Opening the door

Microsoft explains why intellectual property and cloud sales, rather than hardware, are the key for VARs to unlock new accounts and prise open more customer spend

After years of "opening the door" with hardware running on Windows, Microsoft has urged its VARs to recognise that cloud solutions are now the key to unlocking customer spend.

But the software titan has counselled that resellers are "not going to get rich" off rebates and referrals, and that developing their own intellectual property is where the biggest opportunity lies.

According to Microsoft figures, during year one of a 20-seat project deploying a range of Microsoft cloud technologies, typically a reseller could generate £13,583 in revenue through project management, managed services, migration and deployment, Partner of Record fees and consulting services.

The vendor also outlined the rewards and incentives of which partners can avail themselves, including a 12 per cent upfront rebate for the first year of Office 365 and six per cent for every year thereafter.

Resellers who are selling to end users who have an existing Enterprise Agreement in place can cash in on a 12 per cent deployment incentive. There is also a five per cent referral fee for rollouts of Dynamics CRM.

But the traditional revenue streams of licensing fees, deployment costs and vendor kickbacks are no longer the be-all and end-all for resellers, according to Microsoft UK director of partner strategy and programmes Janet Gibbons. The most profitable way to sell cloud will be to develop applications, she added.

"You will not get rich from those adviser fees," she said. "Building your own IP that you can wrap around the cloud deal is a real opportunity. We have placed an enormous bet on the cloud; we think that is where the future is. We are in the software-, platform- and infrastructure-as-a-service market, and 95 per cent of our business is through the channel."

Gibbons (pictured, right) explained that resellers need no longer turn to the "loss leader" of hardware to gain access to new accounts. The high-tech and not-for-profit industries may prove particularly fruitful verticals.

"For many years we have opened the door by selling hardware. It has been a loss leader, but it has opened the door," she explained. "Cloud computing is the next big thing we can go and have a conversation [about]. It is a door-opener and one that brings profit."

Commission impossible
One partner to shift its business cloudwards is Perspicuity. After expanding into selling Microsoft cloud solutions about nine months ago, the Yeovil-based VAR has now separated out its cloud business from its traditional systems integration business.

"We looked at trying to adopt cloud under the same business model. That really does not work. If you want to move into cloud, you have to think about a different business model," explained managing director Ben Gower.

"We got our sales guys in a room and we all agreed that [selling cloud] was a good idea. But the incentives were all wrong. Cloud gives you that drip feed, which is great for a business owner, but not so much for a sales guy who has spent his commission before he has earned it. We ended up recruiting lots of young people into the business. They are selling it much better."

Gower acknowledged that Microsoft's encouragements to get VARs involved in the cloud have proved somewhat divisive among channel partners. He alluded to other partners' concerns about maintaining ownership of their customer relationships.

"I do not buy it; [customers] still talk to us when it doesn't work," added Gower.

The Perspicuity man added that he considered that providing Microsoft solutions, with the vendor taking care of billing, constitutes "de-risking the situation".

"If I were sitting between a service provider [and a customer] or if I had my own hosting arrangement, as soon as a customer stops paying or is late doing so, that wrecks my cashflow," he added.

But Leeds-based SICL is one Microsoft Gold partner not following the vendor's path into the cloud. Managing director Cliff Fox (pictured left) claimed that the software giant is too inflexible when it comes to the channel's role in cloud services provision. He added that the more bespoke provision offered by his firm is a better fit for its SMB client base than Microsoft's cloud packages.

"We have built our own cloud and I am not really interested in going down the route of providing Office 365 with decreasing kickback," he said. "If you do not fit Microsoft's blueprint of transacting Office 365, you can more or less forget it. That is where I think they have missed a trick."