Microsoft Channel Chief: Cloud Business Surging As Conflict Over CSP Subsides

Of the numerous organizational and compensation-related changes that Microsoft unveiled 12 months ago , one in particular was aimed squarely at making conditions better for solution providers.

Microsoft Channel Chief Gavriella Schuster announced at the Inspire partner conference last year that Microsoft salespeople would receive major incentives to promote Cloud Solution Provider (CSP) program subscriptions instead of traditional Enterprise Agreement (EA) licenses.

[Related: Microsoft Channel Chief Schuster On Shifting The Sales Focus To CSP, Bringing In Partners Earlier And Offering 'Richer' Cloud Compensation Than Competitors ]

The move was meant to reduce the conflict between those two ways of procuring Office 365 seats and usage of the Azure cloud platform. In an interview with CRN, Schuster said there are clear signs that it's working. Not only did Azure revenue grow 98 percent year-over-year, but concerns from partners about the issue have largely vanished, she said during an interview this week at Microsoft's headquarters in Redmond, Wash.

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"At the beginning of the year, probably for every two opportunities, you'd have a conflict half the time. Now it's probably one out of 15," Schuster said. "I can tell from my inbox."

As Microsoft shifts to a cloud- and subscription-focused business model, CSP has become the favored way for partners to transact for Office and Azure sales. The program's monthly subscription can be adjusted based on usage from month to month, in contrast to the EA, which involves annual agreements.

"The thing we're trying to help our sellers understand is that it grows month over month. When you get a customer in and they're doing month over month, it grows much faster," said Schuster, corporate vice president for Microsoft's One Commercial Partner organization. "Because if you just try to capture all of that [demand] one year at a time, the customer's never going to believe you on how much it's going to grow. So they're only going to pay you for less."

Schuster said there is still work to be done to get Microsoft salespeople fully on board with the model, and said there will be additional measures in the future to further fix the issue of EA-CSP conflict.

"Last year with Azure we said we're only measuring everyone on consumed revenue. But then there were still pockets in our management process where we tracked billed revenue. What we realized is, we should not track it anywhere. Because any place you track it, suddenly people think that that's important," Schuster said. "And so this year [the change is] we're not even going to talk about it. So we are making a few more of those kinds of adjustments."

Microsoft has also introduced new incentives for solution providers to encourage a focus on consumption rather than upfront sales.

The company learned this year that there can be a downside of this shift when there is a large upfront investment selling expense for a partner -- "at least until they build a stable business around it," Schuster said.

"This year, we are introducing a new customer-add kicker. In that initial year, [partners] are getting more because of the money they put into the sell," she said. "For Azure, let's say the partner gets an 8 percent rebate for consumption. Then, we have this new customer-add where if a customer consumes, say, more than $1,000 in Azure over the first three months, the partner gets $4,000."

The program pays partners as they get the customer up to a certain consumption threshold in the first three months, she said, and the partner then "almost gets back the amount of dollars that the customer paid us because it took that much to get them started."

Overall on Azure, Schuster said that profitability for partners "is much higher with Microsoft compared to competitors [based on] consumption. When you combine the margins that a partner can make, plus the rebates associated with it, compensation is definitely richer."

Reed Wiedower, CTO of Washington, D.C.-based New Signature, said in an email that "it's a great time right now to be a Microsoft partner because of the strong focus on selling solutions together."

"In the past, when Microsoft was selling boxed software, partners were integral to the process – but as Microsoft has embraced the cloud, the perceived value of many partners who were performing legacy/obsolete tasks diminished," Wiedower said.

Customers may speculate that they ought to just buy directly from Microsoft, he noted. But most customers don't have the technical expertise to migrate to the cloud, or the licensing acumen to determine the best combination of products, or the strategic vision to see which parts of the business should digitally transform first, Wiedower said.

High-performing partners such as New Signature are "in a far better position to answer these questions and to wrap services around the implementation to provide the highest value possible," he said.

Microsoft understands that, "and is adjusting their incentive programs to match," Wiedower said. "Instead of promoting partners that just sell licenses and walk away, their new programs are designed to align customer, Microsoft and partner interests. The focus is now on business value, rather than on technical check-boxes."

The Microsoft Inspire 2018 partner conference is taking place July 15-19 in Las Vegas, and a key theme of the conference will be that "we've simplified down to what we really want to do with our partnerships," Schuster said.

"We want to find and build new workloads with customers, and it's about adding new workloads across any of those solution areas. Especially in the cloud, we are getting away from things like, 'Is that a new contract, or a renewable contract, or which solution is it?' We are collapsing all of that. It just doesn’t matter," she said. "If it’s a new workload of a customer, that’s what we want. We are moving everything to kind of focus on that and it will help our partners to know more consistently that it doesn’t matter where the customer was at in that journey. If they have a new workload, that's what we want to do together."