How Microsoft Partners Are Selling Office 365

Now that it's available, partners are prepared to start offering Microsoft's biggest bet in the cloud to date.

The release of Office 365 is arguably the most disruptive new offering to the Microsoft channel in recent memory and one that will change the way many partners sell messaging, collaboration, productivity and communications.

Even if you continue to sell only the on premises-based versions of Exchange, SharePoint, Lync and Office, partners know they will have to have a discussion about Office 365 with their customers.

How quickly Office 365 takes off is anyone's guess, but Microsoft has gone out of its way to make it appealing to small and midsize businesses (SMBs), while hopeful of penetrating large enterprises as well. Microsoft CEO Steve Ballmer says the company has sold millions of Business Productivity Online Services (BPOS) seats and by all accounts Office 365 is a major improvement over BPOS.

"Office 365, where Office meets the cloud, is a big step forward," Ballmer said on June 28, when he announced the global availability of its new cloud service. The questions that remain are: Will there be a spike in demand for Office 365? Or will it be more measured?

"I think you'll see the flood gates open," says Chad Mosman, principal consultant with Microsoft partner MessageOps and one of the first Office 365 MVPs. The reason, he argues, is the technology behind Office 365, namely Exchange 2010 and SharePoint 2010, were designed to run in the cloud. "The 2007 versions that were used for BPOS were not designed to run in the cloud, yet Microsoft forced them to run in the cloud," Mosman says. Specifically, the older versions were not built on a multitenant architecture, while the 2010 releases are.

Now that Office 365 is available, primarily to new customers while BPOS migrations will likely start happening this fall, many of Microsoft's largest cloud partners anticipate a quick surge in demand. "We feel like a lot of prospects in the market have been in a holding pattern," says Tony Safoian, CEO of SADA Systems Inc. "Now that the product is actually in market, we expect many more organizations to take a look at it seriously."

Adds Niv Dolgin, SADA's director of IT services: "I think it will certainly be a floodgate situation but actual numbers are difficult to estimate. But we're very optimistic that the opportunity will be such that we can be selective about the accounts and projects we undertake."

Avanade, meanwhile, sees more measured movement to Office 365 from BPOS. "My guess is over the next 18 months we'll be doing a lot of work in helping customers transition to Office 365," says Bob Fahey, senior director for cloud services at Avanade. "We've taken some big strides in making sure people are fully trained and ready to help deliver as quickly as we can."

Jay Ritchie, a technical architect at CDW, a large account reseller with one of the largest BPOS customer lists, is not certain whether there will be an immediate spike in demand or whether it will be more measured. "We're not sure what will happen, but we are ready for both," Ritchie says.

"Office Pro Plus will give us a lot of momentum due to customers looking to update their current Office suite -- we'll be able to leverage that in a larger collaboration conversation."

Jay Ritchie, Technical Architect, CDW

CDW is a Cloud Accelerate partner, Microsoft Premier Deployment Partner and Cloud Partner Advisory Council member, "all of which gives us great insight to planning, allowing us to solidify our go-to-market strategy," he says. "We'll begin to move beyond hosted e-mail and focus more on the value of the entire suite, including Office Pro Plus. Office Pro Plus will give us a lot of momentum due to customers looking to update their current Office suite -- we'll be able to leverage that in a larger collaboration conversation."

Dave Cutler, general manager of Slalom Consulting in Chicago is planning a similar approach. With BPOS, the big seller for Slalom was Exchange Online. "It was the e-mail side," Cutler says. "It had SharePoint, it had Office Communicator, it had Live Meeting, which were valuable tools, but people were really interested -- at least in our experience -- in the e-mail side."

What Cutler has seen so far with Office 365 is that there's an increased interest in the full suite. "Certainly e-mail continues to be a strong driver, but people are really interested in the capabilities of SharePoint, people are really interested in the capabilities of Lync, and we're seeing people look to deploy the suite," he says.

As such, Cutler is changing his sales motions around the full value proposition of the Office 365 suite. "You get the 'better together' message; three products with presence that links them all together, the coordination that brings them all together. I think Office 365 really opens that door to that better together message. So we're changing the way we sell it, we're changing the way that we represent it, and the way we position it with our customers to make sure people understand the true value of the platform, not just a single product in the platform."

Services Opportunities
As with BPOS, partners who sell Office 365 subscriptions earn 12 percent of revenues for net seat additions plus 6 percent on renewals, totaling 18 percent margins in year one and 6 percent in subsequent years. That's a far cry from the margin opportunities associated with deploying on-premises Exchange and SharePoint systems. But Microsoft officials say there's plenty of opportunity to earn services dollars with Office 365.

"The real opportunity for partners is the professional services they surround Office 365 with," says John Betz, director of product management for the Microsoft Business Online Services Group. "Whether it's help desk or deployment or SharePoint customization -- the subscription fees are nice but the larger opportunity is for making the technology apply to the business. It's partners upping their game, getting out of patching and managing servers and spending the contract dollars on addressing the business need."

Microsoft partners of all sizes that have sold BPOS and are now looking to move customers to Office 365 appear to be in agreement with that notion.

"There are going to be a lot more services opportunities," Mosman says. "BPOS was a relatively simple system with few options. A lot of customers could do it themselves. With Office 365, if you want to get deep into it, it probably has 10 times the complexity of BPOS, when you get into things like [Active Directory Federation Services, or ADFS], and rich coexistence and rights-management services. These are things that are complicated and people have little experience."

Those that want single sign-on to both in-house systems and Office 365 will need an ADFS server on premises. Managing the directory service will be an opportunity for partners. "It's something that not a lot of people know about but it's a great offering, and one that people could offer services around," Mosman says.

Pete Zarras, president and CEO of New York-based Cloud Strategies LLC, sees a major uptick in services demand for Office 365.

"We do see the average size services engagements increasing substantially, and we do expect a continued increase in consulting services around 365, most notably because of the Active Directory federation and integration component and the additional work that we can do around SharePoint Online that wasn't as viable before," Zarras says.

Derek Major, CEO of Calgary-based EligeoIT, also anticipates an uptick in service revenues with Office 365 compared with BPOS.

"I do anticipate an increase in revenues simply because of the enhanced SharePoint tools available through Office 365," Major says. "SharePoint Online 2010 is without a doubt a huge improvement over the BPOS version and we already have several clients asking for customizations within SharePoint on Office 365."

MessageOps has developed an app that synchronizes passwords from Active Directory right into Office 365. "Since Office 365 is a standardized solution, sometimes there are little gaps in the service or the system doesn't work quite the way the customer wants it to work," Mosman says. "Being that it's a standardized system, we can develop a small app that fills the gap or gets it to work the way they want it to work. Most of these things aren't humungous apps; they solve a very specific problem for customers."

Chris Day, CEO of Vancouver-based Fully Managed Inc., says he's making as much money servicing customers in the cloud as he did selling on premises-based Exchange and SharePoint servers.

"We traditionally used to make money implementing Exchange servers, implementing SharePoint servers, and then supporting them afterward. What we realized is we could make the same amount of money from a client whether we're using the cloud or whether we're doing on-premises because the client is willing to spend the same amount. They just want the best possible solution," says Day. "The logical conclusion we've drawn is most of our clients in our size, 15 to 200 employees, are a perfect fit for cloud."

Cutler, of Slalom Consulting, says his company sees an opportunity to deliver numerous new services, especially as they relate to building applications on top of SharePoint Online. "There's a lot more in the application development space, so now that you've got a platform like SharePoint, people are now saying, 'Well, you've got this great platform. Now we can enable all kinds of business processes.' So we can build the applications on top of that. It's actually expanding the work that we can do with our clients and the value they're getting out of that work."

Indeed, SharePoint Online promises to bring in a lot of new services revenues, Zarras says. "We're stoked about SharePoint because so many organizations don't have it at all, and SharePoint Online makes it so much easier to deliver that value, rather than convincing them to spend six figures on SharePoint infrastructure," he says.

While SharePoint in Office 365 is more suited to customized app development than it was with BPOS, it has its limits, warned Forrester Research Inc. analyst TJ Keitt, in a June 29 blog post.

"When it comes to the robust SharePoint implementations that many enterprises have, Office 365 will not be able to completely substitute for an on-premises implementation," Keitt noted. "For more standardized use cases -- MySites, team sites, some intranet pages -- SharePoint Online provides a strong solution. But for areas where the business has invested in lots of custom development and deep integrations with back-office systems (such as a time-tracking application built into the HR team's SharePoint page), IT departments are advised to keep those things on-premises."

Priming the Pump
Many partners have geared up for the release of Office 365 by hiring more sales and development engineers. "We're hiring and investing more in the app dev side of things," Mosman says. The mix of consultants and developers is split around 50-50.

Zarras has tripled the size of his staff this year and sees it doubling again. The biggest change in how he'll go to market with Office 365 versus BPOS is an emphasis on the new features. "The structural points of the 'why go to the cloud' story don't change," he says. "We can do more with Office 365 with SharePoint and Web Apps and Lync, so we have more capabilities to lead with."

Fahey says Avanade has trained more than 400 engineers to support Office 365. "We have more work to do in training our SharePoint development teams, which we're in the process of doing. On the e-mail side we have plenty of scale," he says. "We're working on the SharePoint side. Not so much that people need to know how to develop in SharePoint but more what works and doesn't work, because there are differences between developing in the cloud and developing on-premises."

Slalom held a summit recently for 200 of its people to chart out the opportunities for selling and servicing Office 365. The company has stepped up its effort to train its engineers while also extending its sales training.

"We looked at it from a dual-prong approach: educating those people who have those business relationships and interactions with our customers plus making sure we have a technical team ready to support the projects as we begin working with our customers," Cutler says.

Taking on Google
Many partners believe Office 365 will give Google Apps a run for its money. Major, a former Google Apps reseller, is among those. The SMBs he deals with on a regular basis primarily used Google Apps for the collaboration tools such as Google Docs, Calendar, Gmail and, to a lesser extent, Sites.

"The problem that our clients ran into was compatibility between programs such as Microsoft Outlook and Gmail, as many e-mails were lost during sync and it was really hard to troubleshoot many problems because the connectors to Gmail were really poorly written," Major says. "In addition to this, document sharing was a real nuisance as the same document would never appear the same as it did in Google Docs and in Microsoft Word, which frustrated many people we dealt with."

Other partners believe there's room in the market for both and have decided to work with both Google and Microsoft. Safoian, of SADA Systems, is among them. "I think in many ways they're very different products," he says. "What we're seeing in the market is that certain organizations are a better cultural fit for one versus the other, and I think that becomes pretty evident early on. Google has a different message about being able to do computing centrally in a browser, on the Web. They've solidified that with their Chromebook vision, and Microsoft has a vision around cloud-enabling the desktop around Office, Windows 7 and with enhanced capability in the browser when the desktop isn't available."

Will Customers Use Lync Online?
Opinions are varied as to whether Lync Online will be a hit in the cloud. A study conducted by Osterman Research Inc. concluded that only 10 percent of survey respondents planned to deploy public cloud-based unified communications (UC) services within the next year (see "Study: Orgs Still Wary of Unified Communications in Public Cloud"). The study was commissioned by Azaleos Corp., which manages on-premises and hybrid cloud UC deployments for large enterprises.

Limited customization, uptime concerns and security were among reasons enterprises appear to be shying away from the cloud for UC. Avanade's Fahey believes it will be more like 20 percent that will jump into Lync Online. "It's not a very frequent scenario," Fahey says, "but it's a first step for organizations that are wanting to test the cloud model and also trying to get the agility that you can just buy the service, deploy the components, and you're good to go."

"My guess is over the next 18 months we'll be doing a lot of work in helping customers transition to Office 365. We've taken some big strides in making sure people are fully trained and ready to help deliver as quickly as we can."

Bob Fahey, Senior Director for Cloud Services, Avanade

While larger enterprises may tread more cautiously, many partners believe SMBs will jump on the Lync bandwagon.

"I think Lync will be a hit right off the bat for the SMBs we deal with," Major says. "The reason being is that many of them are using some form of chat program right now, such as MSN Messenger, [and] they're really looking forward to an integrated solution. The most common response I get from our prospects that will be moving to Office 365 is that they're surprised they can make phone calls, video calls and text chat all in one program. They just didn't realize it was that easy and that they could do so much, including collaborating and sharing documents and presentations."

Zarras believes Lync may not be the reason customers decide to go with Office 365, but it will offer an opportunity to grow add-on services.

"Lync is pretty important to the whole solution; we don't always see that Lync leads the solution, but it definitely helps us sell the suite after we've led with Exchange and now SharePoint," he says. "I don't think we ever led with SharePoint very often in the BPOS world, and I think Office 365 gives us a strong capability with leading with SharePoint, and we use Lync as a way to grow the sale."

The way Zarras sees growing the sale is by offering PBX replacement services. While Lync Online doesn't offer PBX replacement services, Zarras offers a service from Kansas City-based Workspace Communications, which provides a cloud-based offering that adds telephony features on top of Lync.

With Lync, SharePoint and Exchange now available as an integrated suite in the cloud, along with Office, many partners believe Office 365 is a much more compelling offering than BPOS.

"We really feel like this was the first stack designed with the cloud at the forefront," Safoian says. "We are definitely going to take it to market with a different message around new and improved. I think this is much more of a cloud story than BPOS has been for Microsoft and we're going to position it as such."