I just got back from the Microsoft Australian Partner Conference 2016 (also known as Microsoft APC) which this year had the theme of “Define your future”. A title which really resided with me and the future of my company Avantgarde Technologies with the overwhelming Microsoft push for “cloud first” solutions. Microsoft APC is a non-technical conference targeted at Microsoft Partner business managers to make smart decisions regarding the strategic direction of their business.

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As expected, Microsoft at every opportunity installed upon us their cloud offerings Azure and Office 365 giving the Microsoft Partner community stories about accelerated business growth and profits by deploying and growing solutions around the Microsoft cloud platform. Microsoft also spoke to us about a new term “The Modern Partner”, Microsoft Partners which adopt a “cloud first” approach when creating solutions to meet the needs of our customer base. This term was used throughout the Microsoft APC 2016 conference.

Gavriella Schuster, the Microsoft Corporate Vice President of the World Wide Partner Group has been pushing a message for a few years’ now “Cloud partners are more profitable, grow faster and have more recurring revenue”. This message has been drilled into the Microsoft Partner organisations around the world from top down, and was clearly driven in every presentation at Microsoft APC 2016. Microsoft follows up on this statement reinforcing it with figures from in a Microsoft sponsored IDC book The Modern Microsoft Partner Series, Part 1 “The Booming Cloud Opportunity“.

• Cloud Partners experience 2x the growth
• Cloud Partners experience an increase of 1.5x gross profit
• Cloud Partners experience a 1.8x increase to their re-occurring revenue model which dramatically increases the evaluation of the business.

Figures from this book have been used in presentations by Microsoft employees around the world to reinforce their “cloud first” message. These figures were used once again at Microsoft APC 2016 in the session “Building a Profitable Azure practice” by Microsoft’s Brad Clarke.

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But how to we as Microsoft Partners make money from the Microsoft Cloud solutions? Well there are four channels we as partners can operate within for creating revenue through the Microsoft Cloud offerings:

• Reselling
• Project Services
• Managed Services
• Packaged IP

Reselling the Microsoft Cloud creates a re-occurring revenue model with clients who choose to purchase cloud services through your organisation. This is an extremely competitive market and whilst it creates high revenue, profits margins are low. There is also nothing stopping a Microsoft customer from shopping around with other Partners to get a better buy price for Microsoft’s service offerings further driving down profit margins.

Project Services creates Microsoft Partners with new opportunities to move our customers from on-premises infrastructureto cloud services. This will generate a large amount of “once off” project work but in perspective this works will already be conducted through on-premises infrastructure upgrades.

Managed Services allows Microsoft Partners to provide support services to customers assisting them with issues utilising Microsoft Cloud services. This essentially puts Microsoft Partners in the role of acting as a “giant service desk” to support Microsoft Cloud users with workstation related issues.This is not a new opportunity for Microsoft Partners, supporting users is something that is already a pre-requisite for any Managed Services Provider.

Packaged Intellectual Property (IP) is the greatest opportunity for creating strong and stable revenue from the Microsoft Cloud Platform and also creates stickiness between customers and Microsoft Partners.Packaged IP is also the area Microsoft paid close attention to when creating their growth figures and profitability of the Microsoft Cloud. Packaged IP refers to customers creating software applications to solve a specific business need or problem, and running their software on the Microsoft Cloud platform. The number of solutions are endless, examples of digital transformation to today’s industry include – data analytics and gathering of trucks as they enter a weigh bridge, monitoring traffic flow within a city to improve our transport infrastructure, climate data gathering for agriculture industry and so on. By leveraging the Microsoft Cloud platform, this allows businesses to “go to market” faster, simplify deployment and reduces costs associated with providing a Packaged IP solution.

Whilst Packaged IP provides great opportunities to leverage the cloud, not all Microsoft Partners are in the industry of Software Development. Microsoft sells this the concept of “Cloud Technologies” as new opportunities to replace the legacy duties of the IT Professional whose sole task was to “rack server infrastructure” as referenced by Microsoft employees throughout the conference. When the effects of the Microsoft Cloud Platform are evaluated further, we can identify that a large quantity of skillsets will be redundant including System Administrators, System Engineers, Database Administrators, Messaging Administrators, Directory Services professionals – the list goes on. As Microsoft expands its Microsoft Cloud Platform and signs new contracts in Australia with PSTN carries such as Telstra, additional skillets such as Enterprise Voice will also be made redundant impacting engineers who have spent years of their life studying to achieve certifications such as Cisco CCIE:Collaboration.

Microsoft Cloud Infrastructure platform is maintained remotely by resources based locations such as Bangalore, India providing Microsoft the ability to maintain its cloud operation at low cost whilst driving high profit margins.

I spoke with many Microsoft Partners throughout the conference about how the Microsoft Cloud would impact their business. Many advised me that they have built internal multi-tenant Skype for Business, Exchange and SharePoint environments and moved their customers to their own “private cloud”. In this model, Microsoft Partners are still required to pay Microsoft Australia significant licensing costs per user on their environment under the Microsoft Services Provider License Agreement (SPLA). This model provides poor profitability as after you have paid for the Infrastructure, Engineers to build and maintain the infrastructure and Microsoft’s monthly SPLA licensing profit margins are slim. It is also hard to compete with Microsoft’s Cloud which is deployed on a mass scale at a fraction of the price. One thing this model of engagement does provide for Microsoft Partners is a stickiness with their customers, once the customer data is on their infrastructure it is very hard for the customer to move.

To negate the effects of the Private Cloud models, Microsoft have also announced that their 2016 release of products including Microsoft Exchange, System Centre product suite, Skype for Business, SharePoint, SQL Server and Windows Server will be the last official release. Sufficient support maintenance services will be provided to business providing adequate time to migrate remaining servers onto Microsoft’s Cloud Platform before the support plug is pulled and customers will be forced to move. It will be interesting to see how this plays out in future years and if Microsoft will be forced to provide commercial copies of their software due to sheer demand.

Throughout the conference I found Microsoft to be out of touch with today’s business and where they currently are with their journey to the Cloud. Many of my customers (mostly over the 500 user seat) have not started their journey to the cloud due to various business reasons and technical reasons such as limited bandwidth. Microsoft made reference to overseas success stories and had executive management from a few Australian businesses present on their experience moving to the cloud in an attempt to inspire Microsoft Partners and take their customers on the journey. The Cloud is inevitable, just like Judgement Day is always inevitable in the movie Terminator. However, I believe it will take another 5 – 7 years before we see the full effects of Cloud in today’s business and the impact it will have on people working in the field of Information Technology. It will also take time before Australian Government and both the Private/Public business sectors build confidence in moving sensitive information to a public cloud. Organisations such as the Australian Bureau of Statistics at this point still refuse to utilise Cloud Infrastructure to privacy concerns of information stored in a public cloud.

As a Microsoft Partner, what can you do to ensure you’re not out of work with the adoption of the Microsoft Cloud? The most important thing is to diversify your skillset into areas which will not be impacted. Two areas which I believe are safe investments are:

• Routing and Switching – All businesses will need network connectivity to cloud infrastructure.
• Software Development – Software Developers will always be required to build and create new innovative ideas required by business in the future.

Unfortunately, what this will mean is as people go through the process of reskilling – the areas of expertise not impacted by Cloud will undergo strong competition so make sure you or your company specialises and standout from the crowd.

Clint Boessen has been in the consulting in the field of Enterprise Messaging and Directory Services for over 10 years. He is recognised as a Microsoft MVP and works for an IT Services consulting firm based in Perth, Western Australia called Avantgarde Technologies. Visit Avantgarde Technologies at http://avantgardetechnologies.com.au.