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Microsoft Cloud Partner Revenues, Profits: Reality Check

Microsoft Channel Chief Gavriella Schuster
Gavriella Schuster

Microsoft is making a strong case for its Cloud Solutions Provider (CSP) partner program at Worldwide Partner Conference 2016 (WPC16). Indeed, new Global Channel Chief Gavriella Schuster points to a range of data points that show CSP revenue and profit momentum. But what exactly does all the research really mean? Here a reality check.

During WPC16, Schuster mentioned an IDC study that revealed...

1. Cloud Partner Revenues, Gross Profits

Microsoft, pointing to IDC, says: Cloud partners with more than 50 percent of their revenue in the cloud are growing twice as fast, realizing 1.5 times more gross profit and experiencing 1.8 times more recurring revenue than partners with less than 50 percent of their revenue in the cloud.

ChannelE2E Reality Check: The IDC figures certainly are impressive. But since traditional IT software essentially is a flat or a slow-growth industry, it's no surprise that cloud-oriented partners are growing far more quickly -- and generating more recurring revenues -- than traditional partners. It's sort of like saying cloud solutions providers are growing faster and have more recurring revenues than PC resellers. Um, of course.

2. Cloud Services Revenues

Microsoft, pointing to IDC, says: Microsoft partners with more than 50 percent of their revenue in the cloud are attaching $5.87 of their own services for every $1.00 of Microsoft cloud solutions sold.

ChannelE2E Reality Check: That's an impressive figure that should give partners plenty of reason to formulate cloud strategies. But consider this key question: Are those IT services one-time revenues or recurring revenues? It's one thing to make $5.87 in migration revenues for every $1.00 of Microsoft cloud solutions sold. It's quite another to make $5.87 in recurring monthly revenues for every $1.00 of Microsoft cloud solutions delivered each month. We suspect the $5.87 figure represents a one-time IT project/migration fee rather than recurring fees.

3. Total Cloud Market

Microsoft, pointing to IDC, says: IDC forecasts that the greater cloud market will exceed $500 billion by 2020.

ChannelE2E Reality Check: Here again, the figures can be a bit misleading. IDC's figures surely involve a range of infrastructure hardware that partners will never see or touch -- all the hardware, for instance, that Amazon, Microsoft, Google and Facebook are deploying in their data centers. No doubt, the cloud opportunity is massive. But $500 billion by 2020? We wonder what percentage of that figure will actually involve partners? The world may never know...

Bottom Line: Microsoft Cloud Shows Real Progress

Despite our nitpicks, it's undeniable that Microsoft's cloud services momentum with channel partners is real. During a recent podcast with ChannelE2E and CompTIA, Microsoft's Schuster described the growing CSP momentum and some remaining hurdles.

Moreover, corporate adoption of Microsoft Azure may actually leapfrog Amazon Web Services, according to a recent cloud adoption CIO survey by Morgan Stanley.

Still, Microsoft and its partners will face plenty of challenges even as the cloud services market continues to expand. Chief among them: Microsoft's own cloud profit margins, which have triggered some recent concern on Wall Street. Managing those margins is a tricky process, especially as Microsoft scales up -- or down -- its Azure and Office 365 data center expansion rates based near- and long-term customer demand.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.