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By | Tim Anderson 10th December 2010 12:55

Microsoft dives into cloud as resellers ask: 'What's in it for me?'

Well, we're not Google, for a start

Analysis “We're rebooting, re-pivoting, re-transitioning the whole company around betting big on cloud services,” said Microsoft CFO Kevin Turner at the company’s 2010 Worldwide Partner Conference earlier this year.

Turner was talking about hosted services – based mainly on Exchange and SharePoint – along with the Azure application and storage platform. Customers for Microsoft’s BPOS (Business Productivity Online Suite) include Royal Mail, American Express, and the State of California.

A free academic version called Live@Edu is used by over 10,000 institutions worldwide. Next year, both BPOS and Live@edu will be replaced by a new suite called Office 365, currently in beta and set for release in 2011. Office 365 is based on the 2010 versions of Exchange, SharePoint and Lync (formerly Office Communications Server).

Microsoft’s cloud conversion is real, though it is not a pure cloud play. Office 365 includes licences for the Microsoft Office desktop software as well as hosted services. Even so, the impact on Microsoft’s partners will be considerable – and some are worried.

“I am concerned,” says Steve Rudd, head of business development at ITRM, a Microsoft Gold Partner with offices in Sidcup and London.

“I think it could have a big impact on a lot of Microsoft resellers. Support and maintenance would in theory be taken away.

"For larger environments, customers would generally have some sort of domain controller on site, so there would be an element of support, but for the smaller environments a lot of that is likely to be swallowed up by Microsoft.

“There is support that can be tagged onto the back of BPOS, there are additional service offerings, but they are very small compared to the profitability of installing a new server and maintaining the client environment,” said Rudd.

“We’ve sold BPOS to a few customers. Rather than looking to make money we’ll put the right solution in place, so there are customers where we implemented BPOS and it works well for them, but it isn’t as beneficial to us as a business.”

Microsoft does offer partners a commission from its online subscriptions, currently 12 per cent in the first year and 6 per cent thereafter, but Rudd does not expect it to make up for lost business, particularly after Microsoft cut BPOS prices in November 2009. “It doesn’t come anywhere near. Customers pay around £3.65 for an Exchange user; any commission from £3.65 isn’t going to be a huge amount of money.”

Matthew Knibbs, sales manager at ADM Computing, a Gold Partner in Canterbury, says that selling Microsoft’s cloud services is not worth it – for ADM or their customers. “It is slim pickings for us, and there’s never going to be a repeat sale. We’ve got a few clients that have hosted Exchange, but with our own hosted system. It’s probably quite profitable from Microsoft’s angle, but most smaller businesses around the 10-25 user mark are quite happy with Small Business Server, so they are not heavily reliant on the internet connection to run their business."

In response, Microsoft’s Director of Strategy and Programmes, Clare Barclay, says the commission fees are only the start. “That is not really where the partners will make the majority of their money," she says.

"They’ll be looking at migration and integration services, business consultancy, and ongoing managed services. The partners I’ve spoken to are not seeing a reduction in their existing services business from those customers. They are building long-term future and longevity into their customer relationships.”

What about the lack of repeat business? “I’ve heard that from partners as well,” says Barclay. “Those tend to be the partners that are afraid of what the new business models look like for them. The job that we need to do is help show them where they’re going to make their money in the future. The ones that are doing it well are not seeing a reduction in their ongoing services business.”

What does Google's roadmap look like?

Barclay observes that “most customers will be looking for a hybrid,” with a mix of cloud and on-premise IT. Partners are able to make money from integrating the two.

Peter King, Office Server Group Manager at Microsoft, says that online services keep customers up-to-date with the latest versions of products such as SharePoint and Office, giving partners new features on which to build. “Migration may be a one-off, but [cloud] keeps the customer much more current with our technology, which is richer than its previous iteration, and therefore gives the partner new ways to go back and deliver value-added services.”

According to King, Office 365 is more than just BPOS rebranded. “With Office 365 we’ve driven much more towards parity between what you can do on premise and what you can do in the cloud. BPOS is probably 50-60 per cent parity, whereas with Office 365 it’s in the very high 90s. We’re giving customers the opportunity to choose the cloud without a trade-off.”

King adds: “The biggest change is infrastructural. We’ve added the full concept of federation for active directory, so now you can have single-sign on and extend that to an extranet. It’s radically different compared to BPOS, and from a partner perspective offers an incredibly broad set of options for them to deliver solutions.”

Tim Wallis is co-founder of London-based Content and Code, a large Microsoft partner with customers including easyJet, Virgin Atlantic, Comet, and the BBC. Although 85 per cent of its business is still on-premise, Wallis's company began as an application service provider and he is a cloud believer. “It’s a much better, more flexible model for businesses,” he says. "Partners can succeed by exploiting the new model, and treating cost savings from hosted services as a new budget.

“We’re seeing an upside as customers see the price and say right, now I’ve got some budget for training. If your value proposition is to set up and configure the servers and the anti-virus, you won’t see as much of that in the future. The balance of services is changing from setup and configuration to more business-value services, value creation services,” he says.

Wallis is an Office 365 enthusiast. “Office 365 is radically new. BPOS was Microsoft’s 2007 server products moved to the cloud. Office 365 was designed for the cloud and the range of functionality is far richer.”

As you would expect from a Microsoft partner, Wallis makes the case for Microsoft over Google. “At the moment, with the BPOS suite, BPOS has got a lot more enterprise functionality, but Google is very simple to use and very quick to set up. But when you compare it to the Office 365 roadmap, Microsoft wins hands down. The thing with Google is, you don’t know their roadmap, because they never announce it, whereas Microsoft has a published roadmap.”

Whether Microsoft’s move into hosted services is good or bad for partners is open to debate, but it is inevitable. “Everyone else is doing it,” says Wallis. “If you don’t make the move, Microsoft will just be a dinosaur left with only on-premise software and wouldn’t be able to compete effectively, and the business would be eroded.

"Clients would go Google or elsewhere because they’d want the cloud model anyway. Microsoft can’t not do it. Microsoft isn’t doing it to hurt partners, it’s doing it to evolve. Technology constantly evolves and anyone who works in IT must expect that. Change is what always happens.” ®

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