In recent weeks I’ve heard from some key visionaries who work in the managed services market. The topic of Microsoft Office 365 keeps popping up during the discussions. I can’t sugar coat what I’ve heard. Despite Microsoft’s best efforts to promote a channel-friendly cloud strategy, the forthcoming Office 365 launch has quite a few MSPs concerned about the end game in the SMB software market. But I wonder: Should Office 365 really trigger so much fear, uncertainty and doubt in the IT channel? Here are some thoughts.
Let’s start with the back-story. When Microsoft announced Office 365 — the successor to Business Productivity Online Suite — in October 2010, I viewed it as a potential game changer. It seemed like Microsoft was finally aligning its cloud brands with its two strongest PC brands — Windows and Office. Smart move.
Microsoft also seemed to be countering Google Apps on price. When Office 365 launches sometime in 2011, Microsoft will introduce super-aggressive pricing. Microsoft says:
“With Office 365 for small businesses, professionals and small companies with fewer than 25 employees can be up and running with Office Web Apps, Exchange Online, SharePoint Online, Lync Online and an external website in just 15 minutes, for $6 or 5.25 euros per user, per month1.”
Let’s boil down that last paragraph to a single sentence: A business user can be up-and-running on every major Microsoft application within 15 minutes for just US$6 per month.
Channel Partners vs. Investors
As some customers shift their PC applications to the web, some Microsoft partners feel betrayed. My reaction: Microsoft didn’t really have a choice in the matter. Microsoft’s primary fiduciary responsibility is to Microsoft shareholders. And in order to meet shareholder requirements Microsoft must compete aggressively vs. Google, Salesforce.com, Rackspace and plenty of other cloud-centric customers. That means pricing aggressively in the cloud.
Some of the old SMB IT sales models… and some channel partners… could get trampled along the way. As one MSP industry leader told me this week, entire markets are collapsing and folding as Microsoft and other companies shift desktop resources into the cloud. Old bread-and-butter revenue opportunities (remote office access, VPN security, firewalls, print servers, etc.) are disappearing, the executive said.
Another executive noted that new opportunities — such as managed print services — are sometimes more trouble than they’re worth because the vendor partner programs are inflexible. A third executive said the following: Hold onto everything in the small business office — the phones, the printers, the mobile devices — and never let go. Control the endpoints and you’ll maintain SMB control, even in the age of the cloud.
Like I said: Some of my most recent industry calls have been pretty dramatic.
Next Moves
I tend to be a glass-half-full type of guy. I think Microsoft has made some mistakes with its SaaS strategy but I also sense that Microsoft is listening closely to constructive criticism.
To Microsoft’s credit, the company has been out in the market aggressively promoting its new Microsoft Partner Network channel program to solutions providers. Channel Chief Jon Roskill, for instance, held a Q&A with partners this week. During the gathering he said that for every $1 of Microsoft revenue, partners earn $8.70.
But back to the topic at hand: Cloud. Microsoft’s cloud policies have been pretty rigid so far but I have a sneaky suspicion Microsoft will eventually show some more flexibility, especially when it comes to SaaS and cloud billing policies for VARs and MSPs.
Right now, Microsoft bills end-customers directly for SaaS and cloud services. Numerous VARs and MSPs, however, want to manage that billing process. In a move worth noting, Microsoft is quietly working with Parallels to help really, really big service providers handle billing for certain SaaS and cloud offerings. If the Microsoft-Parallels experiment goes well, I have a hunch that Microsoft may extend the billing capabilities to midsize and then smaller channel partners. Please note: That’s just a hunch. Officially, Microsoft has not changed its billing policy so far.
Either way, Office 365 is coming sometime in 2011. But even before it arrives, Microsoft’s pricing and delivery plan for the SaaS platform is turning lots of heads in the SMB channel. Some folks aren’t pleased. I’m trying to keep an open mind.
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Posted In: Finance | Partner Program | Sales | Software as a Service and Hardware as a Service
Tags: Business Productivity Online Suite | Exchange Online | Microsoft BPOS | Office 365 | SharePoint Online
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Interestingly the latest Microsoft Online Service partner survey has just been released and there are quite a few leading questions about the billing process and ownership of customer relationships.
We all know they’ve heard the feedback – perhaps this is another sign they’re listening. Fingers crossed.
Lee
When hosted exchange services were released around 6 years ago, I was very sceptical, the fact that this could replace an in house server, for which we billed a monthly amount to support was pretty hard to get my head round and see where we could make a profit. After all what we where gaining by selling hosted exchange on one hand, we were losing on the other.
Now, I think services such as Office 365 are a great idea, and it is clear that most small businesses will benefit the from a mix of both cloud and on premise services, and as long as they have end users that rely on these on premise and hosted services to work we will still be in a job and be profitable.
We have really embraced these services, after all a hosted system is much easier for us to manage and support.
If you have truly positioned your business as an outsourced IT department, working on behalf of your customers, then you have nothing to fear, evaluating, implementing and supporting new technologies that benefit our customers is what its all about.
Lee@1: I hadn’t seen the latest Microsoft Online Service partner survey. I’d be interested to hear more.
Lee@2: Thanks for your additional thoughts on being a successful outsourced IT department. I do believe SMBs will continue to require a virtual CIO who aligns IT with business objectives…
-jp
JP, another example of excellent journalism my friend. It is really important for MSPs to realize that we all have to be prepared for when the QB calls the audible. Microsoft is calling an audible and we have to be ready.
Businesses are still going to require consulting services and management. You will love it when you realize this model of getting paid more for your expertise without having to worry about doing physical labour. Margins are higher, revenues actually climb and profits are higher. What is not to love about not having to support some SBS server in a closet somewhere.
Sure, some of us just love the techy piece…but to steal a line from Canada’s Kevin O’Leary on Shark Tank. I love the money and Microsoft is showing partners that you can continue to play an important role without the headaches of support their stuff.
Get up to the line of scrimmage and listen for the audible…it is being called.
Cheers
Stuart Crawford
ULISTIC Inc.
http://www.ulistic.com
While I mocked this word for the “buzzword bingo” sound of it, it competely applies here. The word is “disintermediation”. (Fancy word for cutting out the middle man.) I think the real fear with Office 365 is eventual disintermediation–the fear that MSFT will eventually cut out the middle man and work directly with the customer in all areas. It starts here with some SMB stuff that the MSP, admittedly, will be happy to see MSFT take. But, where does it stop?
While I completely agree that the purpose of any company is to return value to the shareholders and Office 365 is working towards that end, I think it will be interesting to see how the Law of Unintended Consequences comes into play as MSP-centric partners begin to look to serve their own shareholders by looking for opportunities outside the MSFT community to get a head start on the coming disintermediation.
MSFT is doing the right thing to serve their larger business interests, but what happens when the business interests of the MSP and their “valued partner” diverge?
Stu@4: Thanks for the note. I know I owe you a call. Back in the office tonight and will do so. I’m not so sure the piece is excellent journalism but I hope readers focus on three key points:
1. Office 365 is disruptive. Anyone who thinks its just Office desktop in the cloud is missing the bigger picture. It’s EVERYTHING Microsoft in the cloud, set up in 15 minutes (allegedly).
2. Microsoft is listening to feedback but I sense there’s a disconnect in the organization. I think the channel folks DO want to allow VARs/MSPs to manage their own billing. But Microsoft corporate IT has yet to hear the message clearly. That’s just my hunch.
3. The Microsoft-Parallels relationship is CRITICALLY important for VARs and MSPs to watch. The relationship is very quiet right now. And it will mainly serve big service providers that want to do billing on their own. But stay tuned…
David@5: I think you’re exactly right… MSP-centric partners DO have to look for opportunities outside of the MSFT community. But MSPs should have been doing that all along. And of course there are still opportunities within the MSFT solution family. I think Lync (the Office Communications Server successor) is one of them.
-jp
@Stuart – Agree 100%. Although, Microsoft is the Peyton Manning of the IT industry and they are great at disguising their package! Personally, I would be shocked if Microsoft was to pull the plug on the channel. Reason being, so many VARs and MSPs own the true relationship with so many SMB’s, it could easily backfire on Microsoft as now there are suitable alternatives for every one of their products.
@David – I agree there is potential for “Disintermediation”, but I will tell you this. I have never used a Microsoft product that worked exactly as advertised (apply that to all of IT for that matter). There will always be a role for an Integrator, there will always be a role for consultants….good ones at least.
I think Microsoft’s new push for their recent cloud services has actually benefited a good percentage of resellers as the end user is becoming more informed on what exactly the cloud is. To many have these negative appeal on what exactly the cloud is and how safe it is.
Unfortunately, on the flip side, it is opening the door for these companies to go direct and work hand in hand with Microsoft. These fears came true to someone close to me as Microsoft took over one of their clients services and actually compensated the company for allowing them to step in and host their exchange. To say the least, he lost out on a serious amount of revenue.
They primarily took over this company as a reference in their marketing strategies. Which brings up the topic of the marketing, Microsoft’s doing an amazing job of marketing this product, but it seems as though they didn’t spend as much time or effort on the product itself. I have only be relayed nightmare stories and the extreme amount of downtime their customers have faced. Not to mention, the wonderful support that proceeds it.
As someone said earlier, there is no need to fear this transition, you just have to keep up with the Jones and present your offering as the only offering that will work for them.
This only reinforces my belief that in the rapidly evolving world of IT, made even more unstable by the maturation of cloud services, it can be fatal to tie your fortunes to a particular piece of technology and/or a vendor. Microsoft will do what Microsoft must do–partners be damned. And that is their right as they fight for market share, or at least try to head off competitors at the pass. Now, more than ever, you have to be flexible enough to be able to recommend other possibilities. Your allegiance is to your clients–that’s who pays you, not a vendor who rightfully has their own agenda. So find a solution for your client’s business problem, whether it is Microsoft or Google or whatever emerges as a viable solution tomorrow, and you will survive, if not thrive.
Good article and wonderful discussion too. As Joe pointed out in his article, Microsoft has no option but to pursue if not lead the transition to these services in the cloud. They must compete with Google, IBM, Salesforce.com, Oracle, SAP, Amazon etc. Traditional competitors as well as new entrants.
The opportunity for MSPs and VARs in mostly in the professional services that surround these and other cloud services. Even if Microsoft or one of the other providers performs the billing and “owns” the customer, they can never be specific or tailored in what they provide to a particular customer. Their offerings will always be generic and will need configuration, migration, integration, customisation and management services in order to deliver what a particular customer needs.
Especially in the SME segment, customers will always prefer to buy from a local and trusted advisor. If that means that Microsoft bills and you are the “Partner of Record” then so be it. As the foundation cloud services tend towards commodity, the differentiation will be the human being that the customer gets to talk to and with whom they dicuss their problems. The Human being that helps to guide them through unknown territory and who they trust with their precious IT and communications.
Microsoft and the other technology providers could help partners to succeed in the new world with partner friendly business models and programs. However, it comes down to the partners themselves to carve a successful niche within which to live and grow. This has always been the case and will continue into the future.
As many of these comments suggest, MS Office 365 is just another technology to manage for your customers with lots of new revenue opportunities to replace traditional sources. While it is nice to have Microsoft not deal directly with your customer, the real challenge is to stay relevant to your customer with the emergence of the hybrid cloud environment.
For most MSPs this means monitoring and managing the environment, identifying points of failure, remediating and charging customers for the value this brings. We all know these applications do and will continue to fail based on a large number of factors – end user device configuration, network issues, data integration, cloud application, hosting facility, etc. MSPs need to be able to monitor and manage all of this to provide this indispensable core value to the customer, to Microsoft (or other cloud provider) and to themselves.
Over the last 2 years Level Platforms has introduced monitoring for Hosted Exchange, SharePoint (with BPOS, Intermedia, GroupSpark, …), NetSuite and others. With these apps on the dashboard right along with local networks and devices these MSPs monitor, alert, report on SLA performance, etc. and with this information quickly solve problems to improve the end user IT experience with these applications.
The real money is in the recurring service – ensuring IT works. That’s the job description of the MSP.
I find it interesting that all the pricing talk about cloud-based services is based around what good value it is. And indeed it is. However the question I would really love Microsoft to answer is – “Well, if you can make money for your shareholders by hosting and providing Office 365 for $6 per month, how come you can’t provide client-hosted Office 2010 for $6 a month as well? After all, given its the MSP and the client that are providing the support services and the hardware platform, there’s actually a good argument to say the price should in fact be lower.
All priced based conversations about how great the cloud is miss the point that Microsoft is only meeting the far-lower market price with its cloud offerings because it has to. If it also met that same price with its on-premise offering – conventional Office licensing – then one of the main reasons for moving to the cloud (“it’s cheaper”) would be removed.
Clients could then make decisions based on what suits their business requirements best – Office, Exchange and SharePoint on-premise or off – without the cost of the different options being a factor, as they’d both be the same.
Without a doubt could messaging & collaboration is the largest cloud market to take advantage of and MSPs need to deliver services to the SMBs before they go elsewhere.
The question becomes which product to align yourself with.
I think MSPs who are wondering about aligning with MSFT will find this comparison helpful (Full disclosure I’m with HyperOffice)
See how MSFT stacks up from a resellers perspecttive against
Google Apps
(and of course HyperOffice) as you correctly point out who owns the billing relationship is a top consideration. Check out a complete comparison we just put up here.
http://partners.hyperoffice.com/comparison-matrix.php
Hi folks,
Thanks for all the article feedback. I got some follow-up from both Parallels and Microsoft. We’ll have a series of cloud-related pieces debuting Dec. 7…
-jp