In-Depth

With New Cloud Competencies, Microsoft Gives and Takes Away

The addition, at last, of cloud competencies gives partners a clear place in the Microsoft Partner Network to establish expertise and build a practice. Yet, some other Microsoft moves regarding cloud are causing partners serious concern.

This month Microsoft begins to change nearly everything about the way it works with partners in the cloud.

The good includes a secure place for cloud in the competency structure of the Microsoft Partner Network (MPN), along with lower barriers to entry for partners who want to sell cloud than other competencies have previously required. The bad is a new Microsoft initiative to hire Office 365 implementers and offer free deployments to customers. Microsoft positions the moves as a positive for the channel, but many partners fear the moves will cause unnecessary conflict and prematurely damage a profitable business line for them. Then there's the ugly, in the form of a messy and sudden transition process.

The Good
Cloud finally has a role in competencies, which are the centerpiece of the MPN framework. Since the introduction of the MPN, Microsoft has waffled over what to do with the cloud. Although there have been as many as 30 competencies at different times, none was cloud-specific, until this month.

On Sept. 29, Microsoft introduces three new competencies for the cloud. They are Small and Midmarket Cloud Solutions, Cloud Productivity and Cloud Platform. A CRM Online Competency is also planned sometime later in the fiscal year. By product, the Small and Midmarket Cloud Solutions competency roughly maps to Office 365 for SMB, Cloud Productivity corresponds to Office 365 at larger organizations and Cloud Platform covers Microsoft Azure. However, as a design point, the competencies are intended to include any cloud product appropriate within the customer umbrella of the competency name.

"We have been in incubation with a lot of our cloud program," says Gavriella Schuster, the new general manager of Worldwide Partner Marketing and Programs in the Microsoft Worldwide Partner Group. "It was out of the mainstream of the Partner Network for the last two or three years as we were trying to figure out who are the right partners, how do they make money, what are the best practices. When we felt like we had a handle on that, then we felt like it was time to mainstream that and work on how that fits in with the rest of the competencies and the program and everything else."

"It's a big cost to drive a lot of people into certifications and exams and everything else. We're saying, 'OK, start performing, we're going to enable you with training.'"

Gavriella Schuster, General Manager, Worldwide Partner Marketing and Programs, Microsoft Worldwide Partner Group

Schuster and her boss, Microsoft global channel chief Phil Sorgen, worked to create lower barriers to entry on the new competencies.

For one thing, they cut back heavily on training requirements and ramped up the focus on sales performance. Most other MPN competencies require partners to have two MCPs for the silver level and four MCPs for the gold level. The cloud competencies will have no MCP requirements at silver and two at gold.

"It's a big cost to drive a lot of people into certifications and exams and everything else. We're saying, 'OK, start performing, we're going to enable you with training.' At the gold level there are some exams and certifications, but we're trying to get to the place where we make that less heavy -- more tied to what you're actually going to do with a customer and less feature-function focused," Schuster says.

According to Sorgen, that change was heavily requested by partners: "That's our partner feedback at work. That's us listening. And we need to listen a lot during changing times."

The performance targets vary by competency. For the Small and Midmarket Cloud Solutions competency, a partner needs to get active Office 365 usage of 150 seats at 15 unique customers for silver and 300 seats at 30 unique customers for gold. For Cloud Productivity, aimed more at midmarket customers and larger, the Office 365 activation requirements are 500 seats for silver and 1,500 seats for gold. For the Cloud Platform competency, $25,000 of Azure consumption qualifies a partner for silver and $100,000 of Azure consumption is needed for gold.

Partners who participated in the Microsoft expiring cloud programs -- Cloud Essentials, Cloud Deployment, Cloud Accelerate and the Azure Circle -- will be grandfathered into the silver level of the appropriate new competency. For the most part, the move into a competency will be without barriers, although they must collect the three customer references required at silver.

Meanwhile, perks are incremental cloud seats and Azure credits. So, for example, a Small and Midmarket Cloud Solutions competency partner gets an extra 10 Office 365 seats on top of the 25 they would ordinarily get at silver and 25 seats on top of the 100 they would usually get at gold. A Cloud Productivity competency partner will get 25 additional Office 365 seats (for 50 total) at silver and 100 extra (for 200 total) at gold.

As another perk, Microsoft is waiving the silver competency fee for partners for any of the three cloud competencies. In the United States, that cost would usually be $1,850.

"It's because that first year is all investment for the partner. If we can eliminate any of the costs along the way, that's what we are trying to do," Schuster says. Additionally, Microsoft is reducing traditional on-premises competency fees by 10 percent at FY15 (July 2014-June 2015) renewal time to free up some money that Microsoft believes its partners need to be investing in transitioning to the cloud. That would amount to about $185 for silver competencies and $526 for gold competencies in the United States. (Fees vary by country. Partners pay competency fees one time no matter how many competencies they have.)

In another positive, Microsoft continues to expand Open Licensing to cover more cloud products. Azure became available on Open on Aug. 1, and Microsoft has committed to offering Dynamics CRM Online as an option for Open Licensing partners to resell sometime in the 2015 fiscal year.

Microsoft is also introducing a new end-to-end program, parallel to MPN competencies, called the Cloud Solutions Provider Program.

"This is a true cloud reseller program," John Case, corporate vice president of the Microsoft Office Division, said during a Microsoft Worldwide Partner Conference (WPC) keynote in July. "Partners in the program will be able to directly provision customer subscriptions and provide one monthly bill for partner services and Microsoft services together. You can also directly manage these customers with things like the partner admin center, and you will own the tech support relationship."

"We're going to do a bunch of things in the product. For example, in Office 365 to help customers do more onboarding in an automated way. And we'll have a lot of direct connections to those customers."

John Case, Corporate Vice President, Microsoft Office Division

Case said the program will roll out over the next year in 48 countries and will start immediately with Office 365 and Windows Intune, and later add Azure and Dynamics CRM Online.

Microsoft's recent cloud moves, meanwhile, also have the potential to resuscitate a Dynamics channel that has been decimated by the company's clearly communicated decisions over the last few years to favor large partners over smaller ones. Making CRM Online available through Open Licensing is one move to broaden partner opportunities in Dynamics. A potentially bigger one could come from the Dynamics CRM Online Competency later in FY15. The unique requirements of Dynamics partner sales licensing agreements and Dynamics competencies' traditionally heavier certification requirements are currently being worked out for the new online competency, Sorgen says. But, he adds, " We're applying it in the same methodology as the other cloud competencies. We're adopting the same benefits that Gavriella talked to, which is internal use rights, the same support, the same principles of benefits will be a part of that."

The Bad
As all of that relatively positive news emerged during the WPC, cloud-focused partners were instead focused on, and alarmed about, rumors that Microsoft itself would be getting into the Office 365 deployment business, potentially wiping out one of the only proven methods so far for partners to make a living off the Microsoft cloud stack.

The backdrop of any move into deployment is that Microsoft has a problem with cloud activations. As the company has thrown increasing numbers of cloud licenses at customers through various licensing vehicles in order to encourage cloud adoption, the percentage of active seats is below target. The fear is that inactive seats are unlikely to be renewed and won't drive deeper engagements with Microsoft on the cloud. Some partners also privately theorize that Microsoft may believe partners are charging too much for cloud deployment services, driving adoption down further.

Microsoft made a few vague references to its deployment efforts in WPC keynotes, but, as is common in the omnibus keynotes, was short on specifics.

"We're going to do a bunch of things in the product. For example, in Office 365 to help customers do more onboarding in an automated way. And we'll have a lot of direct connections to those customers," Case said during his keynote. He concluded that statement with a positive spin: "Our intent is for every single new customer that comes into Office 365, for example, or Dynamics or Azure, to make sure that there is a partner attached to every single one of those new customers. And we'll help provide that."

According to a slide deck provided later to partners and obtained by RCP, Microsoft does have plans to provide onboarding services directly to customers -- potentially a major threat to some of Microsoft's most forward-leaning partners that have been making the transition to cloud by deploying cloud seats.

The main avenues Microsoft is using are called FastTrack for Office 365 and the FY15 Adoption Offer. FastTrack is a modification of an existing program and the Adoption Offer is new. Microsoft is reportedly hiring hundreds of engineers to spin up the direct onboarding and deployment teams. A key caveat is that both offers apply only to customers with at least 150 seats.

(For specifics on FastTrack and the adoption offer that emerged after this article went to the press, see "Microsoft Takes Some Office 365 Deployments In-House.")

The new FastTrack continues to hold opportunities for partners, such as dollars for multi-day planning engagements with a partner. However, Microsoft will deliver what it calls enhanced onboarding assistance directly to customers. A slide shows that the Microsoft onboarding in FastTrack will be limited to things like user account creation and training materials. Microsoft still intends to kick engagements over to partners for identity integration, data migration, user adoption, management and enhancements. Microsoft describes FastTrack as an ongoing feature of Office 365.

The Office 365 FY15 Adoption offer is currently scheduled for Sept. 1-March 31. There is a clear partner component, with partner-led activities including onboarding project management, data migration, remediation activities, and efforts to drive adoption of other cloud components such as SharePoint, Lync and Yammer. The program works as a subsidy with customers getting credits per seat to pay for the qualified partner activities. The Microsoft subsidies will be $15 per seat for 150 to 1,000 seats and then $5 per seat beyond 1,000, with a $60,000 limit per customer. The big issue for partners is that there's an option for customers to have a Microsoft Office 365 Onboarding Center complete the e-mail migration without partner involvement.

In other words, the customer can choose not to accept subsidy funds and simply have Microsoft do the migration. For the record, Microsoft has a very specific set of requirements to do a migration. Any environment that falls outside of those relatively simple parameters will not be able to complete the migration through the Office 365 Onboarding Center and will need a partner's help.

Geeman Yip, founder and CEO of BitTitan, licenses migration and onboarding tools to hundreds of Microsoft partners and has heard a lot of concern in the channel about Microsoft's plans. "It's kind of a slap in the face to the partner community," Yip says in describing the reaction he's heard from the channel.

"In offering a free onboarding service for customers, I completely understand Microsoft's perspective. They want to unblock the upstream market. But at the end of the day, I think there are a couple of things that Microsoft doesn't understand. It's more complicated than Microsoft thinks."

Geeman Yip, Founder and CEO, BitTitan

"In offering a free onboarding service for customers, I completely understand Microsoft's perspective. They want to unblock the upstream market," Yip says. "But at the end of the day, I think there are a couple of things that Microsoft doesn't understand. It's more complicated than Microsoft thinks."

One danger that Yip anticipates is that customers will be unhappy with the service they get from Microsoft in a way that damages the Microsoft cloud brand, a bad outcome for Microsoft and its channel.

"A customer comes in today looking into BitTitan to move from Google Apps. Microsoft answers the questions, then says, you don't have to pay...you can use our free tools. Then what happens is the customer gets disgruntled. They then come back to us and tell us that Microsoft messed up their deployment and we have to come in and help them. The customer is already on edge. I've lost trust because Microsoft has created distrust with the customer," Yip says.

He also worries that the FastTrack approach will cut partners out of the onboarding process, preventing them from ever engaging with a customer. "At the end of the day, that's how people get in the door. I kind of relate onboarding to dating. You're going to figure out whether you're compatible and you're going to take it to the next level," Yip says. "If Microsoft became the onboarding service, how do they expect customers to create that relationship if Microsoft has already closed that door for them?"

On the other hand, Yip says the devil is in the details and the outcome could be positive. "If in the deployment assistance Microsoft is saying, 'Hey, I notice you're not working with a partner. You might want to because there are A, B, C benefits,' that could help," he says.

The Ugly
Some things about the transition have been ugly. Sorgen, tapped to replace former channel chief Jon Roskill last year, shut down Roskill's plan to add cloud tracks in many competencies. While the overall approach of cloud tracks was inarguably less elegant than straight cloud competencies, the change in direction has made for some ugly transitions for the channel.

One concrete way that played out was in the expiration of cloud internal use rights (IUR). Microsoft is promising more cloud IUR for partners with the new competencies. However, the old cloud programs expired before the new competencies went into effect, or were even announced. That led to many partners receiving letters that they no longer had the rights to use the Office 365 seats on which they'd come to rely. Several partners complained during the WPC that they'd spent the last few weeks getting employees off their IUR and onto paid seats. Should those partners be grandfathered into silver cloud competencies, they'll now need to go through the process of unwinding the paid licenses and setting up their employees once again.

Communications issues also persist. Partners told RCP privately they felt blindsided by the Microsoft onboarding changes. They mention the onboarding changes in the same breath as communication issues involving Office 365 enterprise deployment payments earlier in the year. As with those cuts, partners are having trouble determining if Microsoft was trying to conceal bad news or simply failed to anticipate that one of its moves would be a serious concern to a portion of its partner community.

Value Equation
Major change is coming to the MPN when it comes to cloud, reflecting Microsoft's overall change in stance to be a mobile-first, cloud-first company. Microsoft partners would do well to forget everything they know about working with Microsoft in the cloud. New competencies, new programs and new conflicts are changing the value equation.

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