17th May 2022
To explore this question, FPE hosted ten CEOs from some of the most exciting smaller Microsoft Partners (£5-30m revenue) in the UK for a lively roundtable discussion.
We were also joined by Don Grantham, Chairman of FPE portfolio company Codestone (a Microsoft Gold Partner) and former President of Microsoft’s Central and Eastern Europe business, and Paul White, CEO of The Nav People and former General Manager, Business Solutions at Microsoft. Both brought valuable insights from both ends of the telescope.
Microsoft’s position – encouraging a competitive, healthy ecosystem
Microsoft is by any measure the most successful provider of business technology products of all time. In FY21, Microsoft delivered $170bn in revenue (18% YoY growth) and generated $70bn in operating income. Billions of people use Microsoft’s business products - such as Office, Teams, Sharepoint, Dynamics, Business Central, Power Platform, Sentinel, Defender and Azure – every single day.
The financial and operational strength of Microsoft’s partner network has delivered a long history of mutual success.
Microsoft derives the bulk of its revenue from recurring product licenses, and achieves higher margins for itself by encouraging Partners to take responsibility for a large proportion of sales and resulting services. In return, Partners with expertise in sales, consultancy, implementation, migration and/or managed services are able to leverage Microsoft’s best-in-class offerings and create additional value for end customers – and margin for themselves - in the form of solutions.
As a result of owning relationships with Microsoft’s end customers, Partners play a crucial role in Microsoft’s success. Microsoft recognises this, and actively pushes Partners towards adopting what it has identified as a set of priorities that lead to the highest quality outcomes, in areas such as:
- Talent: responsive leadership, diverse workforces, and increased digital skills
- Technology: continuous investment in new, pervasive digital solutions that boost productivity, such as RPA, Data Analytics and Security
- Future Readiness: being able to plan, invest and innovate more effectively to navigate disruption and find new opportunities
- Ecosystem: being able to collaborate with other businesses in the Microsoft network and manage with respect to the external environment
By embracing these “competitive” behaviours, Microsoft argues that Partners will become domestic leaders and improve their chances of succeeding on the global stage.
The Partner’s dilemma – balancing the priorities of Microsoft and end customers
Most Partners agree that adopting these four characteristics nurtures success. Indeed, each CEO that attended our roundtable spoke at length to their investments in people and new technology, and many of the attendees knew each other from previous collaborations.
However, given a Partner’s role as the translator of Microsoft products into end customer solutions, Partners that align closely with Microsoft’s “Technology” and “Future Readiness” agendas can experience friction between the needs of their two most important external stakeholders.
As previously mentioned, Microsoft generates revenue from product licenses. In FY21 alone, Microsoft invested $20bn in R&D in pursuit of new product offerings (e.g. Mesh, Loop and Connect for Teams, Microsoft Defender for Business) and refreshing its existing product portfolio.
Unsurprisingly, Microsoft seeks a return from these vast investments, and regularly updates Partner incentive rates to promote or dissuade the sale of different products.
Microsoft is generally excellent at developing products that fit customer needs. For example, products such as Azure and Teams have been monumental successes in recent years. However, new launches and updates and can also be a source of tension for Partners. As one partner at the roundtable put it, “customers aren’t interested in products, they are interested in solutions that fit their needs”.
Take ERP as an example. Vendors like Microsoft (and others) have assertively pushed their public cloud-deployed ERP products in recent years, largely through economic incentives. However, many customers are not yet ready to migrate due to a perceived lack of functionality when they compare new offerings to their bespoke, legacy on-premise systems. Many solution providers have realised this, and in order to do what they see as the “right” thing by their customer, they regularly choose to decouple from Microsoft’s technology agenda by pursuing a hybrid approach to applications rather than exclusively push cloud products that, although more lucrative, would likely lead to higher rates of customer dissatisfaction.
Additionally, some Partners view their prioritisation of customer needs over total alignment with Microsoft as a way of standing out in a crowded field (there are over 64,000 Microsoft Partners globally) and a method of differentiating themselves from Microsoft when things go wrong.
Microsoft, albeit frustrating at times, is the most successful business technology provider globally. It has provided the “raw materials” in the form of industry leading products and a sophisticated channel strategy to support the formation and growth of tens of thousands of successful Partner businesses. Partners, in turn, have repaid Microsoft with growth, innovation, and a largely satisfied customer base.
Microsoft, in its pursuit of growth, will always be the largest influence on Partner behaviour, and every Partner must engage with Microsoft’s organisation and strategy. But for Partners it becomes a question of positioning; some Partners decide to align themselves very closely with Microsoft’s objectives, and others, although respectful and courteous, steer in their own direction. From a business strategy perspective there is no right or wrong approach, but each comes with its own implications.
Over the course of our roundtable, the CEOs in attendance were in total agreement that the channel “gets what it deserves” from Microsoft, meaning that more engagement is always needed to influence Microsoft by providing views from the coal face, and that engagement should always be led by the most senior individuals at Partner organisations.
FPE would like to thank everyone who joined and participated in the session, in particular Don Grantham and Paul White who led a fascinating debate.
If you are leading a Microsoft Partner and would like to join us for the next instalment of our Unlocking Growth series focused on the technology services industry, then please reach out to Ben Cole (email@example.com)