Clouds: Shifting the Business Model

Now that Microsoft Windows Azure and SQL Azure are commercially available, partners need to consider how the company's new cloud services will change the landscape of how software and services are delivered.

Now that Microsoft Windows Azure and SQL Azure are commercially available, partners need to consider how the company's new cloud services will change the landscape of how software and services are delivered. Because most partner programs are part of a vendor's business model, when the underlying platform and service delivery model changes, so must the partner model.

In the Microsoft space, we see both models changing. The partner program has changed, but only in an evolutionary fashion: Competencies are clearer, partner performance standards are stiffer and further tweaks are likely.

The company's business model is also changing as cloud services take hold. Windows Azure is the latest example, but Microsoft Online, with its hosted Exchange, SharePoint, Communications Server and Live Meeting (sold together as the Business Productivity Online Suite, or BPOS), has been percolating for more than three years.

While the changes to the partner program are causing tremors, the new business model is tantamount to a major earthquake. Microsoft's crown jewels-its twin monopolies on the desktop OS and business document creation and management-are mere glass beads in this new model. Neither the OS nor Office is critical to online users, particularly if they're using a non-Microsoft cloud vendor.

Even the second tier of Microsoft's business model, such as the Exchange, SharePoint and SQL Server products, diminishes in importance here, particularly as competitors duplicate all or most of their common functions. Licensing is also altered dramatically. Microsoft's traditional products are most commonly licensed by device, a model all but absent in the cloud.

Where does that leave partners, whose primary contributions to Microsoft have been to reinforce its traditional businesses? Many have built businesses around selling hardware with Microsoft OSes, upgrading Office licenses, assisting with deployments, writing complementary applications and integrating all of this with Microsoft servers for communications, collaboration, workflow and search.

All of these opportunities are threatened by the new business model. The BPOS model focuses on sales, deprecating most partner technical skills-product knowledge, configuration expertise and customization-as well as their business experience. Once a partner has sold the product and done some initial training and data migration, customization opportunities are limited. I'll give Microsoft credit for better margins for partners with BPOS than with on-premises software, which compensates to some extent for losses in the services business. However, a partner that does not have a sales team specifically dedicated to selling Microsoft's hosted servers probably will not succeed.

How do partner models need to change to accommodate the new business model?

The first requirement is to create a genuine theater of operations for partners to configure, customize and manage online products. Hosted services eliminate the need for a lot of low-value management tasks, but also restrict high-value customization, where partners have made their biggest skills investments.

Windows Azure doesn't help today, because Microsoft doesn't promote it for running its hosted servers. The Services Provider License Agreement and new rules that let partners host applications on Microsoft software are both a start, but still don't offer the same level of opportunity that on-premises systems do today.

Second, cloud providers cannot interrupt the partner/customer relationship. The relationship between vendors and customers becomes even more distant when the vendor product is up in the cloud rather than down on the ground.

The cloud provider that fails here could lose the war. Customers will demand application and data mobility-the right to ditch a vendor that doesn't perform, and they will rely heavily on partners to choose where they move to. The provider that does best by partners will probably get that business.

About the Author

Paul DeGroot is principle consultant with Pica Communications, which provides consulting services for customers with complex Microsoft licensing issues.