In-Depth

Microsoft Partners Face a Wild Ride to the Cloud

We ask partners grappling with the realities of transitioning their businesses to the cloud: Is it worth it?

• By Barb Levisay
• September 26, 2016

Transition is an overused term in business today, but for traditional Microsoft partners faced with existential choices, it fits. As the cloud becomes mainstream, partners have to adapt.

Taking a peek into the inner workings of partners whipping through the curves of transition, we spoke to leaders leaning in and making the hard choices that will build a strong business in the cloud.

It Starts with Strategy
For traditional managed services providers (MSPs), systems integrators (SIs) and value-added resellers (VARs) the cloud levels the playing field -- which definitely doesn't work in their favor. The cloud turns technology into a commodity. In a market where every services provider is offering a similar set of solutions and connecting to prospects via the Internet, strategy takes on a whole new level of importance.

In 2008, seeing the potential of the cloud, as well as the challenge of standing out, Oklahoma-based MSP Matrixforce began its move to specialize in security. "We decided to go with the cloud and looked for a strategy that would set us apart. But, of course, it also had to include services that would make money and allow us to cut costs," says Kevin Fream, CEO and CTO of Matrixforce. "We have a lot more business and a lot more profit because of those decisions."

For most partners moving to the cloud, strategies evolve around specialization built on industry or functional expertise. In a search-based economy, prospects are more likely to find you as they're trying to solve a specific problem.

Specialization isn't a part-time gig -- it needs to go so deep that it drives the corporate strategy. Changing corporate strategy is a profound organizational change, and everyone on board needs to understand the new vision -- and decide if they want to be a part of it.

"You must have a corporate strategy that's clearly differentiated from your competition, when in fact I think differentiation in some respects is harder than it's ever been," says Ric Opal, executive vice president of Peters & Associates. "But once you have defined your strategic direction, then it has to permeate each functional area. Employees need to be given clear guidance in what that strategy is, how they participate in it, how they impact it...and their compensation has to be aligned to driving toward that goal."

Marketing and Sales that Supports Specialization
Most partners built their businesses through referrals, and in some ways that hasn't changed. But the scale is very, very different. Google and Bing send business buyers to your Web site based on the problem they're searching to solve. Marketing for cloud services means including key words and content that will address those specific problems. Web sites replace cold calls and content is king.

Matrixforce was a relatively early adopter of search marketing, starting in 2008 when the sales tactics of the past stopped working. While painful, refocusing from a traditional salesforce to inbound marketing has delivered results. "Specialization gives you a lot more strength in search visibility," says Fream. "We focus on professional service and financial organizations. They have a big need in security. They like the value proposition we offer for support services plus the cybersecurity."

With an impressive library of blog posts and videos, Matrixforce focuses on educating prospects and customers with content suited for businesses concerned about security. By providing relevant, interesting content, Matrixforce has accumulated an opt-in e-mail list of 5,700 people.

Specialization also changes the relationship between marketing and sales. Traditionally, solution sales-trained reps would spend the time uncovering the prospect's pain and work with an architect to design a technology project to solve it. In the cloud, the prospect has already identified their problem and is looking for a targeted solution. Finding the "solution package" that marketing has described on the Web site, the prospect reaches out and now it's sales' job to educate and finalize.

As Peter & Associates found, differentiation as a strategy changes the sales approach from opportunistic to intentional. "The days of sales dictating what a partner can deliver has to change," explains Opal. "When you have a clearly defined value proposition differentiation, then you need sales people able to line up behind the standardized offerings. You have to be able to say, 'Not every deal is a good deal.' That's hard for most partners in the channel."

Move Faster and Automate
A common thread in every conversation about the cloud is the faster cadence of change that accompanies subscription-based software. Day-to-day operations -- from purchasing to collections -- are not exempt from that discussion.

While on-premises hardware and software sales may not have delivered an ongoing revenue stream, they provided higher margins with significant cash infusions. To support on-premises transactions, sales reps and purchasing agents worked from the same product list and placing an order was straightforward.

"The role of purchasing has completely transformed," explains Christine Bongard, vice president and COO of QTS, a New Jersey-based SI. "The administration of cloud is much more complicated, so our purchasing agent has to be completely trained on all the licensing. She has to be much more involved in the sales process now."

Bongard also points out the financial exposure in Software-as-a-Service (SaaS) transactions, particularly with the advent of programs like Cloud Solution Provider (CSP) where the partner bills the customer directly for cloud services. "When you set up these relationships to buy cloud licensing, you are buying it, not the customers," says Bongard. "You are going to be billed whether your customer pays or not. To manage your cash flow, you have to have someone who is really on top of the billing."

With the tighter margins and higher transaction volumes that come with cloud customer management, partners have to find ways to build efficiency into operations.

"You have to turn things upside down," says Opal. "We hired new talent from outside the channel with a proven track record in process automation. She is permeating our organization and our ability to deliver. She is standardizing."

Opal added that fundamental changes to the way the organization operates is not without pain. "There's been friction with incumbent, long-term staff. If you're not experiencing friction, then I'll tell you, you're not working hard enough or not digging deep enough," says Opal. "Learn from it and adjust. There's going to be pain. It's no different than lifting weights, no pain, no gain."

Changing Face of Service Delivery
The accelerated cadence of new technologies and release cycles that deliver an ever-increasing number of functions and upgrades puts pressure on service delivery teams to stay current. Devoting a week per employee per quarter for technical training is a relic of the past. Keeping technical people up to speed means employee training has to be woven into regular workflows.

At QTS, training and delivery go hand-in-hand. Practice leads are the first to get up to speed on the latest technology. They create the procedures and develop documentation for deployment planning, implementation checklists and acceptance testing. A second engineer shadows the practice lead on initial deployment before taking on their own implementation. And so on until the entire team is up to speed.

"The engineers are not used to this swift change," says Bongard. "You have to be human about it. To be a good manager in this climate, you have to be patient with people and help them transition. We ask them to take another deep breath." Bongard cites an improvement in the quality of Microsoft cloud products that has led to fewer project hiccups. "It's easier to adjust to the changes when there are fewer bugs and the products are good. It builds confidence in the next round."

In addition to keeping up with technology, partners agree that it takes a different kind of technical person to support business in the cloud. Technology services aren't delivered in cloistered server rooms any longer. The consultants and engineers working the phones or in the field are just as likely to talk to the head of marketing or manufacturing as to the IT director.

At Peters & Associates, consultants have to have a deeper understanding of business outcomes to align to the strategic vision. "We need capable business people who understand the business problem and how to apply technology to solve for it," says Opal. "They need the soft-skill training so they can converse, they can ask about the impact to the business, they can whiteboard."

In balancing that commitment to training -- both technical and soft skills -- partners have the pressure of cost and time. "Because we're all under this microscope of speed, less money, less time. I need to make investments smart," says Opal. "I need to be agile and I need to continue to reinvest where I see the most potential return."

At Matrixforce, standard operating procedures have become the foundation of the organization. With a well-defined set of services wrapped around Office 365 offered through the CSP program, employees follow tightly documented, repeatable processes that can be performed by a number of employees.

Finding the right people to grow the business is their biggest problem at this time. "On the technical side, we can teach someone the 12 steps in a process. But we need people who are personable and can have business conversations," says Fream. "In hiring, we look for soft skills more than hard skills. People who like to learn and are inquisitive."

Is the Ride Worth the Ticket?
Unlike business model transitions of the past that caused upheaval but then settled down for a year or two, the cloud promises an ever-winding road. The processes and systems that partners put into place have to be flexible and responsive. While they may have been raised with feet firmly on-premises, traditional partner firms are conquering the challenges of the cloud.

"I am optimistic," says Fream. "We've built the foundation in our marketing and have gotten very good at setting up our standard operating procedures. The new offerings on Azure are going to open up more opportunities for us. The technology really does get better and better. We can build a good business wrapping our services around that expanding functionality."

For Bongard, she says, "It's an exciting time and I'm glad to be a part of it. We have completely changed our approach to management to keep up. We used to do a strategic plan every three years. Now we reevaluate the strategy every quarter."

As for Opal, "Everything is different. The speed is different, the thought process is different, the talent is different. It's scary, it's like this roller coaster ride -- it's really exciting and it's fun but sometimes you feel like you're going to throw up, but then you can see the end and maybe you want to do it again."

Supporting technology has never been for the faint of heart. Most longtime partners got into the business because they wanted to be on the leading edge, pushing technology to achieve more. The cloud, putting the afterburners on change, will continue to hurl those willing partners forward. Those who can keep control of their organization, building customer value and maintaining profits, are in for the ride of their lives. Hopefully, without throwing up.