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Microsoft Exec: Cloud-Focused Solution Providers Outperforming Their Peers

Patrick Schlight, Microsoft's director of channel development, tells partners at XChange that cloud spend is growing five times faster than other IT products.

A Microsoft channel executive in his keynote at XChange Solution Provider Monday told a room largely filled with Microsoft partners that as they embrace the cloud, they should start transforming their businesses to offer clients more managed services.

Patrick Schlight, senior director of channel development, talked about how Microsoft's evolving emphasis on cloud-first, mobile-first solutions is creating opportunities for the channel that are far more lucrative than the traditional reseller business model of old.

"Microsoft at our heart is a partner company. Our success is based upon your success," Schlight told the audience in Dallas. "Microsoft would be nothing without the people in this room and the other partners that we have."

[Related: Dell VP: We're Accelerating Channel Investments, Acquisitions As Private Company]

Schlight discussed the many changes of late at the world's largest software company, including new CEO Satya Nadella.

"You've probably felt some new things from Microsoft that you haven't felt before," he said, giving the example of using Office on Apple iOS and Android phones.

"It's not just about keeping that ecosystem closed for us," Schlight told the audience.

Microsoft's cloud platform is a central pillar of the company's mission to make digital experiences more productive, he said.

It shouldn't be a surprise that cloud-focused solution providers are outperforming their peers -- worldwide public IT cloud services are projected to show revenue of $127 billion in 2018. Cloud spend is growing five times faster than that of other IT products, Schlight said.

Channel companies with more than half of their business coming from the cloud, according to a recent study Microsoft participated in, are seeing 50 percent more profit than their peers and 60 percent more recurring revenue. They're also adding customers 30 percent faster.

The combination of signing more customers, retaining more customers through a subscription model, and making more money off each customer should convince all solution providers they need to embrace the cloud model.

Customer loyalty, satisfaction and retention all also are higher for partners selling cloud services.

Some of Microsoft's 100,000 U.S. partners are still making healthy profits with the old model of reselling traditional IT solutions or offering one-time project services, but "there's a short lifespan for doing things the way things have always been done," Schlight told the audience.

The cloud is enabling VARs, systems integrators, managed services providers, and companies like ISVs that introduce their own intellectual property to blend their business models.

"The cloud enables you to leverage each of these particular models," Schlight said.

Schlight also discussed the importance of a hybrid model. Microsoft is committed to a blend of public and private solutions with technology "deeply entrenched in data centers," he said.

An advantage of that approach is the compatibility between the environments that allows data and applications to seamlessly flow back and forth, he said.

"This is one of the things that Microsoft is using for ourselves as a differentiator in the cloud and it's one of those things you should be using as well," Schlight told the company's partners.

Pete Zarras, CEO of Morristown, N.J.-based solution provider CloudStrategies, was listening closely, as he has done at other Microsoft presentations over the last year.

"I've been noting and looking for and paying attention to how Microsoft has been evolving that same message we heard today," Zarras told CRN, adding he "first started figuring out the magnitude of that message last spring" when he heard Phil Sorgen, Microsoft's vice president of its worldwide partners group.

Zarras believes Microsoft is telegraphing to partners how they need to evolve in the mobile-first, cloud-first world.

The message he hears: "You'd better be on that path to going beyond project services to a combination of managed and IP services to remain relevant in the future."

In that spirit, even though his company is busy offering the more traditional project services, Zarras said he and his team at CloudStrategies are "incredibly anxious" to be offering their clients more managed and IP services. That will be their top objective this year, he said.

PUBLISHED MARCH 2, 2015

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