The good, bad and neutral of 'disruptive' cloud-push

Transition, networking opportunities highlight WPC for many New Zealand attendees

By Simon Eskow, Los Angeles | Friday, 22 July 2011
Microsoft’s push to the cloud has gone from theory to execution, according to some New Zealand attendees at the company’s annual Worldwide Partner Conference in Los Angeles earlier this month.

But there is some question over how that transition will affect the way resellers and distributors make money off Microsoft products, as older, on-premise pricing models become irrelevant, even while the company touts its channel approach.

“We need to identify where we play in an online distribution model and what the value is we provide in that model, and how we are remunerated for the work we perform in that model,” says Stuart Alexander, senior business manager for solutions at Ingram Micro.

“Microsoft is really clear they still want a multi-tier strategy and adamant that it will be a distie-reseller model, as it is today,” Alexander says. “It is a challenge obviously with them collecting the revenue directly. Currently there is no mandatory process for reseller and distributor identification when an end-user purchases online services.”

Microsoft CEO Steve Ballmer told the 15,000 ISVs, VARs, disties and others from around the world that the company earns more than 95 percent of its revenue through its partners. With the push to the cloud “baked into every session” of the four-day annual event, as Ballmer put it, many New Zealand partners recognised the prevailing uncertainty.

“People for a little while have been a little resistant to this cloud thing, because it does present a threat to existing business models,” says Dave Fellows, CTO for software vendor GreenButton. “As soon as they embrace it, and work-out some innovative ways of selling the cloud, the better.”

The Wellington-based GreenButton, which spun-off from Weta and grew in part because of funding from Microsoft, was the Windows Azure Platform ISV Partner of the Year and is one of only two companies, along with Computer Associates, that has a global alliance agreement for Windows Azure.

GreenButton works with other providers, and some resellers, to provide scalable, on-demand computer processing for niche industries. Fellows says part of its resell model is an incremental revenue share that is “compelling” to partners because “it is not going to cannibalise their business, but they can now tap into new markets they were not in before”.

Microsoft itself is developing new SKU models for selling cloud services. Its channel developer programme is now giving distributors and advisors a 7 percent per seat licence sold with a .5 percent annuity; and the flexibility to port on premise SQL, SharePoint and CRM Dynamics licences into the cloud.

“Distributors own the conversation,” says Jesse Grindeland, Microsoft’s worldwide director of cloud alignment and compensation.

His breakout presentation suggested that Microsoft viewed distributors as a fulcrum for bundling cloud services, and also bringing in Windows 7 devices and matchmaking resellers with ISVs and OEMs to tailor solutions for customers as stack VARs might sell into business. “Cool devices make the cloud real,” Grindeland says.

Alexander says Microsoft disties to provide hybrid cloud solutions, quality assurance for ISVs and to provide “advisory skills around all that together”, which might apply to distributors like Ingram Micro and Express Data. It is less clear where those in OEM or pure SPLA distribution fit into the ecosystem.

“In my personal view, I think [Microsoft] believed the cloud market was going to move more quickly than it has, and they had to get there more quickly just to compete with the likes of Google,” Grindeland says. “They have gone about it with aggressiveness against their competitors, and they have gotten there faster than the team that is building the billing engines has.”

Even so, it will take months for new distribution SKUs to reach New Zealand.

The push to the cloud has come as a confirmation for SoftSource, a systems integrator that has added cloud service and hosting provision with the launch of a datacentre under a separate brand known as Entrada.

“We started this vision because Microsoft told us two years ago they were going to move to the cloud and we were going to run with that,” says Pablo Garcia-Curtis, Softsource’s general manager. “Now we are starting to see it is a reality.”

Garcia-Curtis says the company is launching a reseller programme in October but it already has channel partners, and has been in conversations directly with CFOs and CIOs that see the value of going to a hybrid cloud solution. With the investment, and the interest seen in SoftSource solutions, Garcia-Curtis expressed no concern over licensing models.

Zeacom, a provider of “core delivery of multimedia interactions” for contact centres, became the first company to exhibit at the annual WPC, due to the upcoming launch of a new UC offering based on Lync.

“I have limited knowledge of [Microsoft’s partner ecosystem] as we are just starting out now, but it looks good to us,” says Miles Valentine, Zeacom’s CEO. “The first contacts we’ve had into those Microsoft resellers have been in the last 90 days, because we didn’t want to talk too early until we were close to the product. But Microsoft appears to have it right.”

Zeacom has created products with Cisco, Avaya and NEC in 350 contact centres. In partnering with Microsoft, the company has done away with its own UC because Lync was a better product. Zeacom is now porting its contact centre applications across to Lync with a two beta sites in the ANZ region and third on the way.

Zeacom takes a 100 percent market approach, traditionally working in New Zealand through Cogent and Gen-i. Partnering with Microsoft has opened its doors to other resellers they had never talked with before, such as Lexel. The model of selling through these is different from selling through IT resellers, particularly in the US and at home in New Zealand, that bring sales to the company but don’t provide any services, which he hopes will be different working in the Microsoft Channel.

“We are talking to MS resellers and saying, ‘we will sell this to you for 60 grand. How is the revenue model going to look'?” says Valentine. “And they’ll say ‘fine, we will sell it for 60 grand as well, and we’ll put an extra 60 grand of our services on it'.”

Valentine says traditional telephony resellers will sell the same product for $100,000 and charge $20,000 to install it.

“If I am a buyer and I am standing there going, ‘I have got one reseller who tells me the product is 120 to install and another saying it is 60 and 60 to install’, I’m going to go with him because he is better, because he is going to add a lot more value to it,” says Valentine.

He says there is a lot of opportunity for resellers to add value to the product and make money.

While most people interviewed for this story said much else was not new or surprising, they all agreed that attending the conference was integral for face-time with Microsoft executives, partners and potential customers from overseas.

In addition to the cloud, and demonstrations of Windows 8, there were also demonstrations of Xbox integrating with Bing and voice-activated searches.

There was also a demonstration of Bing as a comprehensive platform beyond simple search indexing, and a presentation by Kevin Turner that Microsoft was now competing on multiple fronts with offerings to vie against the likes of Cisco, Google and Salesforce.