Microsoft: Cloud-First Partners Continue to Outperform Others

By Darryl K. Taft  |  Print this article Print

A new study from Microsoft and IDC shows that partners who have added cloud computing to their mix of services outperform other non-cloud partners.

As Microsoft prepares for its upcoming Worldwide Partner Conference (WPC) in July, the company has commissioned a study that shows that partners that have implemented cloud computing into their offering perform better than those who have not.

The study, commissioned by Microsoft and conducted by IDC, showed that cloud partners – those with more than 50 percent of their revenue from cloud -- have 1.5 times the gross profit percentage versus other partners. They also have 1.7 times the gross profit percentage versus the bottom group of partners surveyed. In addition, the top two quartiles of cloud-focused partners also grow considerably faster than the bottom two quartiles, the report showed.

Moreover, Microsoft said cloud partners have 1.6 times the recurring revenue as a portion of total revenue versus other partners. And they have 1.8 times the recurring revenue compared to the bottom cloud quartile. Cloud partners also have a 1.3 times higher new customer ratio than other partners, and they have a 1.5 times higher new customer ratio than the bottom cloud group.

IDC also said public IT cloud services spending reached $47.4 billion in 2013 and will reach nearly $108 billion in 2017, with a five-year compound annual growth rate of 23.5 percent — five times the growth of the IT industry as a whole. Software as a service (SaaS) will remain the largest public IT cloud service category through 2017, while platform as a service (PaaS) and infrastructure as a service (IaaS) will grow faster than SaaS over the next five years. Meanwhile, emerging markets will grow 1.8 times faster than developed markets, and begin to close the gap on the size of the markets. By 2017, emerging markets will account for 21.3 percent of the public cloud opportunity.

This is the third such study IDC has performed for Microsoft. Last year, IDC surveyed 1,300 partners for the study it released at WPC 2013. This year IDC surveyed around 800 partners and went in-depth with 20 of them to take a look at best practices of the more successful cloud practices.

Darren Bibby, an analyst with IDC who worked on the study, said his team came up with more than 500 pages of transcripts detailing the moves Microsoft partners have made to the cloud. “There are all kinds of good reasons to move to the cloud, but in spite of that some partners just don’t want to go,” he told eWEEK. “It’s a fairly well-known fact that it’s hard to go from a transactional business to a subscription business. Some companies talked about a real hit in revenue as they go from one model to the next. They see cloud as a long-term play and they see on-prem as better. But our research shows that cloud partners are outperforming other partners in key metrics.”

Indeed, the IDC study said the transition from a project or transactional business model to a cloud, managed services, or any sort of recurring revenue model, means that there will be a pe­riod of time where your top line revenues may decrease. Bottom line profits may decrease as you are bearing the cost of the service immediately and only collect­ing or recognizing revenue over time. “But at some point in the future – perhaps between 2 and 5 years – revenue and profits should be higher,” the report said. “For instance, in year 5 of this new model, you have recurring revenue coming in from customers you signed up in year 1, 2, 3, 4 and 5! That’s very powerful.”