Solution providers have a massive opportunity for migrating Windows Server and SQL Server instances to the Azure cloud, helping to make Azure a smarter bet for partners than Amazon Web Services, Microsoft Channel Chief Gavriella Schuster told CRN in an interview.
As support ends for SQL Server 2008 in July—followed by Windows Server 2008 in January 2020—there are tens of millions of SQL and Windows Server instances available to be migrated to Azure, said Schuster, who is corporate vice president for Microsoft's One Commercial Partner organization.
“That is, bar none I think, the biggest opportunity for our partners,” Schuster said. “We talk to [partners] about that, and we talk to them about how it is five times more expensive for a customer to choose to migrate those servers to AWS versus Azure. And how Azure really is the most cost-effective opportunity for a customer to maximize their move to the cloud.”
What follows is an edited portion of the conversation with Schuster, which included discussion of how Azure incentives compare to AWS incentives for partners, what partners should know about the new Microsoft Customer Agreement and how the Redmond, Wash.-based company is expanding its “sell with” initiative with partners.
What's your key pitch to partners for why they should focus on Azure over AWS?
There are a couple different things that we talk about with partners as they think about where they should place their bets and make their investments. One of them is, what is the biggest opportunity in the market? The biggest opportunity in the market right now is Windows Server and SQL Server migrations. We have more than 53 million instances on-premise of the servers. That is, bar none I think, the biggest opportunity for our partners. We talk to them about that, and we talk to them about how it is five times more expensive for a customer to choose to migrate those servers to AWS versus Azure. And how Azure really is the most cost-effective opportunity for a customer to maximize their move to the cloud. Not only does it help the customer with the short-term move and extended support on those servers and the workloads on those servers, but it gives the partner the upside to actually do the full platform modernization. Which, for partners is really where the money is. Because that's about helping them think across their whole application portfolio.
How do Microsoft’s incentives for Azure compare to AWS incentives?
We have a very rich incentive and margin program around Azure from a numbers standpoint. One is that if the customer is on an EA [Enterprise Agreement] we have something called a partner administration on behalf of the customer [incentive]. When a partner administers a customer's Azure subscription on their behalf, we pay a pre-sales fee as well as an ongoing managed services fee and an Azure consumption growth fee. We pay them incentives along the way. If the customer chooses the partner's solution entirely through CSP, they get a margin for that service and the sale, plus the opportunity to embed their own services in it. And that margin is generally much higher than resale margin. Then they also do managed services on the backend. They get ongoing incentives on the Azure consumption and the growth of that consumption. I think generally we are between 50 and 80 percent higher [than AWS] in terms of the actual incentive opportunity that a partner can have.
How does Microsoft's “sell with” initiative differ from co-selling?
They are slightly different. Co-selling is the way we refer to when a partner and a Microsoft seller actively are engaging a customer together. And we are rewarding our sellers for that active engagement. Whereas “sell with” takes on many forms with us and our partner ecosystem–many of the customer opportunities are partner-led. Whereas various other people within my organization and the partner organization are involved with the partner and the customer, but not necessarily our sellers. Or where we're engaging other partners to sell together, and complement each other, or sell through the marketplace. Or we're doing go-to-market activities. All of which are part of “selling with” a partner, but not necessarily co-selling.
What can you say about the progress in your “sell with” efforts so far?
We have made additional investments in our go-to-market activities with our partners. We've been pouring literally millions of dollars into our [Azure/AppSource] marketplace to deliver a much more robust marketplace experience. In terms of how many leads a month that we're driving through the marketplace, it is a very big number. That's driving business to our partners. We've also made this investment in what we call our Global Demand Center. Our Global Demand Center is a marketing automation function that really capitalizes on organic traffic–customers who come to Microsoft.com, and how we funnel them back through as opportunities to our partners. We nurture their deals, we turn them into sales-qualified leads, and then we send them back out to our partners. The number of referrals has reached over 100,000 a month now, in terms of those leads that we funnel back out to our partners that've been nurtured through our marketing engines. The combination of those is generating quite a bit of business for our partners. What we look to them to do is to come back to us, and send us an inbound lead if they need our support in closing a deal with a customer. And then at that point that would trigger a co-sell motion.
And then our sellers, when they're talking with customers, they can send an outbound lead to a partner that can just be an outbound lead–a sales-qualified outbound lead–[and say], “Hey, this is something you're good at and the customer wants to talk to you.” Or they could send it as a co-sell–“Here's a meeting, and I'd like to get together with you and the customer and talk about this.” [Those are] a number of investments we've done to drive “sell with” with our partners. At this point, our partners are probably leading about 35 percent of all of our opportunities–they're partner-led, they just close from partners doing them on their own. It was much lower than that [prior to the recent investments].
We also didn't have the same instrumentation that we've put in place now that we're paying our sellers differently. It was more in the 20-percent range. But it was hard to judge. Because what we've done now–and we're going to get even better with some of this instrumentation–but we have now a mechanism where we see the leads that we're sending to the partners, and we can match that through an ID that we've tagged out to them on what's closed. So we know the business that's closed. And then we check our own CRM system to see if a seller was ever engaged. And so it gives us a much better view of what is a co-sell versus what is partner-led.
What does the future look like for “sell with”?
It's an area that we're going to continue to invest in. We've learned a lot about what are the go-to-market activities that we provide that help our partners. What we've seen and learned is that many of our partners still don't have great marketing automation themselves. And so we're going to offer some services that help our partners with their own marketing automation, and how they nurture their leads from marketing-qualified to sales-qualified–so they can do better search engine optimization, so they can take advantage of the organic traffic they might get, and so they can do more even in further nurturing the leads we might send them. Because it may be that, even though we say it's a sales-qualified lead, it's not really ready for one of their sellers to pick up the phone and call yet. And what they need to do is maybe nurture it a little bit more with their own solution. And so we're just investing in vendor services that we [could] procure for them, to give them a leg-up.
What progress have you been seeing over the last few quarters in re-orienting partners and Microsoft salespeople toward consumption?
I think we've seen a lot more momentum around that this fiscal year [which began last July]. Last fiscal year was the learning year, where they were like, “What does this really mean?” They re-oriented all their own Excel spreadsheets and brains around, “How do I calculate what consumption means–because build revenue is so much easier to understand.” We've been able to provide them with a lot of the analytics that help them understand when you start small with a customer, how do you nurture and grow that, how many additional project workloads does a customer need to start after they've initiated their first Azure workload. On average, we want to see a customer get up to 10 different projects going at the same time, and that's when you see the highest value delivered to a customer from their Azure commitment.
We've narrowed down to what are the most accelerated kinds of Azure services that you can deliver to a customer, and what are some of the longer-term [services]. You want to have a good portfolio mix with your customer of the short term and the long term. A short-term example might be, it's really great to work with a partner like a Rubrik or a Cloudera, or someone who can do a migration assessment and a backup and recovery solution. So that they can easily get a dev test environment right into Azure, or they can do some backup and recovery right into Azure. That's going to get you to your first workload for a customer. They're going to start to play around with it, they're going to see the potential. Then what you want to do is move in with some higher-value workloads.
Some of the longer-term things, [which are] really valuable to a customer, is more like an SAP migration, or an application platform modernization plan. We've been getting a lot clearer with our sellers and our partners on what do those roadmaps look like, and how do you start having those dialogues with your customer. That has enabled them to then start to be more predictive about the customer's consumption. Because you know, sellers–whether they're partner sellers or our own sellers–they like to know where's the revenue going to come from and how am I going to meet my quota.
What should partners know about the Microsoft Customer Agreement?
We've been talking about this move to our modern commerce platform for about four years with our partners. Reserved Instances on Azure was the very first thing that hit our modern commerce platform. The marketplace is now on the modern commerce platform, and CSP will move on to the modern commerce platform in the summer/fall time frame. But the [Microsoft Customer Agreement] itself is the first foray of moving the EA construct on to the modern commerce platform. It enables us to do a number of different things that we weren't able to do in the EA construct.
If I take a step back just to give this bigger-picture view of what the landscape looked like before, every licensing platform that Microsoft built was kind of built independently. Every single one of them has this user interface into the product stack that's different. What it caused for our engineers—like our Azure engineers—was that when they released a new feature, they had to go into every licensing platform and instrument that feature into the console that a customer or partner used to manage their subscription. It's a lot of overhead for our engineering teams, and it's also a lot of overhead for a partner that may have a customer that expands [to] multiple ways of buying. Because they have to know where it is in every single one of those consoles. The modern commerce [platform] is our way of pushing all that back to one single console so that our engineering team only does it once, and anybody looking at it or managing it—whether it's a customer themselves or the partner—can see and manage one [way], regardless of the multiple ways they might buy. Our customers have always bought multiple ways, they always spanned all five or six different ways we have of selling. Our goal is simplifying that whole process and really getting our customers to a place where they're making a choice not on what features might be available or what console is easiest to use—or what terms and conditions are the best ones—but more about what does it mean to your own internal procurement and the relationship that you might be having with other suppliers, i.e. our partners, in delivering that service.
Today, our EA in most countries is called a direct-bill EA, which means that Microsoft manages the invoicing and the contracting directly to the customer. And then we have a services agreement with a partner who services that EA. In a modern commerce [framework], we don't need that services agreement, because what we've done with modern commerce is taken all of the icky contracting stuff that was done very manually out of the process. We've entered the new automation era with modern commerce. So we continue to do direct bill, like we did on the EA, but we also continue to have the pre-sales support incentive to partners that help us sell and a post-sales managed services element of paying the partners for engaging with those customers just like we did in the EA. From a payment and engagement standpoint, very little changes for the partner. But from an administration standpoint, a lot changes, because the administration just goes away.
This doesn't have anything to do with Microsoft removing anything that partners do that's making them money? It's not competing with partners in any way?
No. What it does is actually eliminate the stuff that nobody wanted to do. All of the paperwork, all of the manual follow-ups, the signature signing—it actually moves us to electronic signatures, it actually moves us to electronic quotes. It just takes a lot of that other icky stuff out that didn't add value to anybody.
Do you expect that many expiring EAs will convert to CSP because of the Microsoft Customer Agreement?
It may have that result. It's a little hard for me to look at a crystal ball and predict, but here's what I can tell you. Because it'll all be on the same platform—especially as soon as CSP actually moves to the modern platform in the summer/fall—it's all the same console. If a customer signed up originally on a modern commerce agreement, and then they learn that there's a partner that's actually delivering a whole bunch of services they would rather have as part of this contract, they can easily move that subscription into CSP. Whereas today, because those are on completely different platforms, that was a very difficult thing to do. And likewise, a lot of customers, in the very beginning when they start with [small] purchases, will go to web direct. [For example], one person at a dev shop might sign up to get an Azure subscription and put in on a corporate credit card. When that wasn't all on the same platform, and they said, “I want to now make this the standard for our whole developer team, and I want to start doing invoicing”—they actually had to open a new thing. Because that was a different platform. On modern commerce, all they have to do is say, “Now I want to grow up into a CSP agreement or an EA or an MCA,” and it's a simple flip of a switch from credit card to invoice. This makes it a lot easier for a customer in their purchasing decision to make those transitions without over-complexity. Whereas before, it was hard.
We are hoping this makes it easier to do business with Microsoft, both for our partners and our customers. And we may find that because those partners' services are so compelling, that more customers choose to go with the partners' services and have the partner just administer the whole subscription. And so we may find more going to CSP.