquisition, and Faster Growth.

Top Partners Tend to EmbraceCloud Trends Early

While cloud contributes to these metrics, itsclear that top-performing partners have taken

on cloud first, incorporating cloud as part of

their overall successful business model. Top

partners have vision and tend to embrace

trends early.

Executive Summary

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Cloud Can Improve PartnerBusiness Models

Top partners agree that cloud helps open new

doors, upsell other software and services, and

generally grow revenue. Gross profit has im-

proved for many partners, as they learn how

to offer fixed fee engagements with optimizeddelivery.

There are Still Risks andObstacles Along the Journey

cloud partners have had to manage cash flowissues, replace old streams of revenue with

new ones, and manage often longer sales

cycles. No one is claiming you can sell one

cloud offering and prosper.

Invest Now - Target 50%or More of Your Businessin the Cloud

Make the journey now to join the success-

ful cloud partners in this study. Aim for 50%

or more of your revenue to be cloud-related.

There is no more hesitation in gettingon-board.

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CHAPTER 1



2. Managing for Cloud 3. Organizing for Cloud 4. Insights By Partner Type1. Market Opportunity

The Market Opportunity for Cloud

Were seeing aparadigm shift. Some of our customers are starting toget more comfortable moving their data centers out to the cloud.

Large Reseller, Canada, 24 years in business.

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The Cloud Opportunity: GlobalMomentum Takes HoldIDC has been tracking the steady progres-

sion of cloud revenue for a numbers of years.

We have continuously needed to revise our

estimates upwards as cloud takes hold in all

regions.

nPublic IT cloud services spending will

reach $98 billion in 2016, with a com-

pound annual growth rate (CAGR 2011-

2016) five (5) times the growth ofthe IT industry overall.

nThe United States remains the largest

public cloud services market (44% share in

2016), followed by Western Europe (25%)

and Asia/Pacific (excluding Japan) (20%).

Western

Europe

Emerging

Markets

United States

Canada

Japan 2%4%

1%

20% 3%

1%

25%

25%

44%

Central and

Eastern Europe

Latin

America

Middle East

and Africa

Asia/Pacific

(ex. Japan)

Worldwide Public IT CloudServices Revenue In 2016

$98.4B

Source: IDC Worldwide and Regional Public IT Cloud Services 20122016 Forecast (IDC #236552)Home
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The fastest growth will be in the emerging markets, grow-

ing collectively at 44% (20112016), compared with developed

markets CAGR of 23%. Emerging markets cloud spending

account for almost 30% of net-new public IT cloud services

spending growth in 2016.

But the cloud opportunity is about much more than just pub-

lic cloud services the cloud opportunity landscape alsoincludes private cloud services, IT for the cloud (IT hardware

and software that enables building/running public and private

cloud services), and IT services for the cloud (services that

support adoption, development, integration, and manage-

ment of cloud services).

20112016 CAGR (%)

Latin America

66.5Central and Eastern Europe

48.6Middle East and Africa

43.6Asia Pacific ex Japan

41.7Japan

35.8Western Europe

30.3Canada

27.8United States

18.5

Source: IDC Worldwide and Regional Public IT Cloud Services 20122016 Forecast (IDC #236552)Home
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While cloud growth rates are undisputedly

stellar, a balance between on-premise and

cloud spending is the reality. In fact, a part-

ners ability to offer hybrid options to cus-

tomers results in optimal revenue capture

opportunities.

nBuyers intend to selectively source

more IT capability in the public cloud

but will also focus on keeping a signifi-cant portion of their assets on premise.

The total of traditional IT plus enter-

prise private cloud equals 54% in

two years versus 56% today.

The Hybrid Model: Cloud andOn-Premise Working Together

IT budget allocation today and two yearsfrom today, by development type.

Estimated CompanyIT Budget Allocated toBuying and ManagingIT Services (excludingfacilities and staff).

Public cloud

Hosted private cloud Virtual private cloud, dedicated private cloud

Enterprise private cloud

Outsourced IT/ASP/application management

Traditional IT [internal]

Today 2 Yearsfrom Today

39.4%

15.7%

16.4%

14.0%

14.5%

33.3%

15.4%

20.8%

15.4%

15.1%

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nIDC believes large customers especially will maintain a significant amount of their IT

facilities and staff at their sites, and by 2020, about 80% of the worlds 2,000 largest

companies will still have greater than 50% of their IT onsite.

nThey will also require new capabilities (automated provisioning, hybrid management

capability, autonomous VM management capability, etc.) as they look to build enterprise

private clouds, which combine their onsite resources with hosted private cloud resourc-

es, and SaaS/public cloud services, in a true hybrid fashion.nEarly-stage companies (less than five years in business) are the most eager buyers of

cloud, concerned with start-up capital costs and less likely to build and staff a conven-

tional datacenter, and plan to increase their spend on public cloud by 24% over the

next few years.

THIS HALO EFFECT OF CLOUD MOMENTUM PRESENTSCONSIDERABLE OPPORTUNITIES FOR PARTNERS OFFERINGSUPPORTING SERVICES AND HYBRID SOLUTIONS.

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* excludes email and collaboration

Rank most suitable (9) to least suitable(1)N=801, Source: IDC Cloud Track Survey, 2012

What Workloads Are Most Suitablefor the Next Wave of Cloud?Obviously it is crucial to time the market and get a sense of which workloads are

perceived as cloud-ready.

nAs little as two years ago, there were only a few obvious workloads that weredominating the mindshare of customers (notably collaboration and email).

The next wave of applications suitable for the public cloud*

Business applications

(excluding ERP)

Mean Score

6

5

4

32

1

ERP

(financial/accounting

applications)

Productivity

applications

CRM

applications

ERP

(human resource

applications)

HPC applications

(e.g. design,

engineering, R&D

Supply chain

and logistics

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nUltimately, IDC believes that collaboration and email will continue to have strong up-

take but we believe the suitability of a large variety of other applications that previ-

ously were not determined as cloudworthy early on by customers like business ap-

plications (including custom business process automation), device management, help

desk, and marketing automation will penetrate into the market.

nUnderstanding the changes in customer perceptions will be critical to all partners to

their mid and long-range solution planning.

Rank most suitable (9) to least suitable(1)

N=801, Source: IDC Cloud Track Survey, 2012

The next wave of Infrastructure and services suitable for the public cloud

IT help desk/

IT service

management

Mean Score

6

5

4

3

21

IT management

(desktop, server,

network...)

Business

continuity/

disaster

recovery

Hosting

infrastructure

services

Storage

capacity

on demand

Server

capacity

on demand

Mobile

device

management

Industry

focused

applications

Network

or application

performance

management

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We are still in the age of in-

novative cloud companies

coming on stream with solu-tions all the time. The ques-

tion is - will maturity in cloud

bring a narrowing of provid-

ers or will we see more of a

long-tail effect, with many

smaller providers? Customerresponses to a survey ques-

tion about relationships with

their incumbent technology

providers provide clues:

Customer Preference: WorkingWith A Single Cloud Provider

Want an established relationshipwith a vendor to trust them as a

Cloud Service Provider.

Expect their Cloud Service Provider tobe able to move a Cloud offering back

on-premise if needed.

Expect to purchase a widevariety of cloud services

from a single vendor.

Expect to have a single majorCloud Service Provider.

67%

63% 74%

84%

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nA significant percentage of customers 84% - said they agreed or strongly agreed

with the statement that we need an established relationship with a vendor to trust

them as a Cloud Service Provider (CSP).

n63% said they expect to have a single major CSP (cloud service provider, which

includes delivery of all kinds of cloud services, from applications to infrastructure.

A relatively lower percentage expects to have 2 or more providers.

nThis indicates that customers will not welcome managing a long tail of many pro-viders - they will align with key incumbent providers and expect to have relatively

few providers, so if small and very small provider businesses want success, they will

need to build and sell on PaaS platforms, and as part of key vendor and industry

marketplaces.

INTERESTINGLY, 74%OF CUSTOMERS ALSO WANT THEIRTRUSTED CLOUD SERVICE PROVIDER TO BE ABLE TOOFFER COMPARABLE ON PREMISE EXPERTISE. ANOTHERVALIDATION OF THE HYBRID MODEL.

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3. Organizing for Cloud1. Market Opportunity 4. Insights By Partner Type2. Managing for Cloud

Upsell is much higher now. If I sell Office 365, I may have an opportunityto talk about WAN optimization, mobile device management, total remote

management services and more. So its a lot. VAR, US, 24 years in business

Managing Your Business for Cloud Success

CHAPTER 2

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As part of our ongoing research, IDC has tracked the performance of partners and compared

the business performance of Cloud-Oriented Partners (ie. over 50% of their revenue is

related to cloud offerings) versus Non-Cloud-Oriented Partners (ie.


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nThe impressive business performance numbers on this page come from two

different surveys, though we saw similar results. Cloud-oriented partners are

outperforming their peers in gross profit, revenue per employee, new customer

acquisition, and growth.

Cloud-Oriented Partners Made

1.6XMore Gross Profit %*Cloud-Oriented Partners Had

2.4XHigher New Customer Mix*

Cloud-Oriented Partners Had

Faster Growth*2.4X

Cloud-Oriented Partners Have

1.3XRevenue Per Employee*

*Comparison of cloud-oriented partners vs. others. Cloud-oriented partners are defined as having over 50% of theirrevenue related to the cloud. Others are defined as having less than 50% of their revenue related to the cloud.

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Partners that balance revenue expansion with risk miti-

gation (particularly around revenue replacement and

cost) are best positioned to develop a sustained businessmodel.For revenue expansion we observed successful cloud

partners who were following many of these key insights:

nDoor opener. Partners repeatedly tell us, cloud offerings

act as an excellent way to meet new prospects, and close

new deals. Cloud is topical, companies are perplexed

about options, and they need advice. Further, cloud dealsare typically easier to purchase because of smaller upfront

fees, paid over time, and usually out of operational ex-

pense (OpEx) dollars.

Revenue Expansion: CloudAs The Door Opener

Cloud offerings act asan excellent way tomeet new prospects,and close new deals.

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nUp-sell opportunity. After acquiring new customers, partners find that their upsell

opportunities, both for cloud and on-premise offerings, are materializing. Partners

especially feel this is true with the Microsoft stack.

nThe hybrid model is the reality. Customers will have a mix of on-premise, hosted

and cloud solutions. An earlier statistic validates this - about 74% of customers want

the ability to move a cloud offering back to on-premise, if necessary. Even Born-In-the-

Cloud Partners are realizing that they need to enlist on-premise skills (acquire orpartner).

nDeveloping and marketing homegrown offerings. Cloud enables partners to

differentiate by bundling their own IP alongside other cloud offerings. Cloud software

is easier to develop and take to market. Applications dont break when a new

operating system or database version emerges. And with SaaS and marketplaces,

distribution of software has become considerably easier than just a few years ago.

nAzure opens the door to entirely new solutions. Partners can now solve business

problems in new, innovative ways not even considered before. Partners tell IDC that

today its both possible and affordable to use 100 servers for one hour once per week.

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nNet new annuity revenue. If you sell your own cloud software, managed

services, or third party software, you likely already know a lot about annuity

revenue. Cloud solutions only augment these partners recurring revenue. But

its a new model for many services-focused partners, whose CFOs welcome the

net new, recurring revenue streams.

nMarket expansion. Partners managing complex on-premise assets (i.e. soft-

ware and hardware) at customer sites are constrained to work within geo-graphical boundaries. With the ability to manage cloud services remotely,

partners tell us about successes far beyond their traditional borders.

CLOUD SOLUTIONS ONLY AUGMENT THESE PARTNERSRECURRING REVENUE. BUT ITS A NEW MODEL FOR MANY

SERVICESFOCUSED PARTNERS, WHOSE CFOS WELCOMETHE NET NEW, RECURRING REVENUE STREAMS.

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For a number of partners, the real threat of losing

top-line revenue in the short term has prevented them

from becoming a committed cloud partner. But

successful cloud partners have provided us key

insights on how they managed their business while

making the transition.

Managing for more balanced

revenue streams.Clouds subscription-based pricing model can be dis-

ruptive to some partners, but it has the potential for

longer-term benefits, specifically, a predictable rev-

enue stream.

Risk Mitigation: ShiftingSources of Revenue

For a number of partners, the

real threat of losing top-linerevenue has prevented them

from becoming a committed

cloud partner.

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Reselling partners may find it toughest as their larger up-front license dealsmake way for smaller, recurring revenue, cloud deals where they may only

receive a referral fee. However, many vendors such as Microsoft have ad-

justed programs to allow partners to resell, and not just refer, cloud solu-

tions.

These risks can be managed by taking a hybrid approach to offering cloud

solutions: Lead with the cloud, but maintain expertise in on-premise solu-

tions. Partners who switch over too fast from the traditional to the sub-

scription model may find themselves with cash flow issues. Though this is

better than waiting too long to move to cloud, and losing customers.

PARTNERS WHO SWITCH OVER TOO FAST FROM THETRADITIONAL TO THE SUBSCRIPTION MODEL MAY FINDTHEMSELVES WITH CASH FLOW ISSUES. THOUGH THIS ISBETTER THAN WAITING TOO LONG TO MOVE TO CLOUD,AND LOSING CUSTOMERS.

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Replacing revenue.

Its true that some activities will go away with cloud offerings. Resale

could turn to referral, and a hardware sale may be replaced by Azure,

or another cloud offering. So what can partners do to replace that lost

revenue? Successful cloud partners are still attaching services to their

deals, and are optimizing to do more deals. Some are adding business

consulting services, or training and adoption services, as they sell moreand more to line of business buyers.

Recurring revenue can lead to longterm customer relationships.

In the old model, many partners would sell a solution, implement itand then move on. With a subscription sale, its imperative to ensure

that the customer is actually using the solution. While this can be ad-

ditional effort, it can provide partners with a hall pass with your cus-

tomer, allowing you to forge a deeper relationship, and look for more

business opportunities along the way.

Successful cloud

partners are still

attaching services

to their deals, and

are optimizing to

do more deals.

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Cloud lowers the barriers to entryto offer managed services.

Current managed service providers are making the

transition to the cloud more easily as they already have

the required technology and account management in

place (billing, provisioning, monthly pricing, possibly

per-user pricing).

Still, cloud opens up a revenue activity avenue previ-

ously out of reach for many, and with substantially

lower investment costs required (e.g. no hardware,

infrastructure, etc.). IDC shows that 45% of infrastruc-

ture focused partners today offer managed services.

Of those that do not, 45% intend to offer managed

services in the next 12 months.

45%OF INFRASTRUCTUREFOCUSED PARTNERS

TODAY OFFERMANAGED SERVICES

Of those that do not,45% intend to offer

managed services inthe next 12 months.

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Managing for both fasterand slower sales cycles.

In the long term, public cloud sales should naturally be faster

than traditional deals. And many partners are already seeing this

today, especially with smaller customers. However, customer ed-

ucation is still a slowing factor and can eat into margin. This can

erode profitability quickly on smaller deals. IDC has witnessed atremendous impetus to reduce the cost of sales.

nInside salescan be very effective when coupled with out-

bound demand generation

nTelesales is being used more and more, especially for SMB

companies. Smart partners are leveraging online technolo-

gies to improve the phone-based selling experience such as

Skype and Lync.

nSome partners are encouraging small implementations of

online services instead of doing free trials or proof-of-con-

cept projects to ensure their customers are serious.

In the long term, public cloud

sales should naturally be

faster than traditional deals.

And many partners are

already seeing this today,

especially with smaller

customers.

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Partners typically look at a number of key

measures of business health when assess-

ing their own performance. While business

models may evolve over time, including

adding cloud to the mix, the same funda-

mentals of selling solutions to customers

will remain.

Many Partner MetricsImprove in the Cloud

SO WHATS THE IMPACT OF ADDING CLOUDOFFERINGS TO YOUR PORTFOLIO?THE PERFORMANCE IMPACT OF A VARIETY OF COMMONBUSINESS MEASURES WILL CHANGE WITH CLOUD.

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2. Managing for Cloud 3. Organizing for Cloud1. Market Opportunity 4. Insights By Partner Type



pg27

How Partner Metrics Change in the Cloud

Upsell OpportunityCloud is helping partners to open doors to both new and existing clients. Theyre curious.

And partners are taking advantage. Cloud is also a smaller up front investment for customers,

making it overall easier to buy. THEN, partners report that they are using that foot in the door

to upsell customers on other cloud products, as well as on-premise products.

Number of DealsThe ease and functionality of cloud are encouraging

more purchases. Successful cloud partners are

enjoying a much higher customer acquisition

rate than their peers.

Cash FlowPartners selling third party or in-house software

may begin to realize decreased cash flow in the

cloud as they make the transition.

Deal SizeCloud deals are often smaller in nature as software

revenues are spread over time. But enterprise customerscan sometimes mean larger deal sizes, especially if

consulting and integration time is needed.

Gross ProfitMany partners are optimizing their delivery teams

to take advantage of fixed fee engagements

with more efficient use of resources to

driver higher gross margins.

Sales CycleEnterprise customers can introduce complexity and duration

of sales cycles. There can be more stakeholders involved

(more LOB), legal departments can scrutinize online

agreements, and education can still take time.

Smaller customers can typically procure their expected

business outcomes much faster than in the past.

Annuity RevenueWhile cloud offerings fit right into a managed service providers offerings,

many solution provider CFOs are enjoying their introduction to annuity

revenue streams through cloud software offerings.

PERFORMANCEIMPACT

Overall RevenueSuccessful cloud partners have uniformly told IDC that

cloud offerings are helping to increase their revenues,

much due to the upsell scenario listed above.

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2. Managing for Cloud1. Market Opportunity 4. Insights By Partner Type3. Organizing for Cloud

Organizing Your Business for the Cloud

Our approach to incorporating cloud was the same as for anything new.We put on a developer camp over a weekend to delve into a new

technology and we choose a charity to do a project.Regional Systems Integrator, UK, 20 years in business

CHAPTER 3

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Low barriers to entry

Successful partners found that the ramp-up to take on cloud was

not a huge challenge. Training time was the main investment,

though existing competencies and skills are very transferable

to cloud. Top partners claim that cloud is similar in a lot of ways to

past changes they have had to adapt to (eg. virtualization, client/

server, etc.).

Partners also found that there was very little capital outlay (especial-

ly hardware, software) to ramp-up in cloud, which is different than

taking up a new technology in the past.

Focus on getting enabled, AND experiencedTraining is important, of course. But how about getting a little bit of

cloud experience under your belt? Top partners agreed that using

the products internally is a great way to learn them.

Successful partnersfound that the ramp-up

to take on cloud was

not a huge challenge.

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One top partner has used another method to ramp-up his team. When learning a new

product, the company chooses a charity, and a technical solution that would help that char-

ity. They learn the new product, but they solve a charity s business problem along the way.

Establish Your Time Expectations to Ramp-Up

Partners told IDC that their typical experience was about three years to ramp up fully. But it

was their belief that it would be much faster today, perhaps even 6-12 months, because the

market is more established.

PARTNERS BELIEVE THAT RAMPING UP TO THE CLOUDWOULD BE MUCH FASTER TODAY, PERHAPS 612 MONTHS

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Projects in the Cloud: TheDelivery Structure EvolvesSuccessful partners shared some insights on how they

deliver their solutions differently in the cloud world.

Deliver Efficiency vs. Utilization

The cloud and Managed Services world still cares

about utilization (the traditional metric of professional

services companies), but is more focused on

efficiency. With recurring fees already set, higher

efficiency increases profit by using remote servicesand automated processes among others.

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Delivery skillsets need to evolve.

Delivery teams are becoming smaller with many cloud projects. Theres

not the size and opportunity today to have dedicated resources on

every deal such as project managers, architects, DBAs, developers, etc.

Technical delivery people are having to be better-rounded and com-

fortable interfacing with the client. Not all architects or senior delivery

people can make that transition.

The central importance of the architects role

Architects are more important today due to the complexity of marrying

on-premise with cloud. In the past, the focus was on getting singular,

but complex applications up and running. With cloud applications, thecore functionality can be up and running in minutes. The opportunity

then becomes integrating the different cloud and on premise systems

together optimally.

Architects are more

important today dueto the complexity of

marrying on-premise

with cloud. In the

past, the focus was on

getting singular, but

complex applications

up and running.

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Reallocate Resources for Higher Gross Profit

Several partners revealed that for one, they are confident enough to charge fixed fee prices

on some cloud engagements. Next, they said they are now able to spread their senior

technical staff across more projects and use less expensive staff on the projects. Partners

said they no longer need to put a dedicated architect on a project for a long time.

Customer A

Architect Architect

Technical Staff

Customer B

On Premise Model

Technical Staff

Cloud Model

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Selling in the Cloud: MaintainingRelationships with LOB and ITIn the cloud model, its increasingly evident that the evaluation and pur-

chase of software applications and services is shifting away from IT to line

of business (LOB) leaders. How does that affect IT solution providers?

Shifting From Technology To Domain Expertise

A partners understanding of business processes and issues in combination

with their technology expertise will become more important than their

technology expertise alone.

The LOB often needs a partner who can speak both their language as well

as ITs in order to implement a solution that will meet their business needs.

The LOB often needs

a partner who can

speak both their lan-

guage as well as ITs in

order to implement a

solution that will meettheir business needs.

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Supporting ITs Big Picture Role

As much as a solution provider needs to shift attention to LOB, it is still important to lever-

age existing relationships with the IT staff as their role changes to provide more oversight

of the procurement process and also the overall corporate IT strategy. The IT department

will typically have to deal with the integration or interfaces between cloud solutions and

existing on-premise applications and/or other cloud applications.

82% 80%of net new

commercial apps

will be developed

specifically forcloud in 2013.

of new IT investments

will directly involve

LOB executives

by 2016.

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Sales Compensation: The SalesCommission ChallengeSales compensation has been referred to by many partners as the most difficult transition

of all in moving to the cloud. Successful partners shared their insights with IDC.

Sales Compensation Options

Cloud sales commission can be paid as a percentage of first year revenue and can also be a

commission paid on recurring revenue after the first year. The first option tends to be more

popular with partners to drive a focus on winning new customers and new deals. Spreading

commissions over time only serves to dilute motivation.

CLOUD SALES COMMISSION CAN BE PAID AS APERCENTAGE OF FIRST YEAR REVENUE AND CANALSO BE A COMMISSION PAID ON RECURRINGREVENUE AFTER THE FIRST YEAR.

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IDC identified ways to expand the business model for four partner scenarios:

Insights and Profiles By Partner Type

CHAPTER 4

SystemsIntegrators

Managed ServiceProviders

Resellers/LARs

Born-in-the-Cloud

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Expanding the Business Model forSystems IntegratorsPath To Success

Migrating customers tothe cloud

New (end to end)

implementation stream

Lower-costimplementations

Moving up the valuestack

Preparing customers formigration to the cloudas a service offering

WAN optimization,

mobile device man-agement, expandingservices to found usersin environment

Sell implementationsfor fixed fee at exist-ing rates, staff with lessexpensive resources

Focus on businessoutcomes, application-level services andsupport, and managingcustomers businesson cloud

Pivot to trustedbusiness advisor

Revenue

Revenue

Cost

Revenue

Good medium-termstrategy but limitedlong-termopportunity

Increase emphasis on

post-sale discovery Get beyond customers

organizational silos

Shift stang mix tolower-cost resources

Uplevel consultantsskill sets

Shift sales focus toline of business

Sell more managedservices at end ofimplementations

Description/Drivers Business Impact Operational/Go-To-Market Considerations

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2

3

4

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Sample Systems Integrator ScenarioMove up the Value Stack

PROFILERegion: Latin AmericaFY13 Revenue: $25-50 millionCloud Revenue: 20%

Employees: 150% Microsoft: 50%

Key Learnings

Challenge Partner Goal Operational Issues and Impact

Partners need to figure out how to differ-entiate themselves: if everyone is resell-ing the same services its a commodity

Deep transition for the partner: we needto understand the value we bring

Required significant investments includ-ing building out new consulting practiceareas, new business development skills

and staff

Partner dont have to focus on nutsand bolts of infrastructure: Cloudgives us an opportunity not to do

what we dont like

Greater upsell and cross-sellopportunity: WAN optimization,

mobile device management

Historically SI valuehas been in imple-mentations; but withcloud the underlying

systems have be-come a commodity

Cloud-based integra-tions are smaller,less revenue than

traditional (on prem)projects

Focus on the applicationlayer (Exchange, Share-Point, etc) rather thanservers and storage

Shifting to higher-valueadded services enablespartners to maintainhealthier margins

Change the focus of theconversation tobusiness outcomes

Requires business development/consultantswho can move the discussion to a higher level

Need to build application expertise

Developed targeted offerings (e.g. high avail-ability for Office 365: federates between Office365 and servers in customer rack; Azure ADFS

to enhance connectivity to Office 365)

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Expanding the Business Model forManaged Service ProvidersPath To Success

Increase eciency,profitability in yourmanaged services

Expand scope ofmanaged servicesofferings

Charge same top-linerate for managedservices

Cloud-based servicesenable managementof more devices withfewer and/or lessexpensive staff atremote locations

Opens door to discussthe rest of the Microsoftcloud portfolio (Office365, Azure, SharePoint,InTune)

Cost

Revenue

Shift stang mix tolower-cost engineeringresources

Practice land andexpand models: followup initial sale to identifyand sell-in otheropportunity areas

Consultativelyidentifying customersbusiness needs

Shift from low value-add infrastructuremanagement to highvalue-add businesstransformation (e.g.redesigning businessprocesses, supportingnew business strategies)

Description/Drivers Business Impact Operational/Go-To-Market Considerations

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2

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Sample Managed ServicesProvider ScenarioIncrease Efficiency and Profitability

PROFILERegion: EuropeFY13 Revenue: $5-20 millionCloud Revenue: 40%Employees: 55% Microsoft: 60%

Key Learnings


Enormous operational ben-efits with a single technology

standard across all customers

Requires sales patience; canbe a process to make clients

comfortable with cloud

Dangers of going slow: de-layed downsizing postponed

benefits of the new model

(re-assigned staff at first,

eventually had to downsize

to bring staffing profile in

line with cloud model)

I would have made a lotof hard choices to

downsize staff earlier in

our transformation

Partners see market

shifting to cloud Partners not already

in cloud knew they

had to adapt andembrace or losecompetitive edge

Cloud-first model;

always leads with cloud Remote cloud-based

management lowersservice delivery cost whilemaintaining top-line rates

Increased customer satis-faction: cloud-based toolsmean customers alwayshave latest and greatest

Training staff on remote management

and provisioning Downsizing staff: manage more accounts

with fewer people; one system architect

can handle 5-10 accounts instead of 2-3

Identified and operationalized specificcloud expertise domains: data protec-tion, security, backup

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Expanding the Business Model forResellers/LARs

Expanding the Business Model forBorn-in-the-Cloud

Path To Success

Path To Success

Expand services:managed services,support, implementa-tion, consulting

Expand to oer hybrid/on-prem offerings,implementationconsulting

Adapt to inevitablemarket shifts

Recurring revenue par-tially makes up for lostSW resale revenue

Capitalize onopportunities wherecustomer desireson-prem capacity

Revenue

Revenue

Shift stang andoperational mix toconsultative sales andservices, managed ser-

vices, implementationsupport

Sta system engineersand architects withhands-on (on-prem)experience

Description/Drivers

Description/Drivers

Business Impact

Business Impact

Operational/Go-To-Market Considerations

Operational/Go-To-Market Considerations

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Sample Reseller/LAR Scenario:Expand Services

PROFILERegion: North AmericaFY13 Revenue: $1 billion+

Cloud Revenue:


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Sample Born-in-the-Cloud ScenarioExpand to Hybrid/On-Prem Offerings

PROFILERegion: North AmericaFY13 Revenue: $1-5 million

Cloud Revenue: 100%Employees: 5% Microsoft: 100%

Key Learnings


For larger enterprises, some on-premisework is necessary to bring their in-frastructure up to snuff for the cloud

deployment; one partner said we had

to get that done on the side before we

could even turn on what we were focus-

ing on

Greater breadth of services offeredmeans more upsell opportunities Pure cloud services being adopted faster

in SMBs than enterprises

Many types of technologies out there;difficult to understand and offer them all.Benefits to select a single stack

(Microsoft) and focusing on it

Not all solutions arebest-fit for cloud

Cloud adoption lags

in certain industries(healthcare, finance)

Partners who lackon-premise capa-bilities are leavingpotential revenues

on the table

Build out on-premiseimplementation andmanagement capabili-

ties in addition to cloud Provide hybrid/on-prem

services to complementcore cloud offerings

Build skillsets to deploy on-premisemanagement solutions as a precurserto cloud deployments (e.g. deploy System

Center 2012 on-prem to enable manage-ment of Azure virtual environment)

Staffing model: on-prem deploymentsrequire higher ratios of systems architectsand engineers

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Cloud is integrated into everything that we do. From a managed servicesperspective, every single one of our customers is a cloud customer.

They are leveraging Windows Intune, Office 365, and more. VAR, USA, 10 years in business

ESSENTIAL GUIDANCE

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As seen in this study, there is a lot to consider and internalize while planning for change. Here is

IDCs guidance as you begin, or continue, your journey into the cloud. Happy selling.

Essential Guidance

EXPLORE ANDDECIDE ON WHAT

CLOUDOPPORTUNITIESTO PURSUE.

What workloads andwhat services do youwant to specializein? How will youdifferentiate?

INVEST NOW TOADD CLOUD TO

YOUR PRACTICE.Most partners aresomewhere on thecloud journey - Donot get left behind.Aim for 50% or moreof your revenue tobe cloud related.

Commit.

GET TRAINED.GET REFERENCES.

Beyond gettingtrained, gain theexperience you willneed. Use thesoftware at yourcompany. Obtainsome referencesolutions, even if it s

a free solution for acharity.

OPTIMIZE YOURSALES AND

DELIVERYAPPROACHFOR CLOUD.

Consider howdelivering solutionsin the cloud canaffect your projectteam structure, andhow you can profit

from it.

PREPARE FOR APOSSIBLE CASH

FLOW CRUNCHAND OTHERCHANGES.

Carefully considerhow transitioning tothe cloud mayimpact your cash-flow, and in whattimeframe. Be

prepared to educateyour customersin the sales cycle.

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IDC employed a number of sources to produce this study including primary research and leveraging

expertise for our cloud research practice. These include:

Microsoft cloud Partner Roundtable: Conducted on February 27, 2013 with 13 Cloud Partner

Advisory Council members. 3 hour session covering cloud business model, business impact,

profitability and metrics.

In-depth executive interviews with Microsoft partners: Conducted between February 28 and April 30,2013 via telephone. 15 one-hour interviews completed (North America, UK, Europe, and Latin Ameri-

ca). Focus on deep dive into key performance indicators, profit drivers, challenges and best practices.

IDC also incorporated findings from 2 relevant quantitative studies:

Worldwide VAR Study - 2012. 750 IT Solution Providers Worldwide (US, Canada, UK, Germany, India).

ISVs and IHVs excluded. Non-Microsoft specific.

Microsoft NMP Study - 2012. 585 Microsoft Non-Managed Partners (US, UK). All partner types.

From these two survey we constructed partner comparison metrics between partners with equal to

or more than 50% of their revenue related to cloud (cloud-oriented partners) and partners with less

than 50% related to cloud (Non cloud-oriented partners).

Methodology

All IDC research is 2013 by IDC. All rights reserved. All IDC materials are licensed with IDCs permission and in no

way does the use or publication of IDC research indicate IDCs endorsement of Microsofts products or strategies.

Data in this InfoDoc comes from IDC studies from 2012 to 2013.

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