Why 80% of Direct CSPs will have to change their business model

By Ronny - June 15, 2018

Don’t be left behind. Microsoft is changing its Cloud Solution Provider (CSP) delivery models to emphasize their partners’ ability to serve end-customers both on front-end with unique products and services, and on the back end with the ability to deliver scale with support services. If you are ready, this is your time. But maybe it is also the best time to think about your business model again. No matter the size of the organization, no matter the specifics of its model, Microsoft is shifting the field again. Sometimes it seems that change comes from all directions and the best we can do is bat aside the worst of it and hope that we can catch the best opportunities.

Nobody wants to be the underdog

As a CSP or SaaS provider, it may seem that the service provision models change even faster. Intellectual property, automation, recurring revenue growth and support offerings are moving to the front as Microsoft will be at least as interested in what original offerings and scaling abilities providers can bring to the table. These changes will challenge especially Direct CSP. Now is the time that any company with an interest in the cloud, Microsoft delivered services, and their own intellectual property delivered via Azure to decide, how they can deliver value to their customers in a way that benefits them and that Microsoft will see as valuable and brand enhancing. Nobody wants to be the underdog left in the cold when Microsoft is getting stricter with its partner network.

What should you anticipate?

In this article, we will explain to you some changes to the Microsoft CSP program and suggest ways that you can best prepare yourself. Of course, AppXite has been scanning the environment to understand how the CSP world is changing and are positioning ourselves to be strong partners for Direct and Indirect CSPs wondering how to change and how to drive success for customers. Most of us in the CSP world are familiar with the Microsoft offer and its two basic tiers of partners: Direct CSPs and Indirect CSPs. You may remember that in its original incarnation, Microsoft was not very definite in telling who should sign-up for what and it felt that they could not ask providers to have the full set of requirements in place. If the original idea was to have Direct Provider be a marquee type of service, it became apparent that many wanted the status, but only few could meet the requirements that would enhance the Microsoft notion. It became an open question of whether Microsoft would keep this status quo or try and find a way to get CSPs into their funnel in some other way.

 

Only 20% of Direct CSPs will keep the status

 

Right now there are more than 5.000 Direct CSP signed up where Microsoft had originally planned to have 1.000. Unsurprisingly, there are so many Direct CSP that Microsoft has even locked the registration in many countries, revisited and sharpened the requirements and plans to measure adherence to program requirements. The days of having plans to reach the standard are gone. Meet or change to the Indirect program is the very clear message that has been published in the last days. Although not unexpected the news leaves lots of Direct Providers trying to understand the new landscape and having to decide whether it is better to spend the time and money needed to stay to partner with an Indirect CSP provider. This choice means evaluating business model from both the company’s perspective and from the Microsoft perspective. The questions many companies are asking are:

Did we choose the right model? What value will I get out of the Direct model in comparison to the investment Microsoft is asking for? What are the alternatives? Important questions but first things first


What are the new requirements?

There are several, but a few stand-out as most important.

  1. Direct CSP will have to buy the Support from Microsoft in future, starting with the Advanced Package that will be charged with EUR 15 000 per year. While 15 thousand might not sound like a huge number, it is worth considering whether there is enough return to justify it.
  2. Operating an infrastructure that includes at least automated billing, customer credit check, customer support and customer success relationship with Microsoft, meaning that you will need a full-fledged platform to manage the subscription-based offerings. Since not everyone can invest hundred thousands of Euro in developing or buying a portal, this might be already the showstopper.
  3. Direct Providers will have to not only promise but demonstrate their add-on offerings (Managed Services, own products or solutions on top of MS offerings). There is a valid reason for this requirements. Microsoft expects Direct CSPs to be able to scale the business higher than any other partner, which leads us directly to the commercial part.
  4. Microsoft will start to look carefully at revenue and revenue growth with an eye toward including only those with the strongest revenue and demonstrated the ability to scale and growth. In fact - the numbers are pretty steep - as Direct CSP and, according to realistic plans, you must expect to achieve at least six figures from the very first year.

Conclusion

So, to summarize all providers should be thinking about what portfolio they have created and can provide that will bring even more value to the Microsoft cloud offering. And, this isn’t just about capacity, it is showing that you can automate your CSP operations. You need a cloud portal and last but not least have an ITIL oriented customer support service. From our perspective only 20% of the actual direct partners will hit all requirements with ease, new partners joining will be an exception in future and the process of being accepted will be a long one. Microsoft expects to work with the majority of partners in an Indirect model so it might be the right time to do some benchmark exercise.

Would the Indirect model be any better?

 The general questions for any Microsoft Cloud Solutions Provider of any status are how to make the investment best so that you can continue to partner with Microsoft and provide high-quality services to your customers. What is the investment in money and time? Can you grow enough and, simultaneously to create the infrastructure Microsoft demands? Given that Microsoft incentives will not change along with these new demands, is it best to create it or buy it yourself or to leverage the strengths of a good partner?

Sure. If we are honest about it, we understand that Microsoft hopes that many Direct CSP will consider going Indirect and choose an Indirect Provider to partner with. Whether a Direct or Indirect provider, it is the right time to evaluate the best model for meeting the future that Microsoft is driving. Start questioning Indirect Providers to create an alternative approach for you. They are the ones that should support you now to build the business.

  • As a Direct CSP, you have provided services, and you know what other Direct providers promise their customers – you need to understand what services the Indirect Provider provides and think about how to best leverage them.
  • You want to see how much CSP Margin they share with Indirect Resellers and how stable that has been.
  • Of course, you want to see what additional services the Indirect Provider has to help you to succeed in the way you think you can and should. You need to look at how these services can supplement your own offer and how you can bundle them.
  • It is paramount that those services can expand and scale as you grow.
  • Finally, you want a provider that is experienced and helps you to develop a unique value proposition for your customers

AppXite can answer all of these questions to not only satisfy you today but satisfy your ability to grow. Check out the website we made especially for that topic and register for webinars or schedule a meeting with one of our skilled consultants today.

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