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

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.”