It’s been over five years since Steve Ballmer said Microsoft was “all in” with the cloud. And Microsoft’s transformation in that time — from a software and server company into a software-as-a-service company — has been well-documented. What has received significantly less attention is the concurrent transformation of its hundreds of thousands of partners, though one could argue that this transformation is just as important to the software giant’s customers. After all, most (if not all) Microsoft customers engage Microsoft’s partners to help them consume Microsoft’s services.
Nowhere is this more apparent than in the ecosystem that has grown up around SharePoint. We all know that SharePoint’s customer base is gradually but inexorably shifting from the on-premises model of large, internal farms (driving major capital expenditures every three years) to SharePoint Online tenants, hosted wholly by Microsoft (with easily operationalized costs paid for through a monthly licensing subscription).
Third-party software vendors who make their living integrating with SharePoint and augmenting its functionality had an obvious path forward: 1. make their own solutions cloud-ready, and 2. diversify their offerings to avoid banking on feature sets Microsoft might build into the platform. Many have done so. Others, conspicuously, have not. The web is already littered with early casualties of Office 365.
Time for a New Approach
Systems integrators, meanwhile, have found themselves facing another challenge. There’s still money to be made in architecting hybrid environments — and will be for years to come — and migrations to the cloud will continue for several more years as well. Finite as any natural resources, though, those wells will eventually run dry, and so will the funding Microsoft often provides partners to make those migrations happen.
The same holds true for custom development. Building applications on the SharePoint platform is no longer as lucrative as it once was, as commoditized, provider-hosted apps with low initial costs cannibalize the space formerly owned by teams of SharePoint-focused developers. The old “build vs. buy” conversation your enterprise architects would walk you through has become even more relevant now that there’s an app for nearly everything — even intranets, as I wrote back in June.
So what’s going to happen to the systems integration partners?
Partners have been asking this question for quite a while. Those with a heavy focus on developing custom solutions — in other words, most — have been exploring several approaches. The ones who are growing, however, are taking common steps:
- They’re creating recurring revenue streams by reselling products and/or developing their own,
- They’re doubling down on the value-added services that differentiate them from the staff augmentation of the giant outsourcers and
- They’re offering new career paths for the employees who make them successful.
Create Recurring Revenue Streams
The recurring, consistent revenue stream is the holy grail of the Microsoft services partner (or any business for that matter). Microsoft offers one form of this with its “Partner of Record” fee, for partners who assist a customer in moving their users to Office 365. But that little carrot won’t dangle forever. More often, you see partners helping partners — services companies reselling the third-party software of their close cousins on the product side. Vendors like Nintex, K2, AvePoint, Metalogix and others have successfully transitioned their products to the Microsoft cloud and services partners can realize a premium by assisting customers with their implementation and use.
These things are small change though, compared to what the most innovative partners are doing — bottling up their valuable IP as products themselves. This is harder than it sounds. To truly profit from a product, you need more than a crack product development team (although that’s the essential baseline).
You need a good program manager to lead development cycles and ensure that customer feedback is making its way into the roadmap. You need a sound support strategy and the organization to make it work when something goes wrong for a customer at 2am on a Sunday halfway around the world. You need a marketing manager with the resources to get the word out to the right people — in the client base and Microsoft channel — and you need an Alliances team that helps build the network that will see your product as an invaluable extension of SharePoint.
Finally, you need the patience to make this investment work in a bottom-line world driven by utilization rates.
Like we said, it’s not as easy as it sounds. But some partners are doing it, and doing it very well.
Double-Down on Value-Added Services
We all know how the global economy, and giant outsourcing firms in particular, have driven down the cost of custom software development. Even SharePoint development has essentially been commoditized to some degree, and things will only continue to swing in that direction. The days of the purely onshore boutique development firm as anything more than acquisition bait are numbered (if not already fading). How do companies built on this model stay relevant, let alone grow, in a climate like that?
Another solution gaining traction among Microsoft partners is the (somewhat belated) realization that value-added services like change management, experience design and industry-specific expertise can open up entirely new revenue streams that the shop with the purely technical focus could never capture.
Understanding the specific requirements of an industry like healthcare or retail, for example, and building solutions targeted to that industry, goes a good deal further than general productivity expertise. So does helping users understand, engage with and become productive with all of the new software at their fingertips. The need for good visual design and a compelling brand experience will never go away, either — no matter how slick Microsoft makes the baseline SharePoint interface.
These are just three value-added services I’ve seen succeed in this space, but there’s more out there. A partner executive asked me recently if I thought focusing on this approach was better than retraining all of his developers. Maybe it is. It certainly has more to offer large enterprise clients. But that doesn’t mean it’s for everyone. You still have people who love to write code, and they’re not all working for Microsoft.
Offer Real Career Paths
So what about those coders? A services partner who’s in this for the long haul has to ask that question, because Microsoft is building features into Office 365 that used to require a team of developer consultants to build. There will always be a market for custom solutions, but it’s shrinking. And as we noted above, offshore companies are commoditizing what’s left.
Smart partners give their developers a choice. Telling all of your former SharePoint programmers that it’s time to learn Sitecore or take a walk, for instance, might work for some but it’s hardly a panacea. That can certainly be one part of the solution, however — one career path. Others can be found right along the route plotted in the two strategies above.
For instance, consider career shifts across distantly-related disciplines. Some of the best change management consultants and user experience architects that I know started their professional lives as developers. The same is true of people in solution sales — typically sales engineers and presales architects. For the truly devoted programmers, the ability to create and continuously augment a product of their own is often a dream come true. The smart partner recognizes these things, and gives their people a multitude of options along which to pursue their career in this industry.
Once again, like building and marketing a product, that’s easier said than done. The services companies that do very well building vertical career paths with a clear, linear progression from one level to the next unfortunately, often flail around when faced with the idea of parallel tracks, rotations and guided paths from one “track” to the next. Are you a developer who’s become intrigued by UX and wants to move in a human factors sort of direction? That Microsoft services partner you work for probably wants to help you, but it’s a safe bet that most of them aren’t really sure how.
Interestingly, the Human Resources departments of these partners’ Fortune 500 clients often cracked this nut long ago. It’d be a charming bit of irony — albeit undoubtedly a good investment — to see some of Microsoft’s partners hire those same HR types to consult back to them on developing a more accommodating approach to career planning for their talented employees.
The path to remaining relevant — and even growing — alongside Microsoft as it transforms from software giant to SaaS giant is a clear one for services partners. It remains to be seen which partners will follow that path, which partners will remain fixed on the route of diminishing returns, and which partners will struggle along somewhere in between these two ends.
Whether you’re looking at Microsoft services partners as companies who can assist you with your own internal transformation, or as places to ply your own trade, it’s worth taking some time to figure out where on this scale your partners fall today — and more importantly, where they’ll fall tomorrow.