In-Depth

Microsoft Makes a Stronger Case for Azure

For as long as Redmond has offered Microsoft Azure, it's been available to partners. At the beginning of this fiscal year, though, the company started a much more concerted push to bring more of the channel along. Is there enough incentive, especially on the SMB side, for it to make sense for partners?

Microsoft Azure offerings started out as a complicated sale for the channel. To begin with, Microsoft launched with the Platform-as-a-Service (PaaS) approach, which involved rearchitecting existing solutions and learning new computing concepts for building new applications. For channel solution providers, that initially meant brand-new training for themselves and training for customers in order to make a market.

Questions of technical advantages aside, Microsoft was pushing this educational rock up the hill as Amazon Web Services Inc. (AWS), with its Infrastructure-as-a-Service (IaaS) approach, had a dead-simple pitch: Take the same workload you run or would run on-premises and slap it up in the cloud. A lot of customers saw the value pretty clearly and started filling AWS datacenters with all kinds of workloads.

Because of that message clarity and the timing itself, among other factors, AWS still holds a clear lead in the market. According to late July figures from Reno, Nev.-based Synergy Research Group, AWS controlled 29 percent of an estimated $6 billion worldwide market in the second calendar quarter for IaaS, PaaS, private cloud and hybrid cloud services.

Yet Microsoft is following fastest among the top AWS cloud competitors, a group that includes Google Inc., IBM Corp. and Salesforce.com Inc. The market greeted Microsoft's embrace of the IaaS model a few years ago enthusiastically, and also welcomed Microsoft's surprising support for competitive and open source workloads on its cloud platform. In the first quarter of 2015, Microsoft was a solid No. 2 and putting up revenue growth at a rate of 96 percent compared to 49 percent for AWS, according to Synergy. "Microsoft can once again lay claim to having by far the highest revenue growth rate," Synergy later said of the second quarter results, but didn't provide specific figures this time.

"In the last 12 months, more than $45 billion of partner services revenue was attached to products and services built by the Microsoft Cloud and Enterprise Group, and all of these numbers are going to grow even more over the next 12 months."

Scott Guthrie, Executive Vice President, Cloud and Enterprise Group, Microsoft

Although Microsoft wasn't completely forthcoming on how fast its overall Azure growth was in the fourth quarter, CEO Satya Nadella did offer some clues in the earnings call with financial analysts in late July. "In Azure, both revenue and compute usage increased by triple digits year-over-year. We tripled our revenue from Azure premium services this quarter," he said.

Earlier that month at its Worldwide Partner Conference (WPC) that kicks off the Microsoft fiscal year, company executives began pitching partners of all kinds on getting more involved in Azure-related work.

Scott Guthrie, executive vice president of the Microsoft Cloud and Enterprise Group, highlighted the ecosystem scope of Microsoft's Azure business by sharing some numbers during a WPC keynote.

"We have more than 3,200 applications and solutions in the Azure Marketplace from a wide breadth of different ISVs and partners," Guthrie said. "In the last 12 months, more than $45 billion of partner services revenue was attached to products and services built by the Microsoft Cloud and Enterprise Group, and all of these numbers are going to grow even more over the next 12 months."

While those numbers are large and include many top-tier ISVs and enterprise systems integrators, those are communities that have seen the business value in Azure for a few years. Another figure Guthrie provided reveals how, for the broadest class of partners, Azure has been less appealing than other cloud services.

"We have 6,500 partners who are now transacting Azure consumption using our Open Licensing program, which if you remember we launched just 12 months ago at the last WPC event," he said. Compare that to the 75,000 partners that Microsoft COO Kevin Turner recently told investors that Microsoft has transacting cloud, and you can see how far Azure has to go.

Guthrie's Azure team is dedicated to addressing that issue, however, and they contend that the time is now for the broad base of partners, including those serving midmarket and even small to midsize business (SMB) customers, to start selling Azure services in a bigger way.

In support of that goal, Microsoft unveiled three program investments at the WPC around Azure. First, Microsoft is putting Azure in the Cloud Solution Provider (CSP) program. Second, the company is launching a Microsoft Azure Certified for Hybrid Cloud program. Third is the Azure Mentor Program (AMP) for Partners.

Azure in CSP
Updating the CSP was Microsoft's most significant partner-enablement move this year, with implications throughout the channel, the ecosystem and the Microsoft product stack. CSP is a program that gives partners the ability to control customer billing like Open, but lets them bill customers on a monthly basis, which was appealing to customers in the Advisor model. By combining the best of both business models, and jettisoning the worst of both business models, Microsoft has invigorated the channel. The enthusiasm surrounding the CSP model was palpable at the WPC.

CSP is primarily discussed as an Office 365 and CRM Online opportunity that's expected to increase the transacting partner numbers dramatically from the current 75,000 figure that Turner cited. Less discussed was Microsoft's move to include Azure in the CSP model. But the change is important for enabling partners to bring Azure to a wider audience of customers. (Microsoft Intune and the Enterprise Mobility Suite are also included in CSP.)

Even though Azure will be handled through the CSP, there are significant differences in the way it will work compared to other cloud services in CSP, says Mike Schutz, general manager of Cloud Platform Marketing at Microsoft.

"It's a consumption service as opposed to a per-seat model. Office 365 and Intune are obviously a per-user model. The partner would provision how many users they have into the system. With Azure, because it's a consumption, pay-as-you-go model, the partner owns the end-to-end customer lifecycle. They'd sell them the solution, they then would own provisioning and billing, and the way that would be billed is it's billed in arrears just based on what the consumption was for that particular solution. However many minutes of VM that they used, how much storage that they used, that's how the Azure in CSP works. Just like it does when we're billing directly. But in this case the partner's doing it for the customer," Schutz says.

Takeshi Numoto, corporate vice president for Microsoft Cloud and Enterprise, unveiled some other components of the program to enable partners to sell Azure as part of the CSP program. "We are also introducing a new Partner portal and APIs that empower partners to be at the center of the customer experience and enable partners to deliver Azure as part of their offerings and/or deliver managed services around Azure," Numoto said in a blog post announcing the WPC-related changes.

Microsoft Azure Certified for Hybrid Cloud
Numoto positioned Microsoft Azure Certified for Hybrid Cloud as a way to empower services providers to bring hybrid cloud to even more customers. "The program enables service providers to deliver Microsoft-certified hybrid solutions that will make it easier for customers to leverage the cloud on their terms, through certified partner solutions and best practices for hybrid cloud deployments including connections to Azure, globally," he said.

"The program will also give customers peace of mind that each solution comes with a high degree of technical quality to reduce the risk of deploying and maintaining a hybrid cloud solution. Finally, the program builds on Microsoft's extensive experience in providing world-class hybrid innovation and partner programs, extending the success of the Cloud OS Network, which has grown to reach over 10,000 customers with over 600 local datacenters globally in under two years."

"We find that after a partner has done two or three or four or five, then they're pretty self-sufficient, and they can start to cookie cutter it out to their customer base. And so the goal of the Azure Mentor Program is just really to help them get going on the first few deals."

Mike Schutz, General Manager, Cloud Platform Marketing, Microsoft

If that sounds a bit like the old Certified for Windows 2000 or 2003 logos for server applications, there are some similarities, but major differences, too.

"Whether it be certified for Windows or other Windows logo programs that we've had, the question is, 'How do we provide to customers a way for them to identify solutions that work well with the Microsoft offer?'" Schutz says. "The old model used to be, I buy a server, buy some hardware. Does the operating system run on that hardware? Does the app work with that OS so I can be confident that it's been tested and validated that it would work for what I'm trying to do? Where the old model was buying a server and the new model is buying the cloud and a solution. It's very much analogous to the Certified for Windows logo, but this is to identify partner-delivered solutions that are in the hybrid cloud range."

One example of an Azure Certified Hybrid Cloud app could be a hosting services provider that builds a cloud using Hyper-V, Windows Server, System Center and the Azure Pack to offer an A ure-consistent cloud. The customer could then choose a certified local services provider who would be able to host solutions that have a similar environment to Azure in cases when local regulations or service-level agreement (SLA) requirements prevent the customer from using Microsoft's own datacenters.

Another example could be a partner getting the certification for a managed services offering that spans a customer's environment and the Azure environment.

Under the existing Microsoft Partner Network competency structure, one of the big holes has been a specific competency for partners with training in hybrid and private cloud deployments -- an area where Microsoft is clearly looking to build its partner capacity.

Asked about that, Schutz cautioned that the Microsoft Azure Certified for Hybrid Cloud comes at the issue from a different direction than the competencies do.

"The competencies are organization-based. So as an organization, a partner would get a competency. This is more designed for specific solutions and offerings. So a partner could have multiple certified solutions," Schutz says. "It's different than the competency because [that's] more organization-based. This is more solution-based."

As for how many partners Microsoft expects might push solutions through the certification process, Schutz points to the existing Cloud OS Network as an example.

"Today in the Cloud OS Network we've got a couple hundred partners that are in that that are hosting services providers. That's one category of partners that is participating here. So there will be hundreds of the hosting services providers. On the managed services provider [side], I could easily see hundreds of partners there who are offering solutions that are specific to the hybrid cloud. The goal is to be able to make sure that geographically we've got partners in every region so that customers and our own Microsoft field sellers can be able to work with local partners to provide those solutions to local customers," he says.

Azure Mentor Program
The program most tailored to partners serving the SMB market is the new Azure Mentor Program. Here's the problem that was crying out for a solution, as Microsoft sees it and as Numoto described it in his blog:

Over the past year, we have found that some partners need help with the level of transformation required to be able to build an Azure practice. The transformation spans several stages starting from the quoting process, positioning a solution, all the way to post deployment troubleshooting. That is why we are making available the Azure Mentor Program (AMP), which provides partners with technical resources and assistance for a period of six months, covering presales, deployment and post deployment to ensure they have the support needed to build their Azure practices. Over the next year, we will look to assist over 2,000 partners via resources from the Global Partner Support team.

Schutz elaborates on Microsoft's plan for AMP: "It can help streamline that learning experience that they get over the first few deals. We find that after a partner has done two or three or four or five, then they're pretty self-sufficient, and they can start to cookie cutter it out to their customer base. And so the goal of the Azure Mentor Program is just really to help them get going on the first few deals."

The SMB Use Cases for Azure
In conjunction with the new Azure programs, Microsoft is providing data to point partners to what those first few deals might look like. For a report released over the summer called, "Microsoft Cloud Profitability Scenarios" (PDF), the company surveyed 1,260 English-speaking members of the Microsoft Partner Research Panel.

The data shows that Azure so far has been more of a big-company sale. Fewer of the surveyed partners had sold Azure than Office 365, and those that had sold Azure did more deals with bigger customers than with smaller customers. Two-thirds of the Azure deals were for customers with more than 100 seats. The public survey summary data didn't delve into how many Azure deals the partners had done versus Office 365 deals.

Elsewhere in the data, Microsoft looked at what types of Azure scenarios the survey respondents were delivering to SMB customers. (For that category, Microsoft was likely looking at deals for companies with fewer than 250 seats, which has historically been a rough cutoff for its official SMB classification.) According to Microsoft, 63 percent were storing data in Azure, 57 percent were hosting apps in the cloud with Azure VMs, 52 percent were hosting Web sites in Azure, 43 percent were backing up data in Azure and 22 percent were delivering Windows desktops and apps to any device with Azure Remote App.

One partner on the leading edge of bringing Azure solutions to SMB customers is Arterian, a Seattle-area managed services provider and the 2015 West Area Cloud Partner of the Year for the Microsoft U.S. SMB Champions Club.

"We've just started biting the ankles of Azure."

Jamison West, Founder and CEO, Arterian

A longtime proponent of Office 365 solutions, Arterian is just beginning to steer customers toward Azure when appropriate, says Founder and CEO Jamison West. Or, more precisely in some cases, Arterian is being steered to Azure, says West, who is a member of an HTG Peer Group, the peer-to-peer IT company leadership groups that are organized by Arlin Sorensen.

"Like my HTG group tells me all the time, we've got this extra nine-to-12 months of pressure from our clients, who are all married to somebody at Microsoft, right?" West says. "So it's a little different. It's unique to our neck of the woods."

In the last few months, West says, "We've just started biting the ankles of Azure." What that looks like now is two engagements. One is a group led by ex-Microsoft employees that want a new Dynamics GP ERP system in an Azure VM and their Active Directory services in Azure. Of the other, West explains, "We have a 50-user company that's just forming. They're saying, 'We don't want to have to buy a server or even a firewall.' All they want to do is be able to, wherever they are on the Internet, log in to Windows 10 directly into Azure Active Directory, and that's a new paradigm."

In the near future West believes Arterian will start doing a lot of Azure business with SMBs, but most, he thinks, won't know or care that they're on Azure specifically. The rough roadmap West plans to use with SMB customers goes like this: "Let's move whatever we can into Software as a Service, so Office 365. The next layer, you've got these databases that are custom -- let's move them into Platform as a Service [SQL Azure]. Whatever's left, we'll move into Infrastructure as a Service."

Why Arterian's shift to Azure now, rather than earlier? West points to one of the WPC announcements Microsoft made related to Azure as the dominant driver. It's Azure in the CSP model. Azure has been available through Open Licensing for a year, but that model was more trouble than it was worth to transact. Even though CSP wasn't fully up and running for Azure as of early August, West is confident enough in Microsoft's commitment that Arterian is doing deals in Open anyway if the timing is right for a client; and they'll shift the client to the CSP model later.

"We've got a few clients that are needing to make significant investment in their infrastructure now," West says. "We just understand it's a bad choice for them to do the capex model with a significant [on-premises] investment. Because of their times and their projects, we're putting them on the right platform even though we don't have the billing model in place yet. Other than that, we're holding people off. If they're willing to wait with us, we're waiting until we can do CSP."