The Reinvention of the Microsoft ISV

As partners scramble to find their place in the new cloud environment, the ISV category is expanding to include all different types of partners.

The Microsoft partner channel is a tumultuous place these days. Partners are jostling for a niche in the digital economy with new solutions and delivery models. For independent software vendors (ISVs), whose traditional approach was to build functionality on top of Microsoft solutions, the cloud removes cost and scale barriers, throwing open the doors for experimentation and reinvention. From VARs packaging their intellectual property (IP), to services-focused partners assisting the channel, to "non-partners" building industry solutions, there are new breeds of ISVs stirring up the ecosystem. Through different paths and with varying results, the Microsoft ISV community is undergoing wholesale reinvention.

Specialization and IP Driving Profits
Over the past two years, Microsoft has taken significant steps helping partners understand and evaluate their options for cloud business models. In 2015, the Worldwide Partner Group released the first Microsoft Cloud Profitability Scenarios and Financial Models reporting on real-world experiences of partners finding success in cloud services delivery. It has continued providing evidence and guidance that partners can use to support strategic decisions affecting the future of their businesses.

The conclusions from an IDC report on partner cloud business models point all partners -- from managed services providers (MSPs), value-added resellers (VARs) and systems integrators (SIs) to born-in-the-cloud partners -- to specialization and development of IP. These directives blur the lines between ISVs and other traditional business models.

"There are four ways that partners make money today -- the resale of a product, the project services to implement and customize it, the services to manage it, and the concept of packaged IP," says Brent Combest, director of Partner Profitability & Compete in the Worldwide Partner Group at Microsoft. "We are seeing more and more partners move to packaged IP. Not only does it build recurring revenue, it generates higher levels of gross margin. And, finally, IP builds a long-term, differentiated strategy."

As a result, the concept of ISVs as large, monolithic companies no longer reflects today's development partner business model. "Now, even smaller partners who have been delivering project services are taking shape around an ISV form," says Combest. "Taking projects they completed in the past or an investment in R&D, they are creating products. Those solutions can be as small as a $1 app, all the way up to a full-blown vertical extension of CRM charged at upward of $90 per month."

"There are a number of business models that partners are exploring," says Combest. "The direct-to-customer model will always be there, but I see a lot of ISVs' strategic focus on building scale to increase the recurring revenue stream."

To achieve those economies of scale, ISVs are looking to partner-to-partner (P2P) relationships as an obvious way to reach more customers. While some are taking the traditional approach of through-channels sales, others are becoming platform providers. These ISVs offer their channel partners a platform on which to build. For example, LiveTiles provides a unified platform delivering a modern UI layer over SharePoint, Office 365 and Microsoft Azure. Reselling partners use LiveTiles as a starting point and add their own industry or process spin to the solution.

Taking Microsoft Dynamics CRM to the SMB
There are a growing number of ISVs creating solutions for resellers that make Microsoft products easier to implement. Forceworks falls into that category, seeing opportunity in helping non-CRM partners deploy Dynamics CRM Online. "The secret for us was identifying a challenge that Microsoft was having and building a solution that solved the problem," says Steve Mordue, CEO of Forceworks. "We figured if we could do that, Microsoft would be supportive and that is exactly what happened."

Originally a CRM partner, Forceworks switched to Dynamics CRM Online after seeing cost benefits for its customers, plus a channel unfamiliar with the complexities of CRM implementations. "When Microsoft Dynamics CRM Online was first introduced, most partners were resistant to CRM and we saw a gaping opportunity," says Mordue. "As we successfully deployed projects, Microsoft used us as an example of how to succeed."

"We are seeing more and more partners move to packaged IP. Not only does it build recurring revenue, it generates higher levels of gross margin."

Brent Combest, Director, Partner Profitability & Compete, Worldwide Partner Group, Microsoft

Through its experience working with small and midsize business (SMB) customers in the space, Forceworks understood the potential of affordable CRM in the SMB market. Customers who couldn't consider a large-scale on-premises Dynamics CRM implementation had a new opportunity with the online version. The success of Office 365 in the SMB space demonstrated the potential.

"We understood that the SMB customer approaches CRM deployment differently than the enterprise," explains Mordue. "They don't have big budgets. It's all about price. We developed a fixed deployment model, taking a set of services to create a preconfigured package specifically for SMB customers. And suddenly our SMB sales took off."

Based on that success, Microsoft approached Forceworks to take its approach and turn it into an ISV offering to other partners. Transitioning to an entirely through-partner business model, Forceworks chose to avoid the potential channel conflict of maintaining a direct-to-customer practice. "Partners aren't going to buy from you if they think you will steal their customers," says Mordue. "We made the decision to build a channel, going all in to become an ISV. Today we have about 180 partners around the world."

And while Mordue says the company is beginning to reap the rewards of those partnerships, it has been a longer and more challenging transition than anticipated. "The biggest challenge in the transition from a customer-facing reseller to partner-facing ISV didn't have anything to do with the technology," explains Mordue. "The whole sales cycle completely changed for us. As an ISV, there is a reseller -- who doesn't know the product as well as I do -- between me and the decision maker. If you go through a distributor, it adds another layer."

Mordue cautions other ISVs treading this path, "Don't assume that because you have built a wonderful solution and shown partners how they can make money with it, that they will sell it. We produced all sorts of content and watched not a lot of stuff happen. So we have had to invest in educating partners on how to sell it."

Azure Fuels ISV Evolution
Taking a different approach, MediaValet Inc. is reaching a broader market by supporting both a direct and channel sales model. The MediaValet digital asset management (DAM) solution was created by VRX Studios Inc., a global provider of photography and content services to solve a need specific to its business. Managing 20TB of digital assets, including photography and content for more than 8,000 hotel customers, VRX Studios built its own DAM solution when it couldn't find one to fit the company's requirements and budget. Built from the ground up on the newly introduced Azure, the DAM solution had the accessibility, scalability, muti-tenancy and security that could support an enterprise-grade Software-as-a-Service (SaaS) application.

Seeing the potential of a scalable and cost-effective DAM solution, David MacLaren, owner of VRX Studios, spun MediaValet into a separate company focused on the development and delivery of cloud-based DAM software. Initially, MediaValet provided a point solution for marketing departments managing large volumes of digital content. Taking the next step with an integration to Office 365, the solution now appeals to a broader market and is well positioned for distribution through a partner channel.

"Initially, we were focused on the direct market but have expanded to work with VARs and SIs," explains Maria Osipova, director of Marketing for MediaValet. "There is a huge upswell of interest in DAM as marketers manage growing banks of corporate content. And this also leads to a significant opportunity for Office 365 partners."

MediaValet has structured sales and partner programs carefully to promote channel sales and works hard to build P2P relationships. "With our partners, building trust through our commitment to the relationship is the first step," says Osipova. "We collaborate with our partners at every level to build their pipelines and close sales together."

"With our partners, building trust through our commitment to the relationship is the first step. We collaborate with our partners at every level to build their pipelines and close sales together."

Maria Osipova, Director of Marketing, MediaValet Inc.

"Non-Partner" Industry Solutions
In 2015, Washington Capital Partners was facing the all-too-common challenge of a successful business saddled with inefficient processes stemming from disparate business management systems. "We needed to have a central, companywide system of record with single sign-on," says Jonathan Spinetto, Washington Capital Partners' vice president. "We looked at Salesforce, but the licensing would have been more than double Dynamics. The strong developer base for Microsoft Dynamics CRM Online was also a key factor in our decision."

An investment firm, Washington Capital Partners provides acquisition, repair and transactional funding for real estate investors. To achieve their goal of a single, centralized system, it built a customized end-to-end solution on Dynamics CRM Online, with connections to Office 365 to support inter-departmental collaboration.

"In January of this year, we came to the realization that our business model was changing," says Spinetto. "We had great market penetration locally, but with the technology platform that we built, we had the perfect opportunity to expand nationwide. We refined the platform so that we could white label the solution for private lenders."

For Washington Capital Partners, the opportunity is twofold. The first is providing an industry-specific technology platformthat small lenders can use to improve productivity. The second is to provide a direct conduit to funding options managed by Washington Capital Partners.

Well ingrained in this niche market, Washington Capital Partners has established connections with lenders across the country. "With boots on the ground, they know their markets and they have some capitalization," explains Spinetto. "We can give them a pathto success with a technology solution and as part of the solution, we can help them fund projects if they want to work with our capital markets department."

The response has been quick. "We have finalized the program and have three premier partners in the final stages of deployment. People are in line because it really is a game changer," says Spinetto. "We're not only offering them a great technology platform, but also opening up access to new capital markets for them."

Washington Capital Partners certainly tests the traditional definition of ISV. The company's relationship with its technology solution clients is only part of the value proposition. The investment firm does provide user training and support, but that interaction is minor compared to the overall relationship. The data and documents collected by their customers to support the lending process can be shared up to Washington Capital Partners for a truly frictionless partnership.

Is Data the Next ISV Frontier?
If data is the driving force for business today, you would think that the Azure Marketplace would be the developers' best friend. Today's business applications do far more than collect customer data and drive internal workflows -- they bring in data from outside sources to help organizations factor in complex iter-relationships with the outside world.

Weather Trends International provides predictive analytics services based on historic and forecast weather data. "Our core businesses are big retail like Walmart, supply-side seasonal products like Coca-Cola, and Wall Street," says Bill Kirk, CEO of Weather Trends. "For example, we tell Coca-Cola how to predict future volume, correlating weather predictions with sales volume. We tell them how much volume they will have based on the weather by week."

Weather Trends is listed on the Azure Marketplace, but so far hasn't had a lot of success with its offering. "We dipped our toe in the water on the Azure Marketplace about six years ago," says Matt Alonso, CTO of Weather Trends. "What's currently listed on the data market just scratches the surface of what we have available. We haven't seen as much adoption as we would like, so we haven't ramped up."

Alonso sees potential as Big Data goes more mainstream. "We've been waiting for the right time and I think it's rapidly approaching. We have a suite of offerings that are perfectly tailored to all levels of business, from mom-and-pops to Fortune 500, to help them improve revenue generation and sales forecasting," says Alonso. "Big data has been around for a while but the platforms like Power BI, Azure and [Azure] Machine Learning are leading us into the right time."

While Weather Trends has spoken to multiple Microsoft business units about the potential of new ways to expand their partnership, it's been slow going. Currently, the company is fighting the perception that it's a weather company rather than a predictive analytics company. "Companies that claim to be doing predictive analytics without weather are missing key information. How can you predict iced tea sales if you don't know it's going to be the second hottest July in history? You can't, you will stock out," says Kirk. "The struggle we face as a smaller company is getting the attention from Microsoft."

With Microsoft's increasing focus on mainstreaming data analytics through Azure Machine Learning and Power BI, it seems logical to provide a centralized place to source data. Expanding and further promoting Azure Marketplace as the source of data to enrich Microsoft and ISV solutions could be a further differentiator in the race to own predictive analytics.

"If you are going to succeed, you need to build a real spiderweb network inside of Microsoft."

Steve Mordue, CEO, Forceworks

Making the Most of the Microsoft Relationship
In 2009, the Microsoft Partner Network (MPN) program transformation kicked off what has become a state of continual flux for partners trying to navigate their relationship with Microsoft. The reorgs of Microsoft's changing of the guard have made it even harder for partners to keep up. On the bright side, the newly launched ISV and Application Builder Center provides a central hub of information that was sorely needed. Even with those resources, making the most of a partnership with Microsoft requires a strategy and a commitment of time and resources.

From the Microsoft perspective, the core of the ISV model still focuses on the P2P model. "For most ISV partners, the P2P model creates the greatest level of growth and reduces the cost of sales," Microsoft's Combest says. "We tend to promote those partners more in our case studies, field evangelism stories and mediums like [the Microsoft Worldwide Partner Conference]."

Forceworks is a poster child for the Microsoft P2P story. "Coming from Salesforce about five years ago, we weren't prepared for the level of support that Microsoft provides to partners," says Mordue. "Early on, I received very good advice to spend at least as much time marketing yourself internally to Microsoft as to customers. I was skeptical, but getting plugged in to the Microsoft Partner Network was the best thing that we ever did."

Mordue recognizes that it's challenging to make the right connections within Microsoft. "If you are going to succeed, you need to build a real spiderweb network inside of Microsoft." Key to making the right connections is focusing on employees who benefit from the sales of the Microsoft products that your solution drives.

Combest, who spent years in the partner channel before joining Microsoft, confirms the value in finding the win-win for Microsoft. "For partners looking to make the most of their Microsoft relationship to grow their business, there are a number of things to prioritize. First, it's a big ecosystem with a lot of partners -- so you want to make sure your brand is well-known and positioned as a catalyst delivering mutual benefits," advises Combest.

In addition, Combest recommends that cloud services providers using the indirect model take advantage of the opportunity for distributors to introduce them to the broader channel. For those partners focused on a vertical market, Combest recommends taking a creative approach with go-to-market strategies. "Identify the influencers working with the industry you are targeting. Leverage P2P relationships outside of the Microsoft partner ecosystem."

There are many paths that MSPs, VARs and SIs can take to get to the promised land of recurring revenue and a set of channel partners selling their solution. A clear understanding of the market underlies the success of the partners profiled in this story, and a close relationship with Microsoft can certainly help. It seems that we have just started scratching the surface of cloud-enabled business models. Perhaps the term ISV will be short-lived, replaced by an expanding subset of acronyms that more closely match the explosion of new business forms.


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