On July 9, 2017, Microsoft held the largest global event for their partners, aptly named “Microsoft Inspire” in Washington, D.C. Every year I have the opportunity to attend and every year I walk away with insightful information. I got onto the plane with some deep thoughts and landed with this summary of the main takeaways. Read on for Microsoft tea leaf reading, Dynamics 365 shouts and murmurs, and the future of the value-added reseller (VAR).
Bonus Takeaway: Washington, D.C. is HOT in July! I heard one partner refer to the conference as: ‘Microsoft Perspire.’
Microsoft Inspire Takeaway #1: Microsoft is serious about “Digital Transformation.”
To Microsoft, this means cloud infrastructure, SaaS business models, Artificial Intelligence (AI), and the Internet of Things (IoT). They are making these changes in their overall product strategy and in the tactical ways that they are going to market.
Microsoft is looking to simplify partner engagement and go-to-market approaches with the goal of helping to improve the ways their partners operate. The go-to-market tactics are forcing big changes on the ground with partners and certainly inside the Microsoft organization, (e.g. the 6,000 sales and marketing people that were laid off recently). Change like this is very hard and has a reach that is deep and wide. Microsoft wouldn’t do it unless they were very serious about their future vision.
The thing that is special about these moves to me is that when you see a company make changes of this magnitude, it is usually because something has gone wrong. Nothing is going wrong at Microsoft – their products are fine, Azure for instance is a world class cloud computing platform and revenue from it is up 93% year over year for the Microsoft third quarter. No, nothing is going wrong – but rather, they see the future and are firmly committing to it.
Microsoft Inspire Takeaway #2: Microsoft has a deep commitment to customer success.
This commitment is proven by the big organizational change that happened at Microsoft the week before Inspire. If you are going to be successful in a SaaS business model, you must gain customers as fast as possible, get them happy as soon as possible, and retain them as long as possible.
To do this, Microsoft is forming a new business unit – the Customer Success Organization. This will combine Cloud Solution Architects, Data Solution Architects and Customer Success Managers – all to help customers get the most value out of cloud solutions. An org change like this at a company the size of Microsoft, is no small task – it is very complicated and very expensive – and full of the unknown. In addition to being fun to watch, it again shows that they are serious about their new vision.
Microsoft Inspire Takeaway #3: The consumption based approach to sales.
If you have been watching Microsoft for the last few years, no one would fault you for thinking that what they really want is to get their customers using Azure and consuming Azure space. Yes, they still want to sell software, and the Dynamics 365 line proves that, but cloud consumption is going to be much more profitable over time.
We all know how a monthly recurring revenue (MRR) model grows over time, but the Microsoft sales teams didn’t have the compensation plans that would make them care about MRR.
An announcement at Inspire changed that.
Microsoft sales teams are now compensated on the consumption of Azure rather than on “one time” perpetual license sales.
We always say that you should build compensation plans to drive behavior (results), and now Microsoft has done this. This will also have tactical implications because as those sales folks are working with partners, the conversations will change. It will now be about selling the products and services that make money gradually and over time – which means: The Dynamics 365 product(s) and the partner built IP that works with it – all living on Azure.
Microsoft Inspire Takeaway #4: The bending and twisting of the traditional VAR/ISV model.
Microsoft’s vision for the cloud world is lots of (small) applications that make D365 work better. To facilitate this, they have built the Microsoft Cloud Embed program. There is lots of documentation on the program, but basically it goes like this:
- SaaS apps represent a financial opportunity of $57b by 2019 – that’s a billion with a “B” folks.
- Heretofore there has not been a consistent platform for partners to build these valuable apps.
- Cloud Embed provides such a platform with programs like Flow and PowerApps.
The purists are going to argue with me about that interpretation, but what is most impressive to me is that Microsoft is putting the ERP end-user squarely into the conversation they are having with their partners.
To partners they are saying: “This program will make it easier for you to build apps…”. And they are also saying, with business users completely within earshot: ‘This program helps business users easily find and evaluate SaaS apps that are critical to their business…’ (this is being done via Appsource).
This makes me think that IP creation is no longer the sole domain of ISV’s.
IP will be easier to create than ever before. If you are a VAR with a deep understanding of your vertical market – go for it! ‘Build something using our tools!’ Microsoft says. ‘Put it on Appsource so everyone can find it! Oh, and do this often, nothing lasts longer than 6 months in the SaaS world anyway…!’
That last part is likely the subject of a different blog post, which I’m not ready to write yet because anything I say is guaranteed to be wrong. WRONG you say? Yes, because the speed and ease of creating apps, combined with the ecosystem that lets them be consumed so easily is new to the Microsoft world. I don’t think that ISV’s are going to become VARs, but are VARs going to look a little bit like ISV’s? It will be exciting to watch.
Microsoft Inspire Takeaway #5: The final opinionated observation is about VARs specifically.
At Inspire, I talked to every VAR that I could get my hands on – any size, any country, any vertical – all comers. They seemed to divide themselves into two camps:
There are those that are hungry for the new model that D365 will bring and are re-inventing their businesses to take advantage of it. And then there are those that are confident that the on-premise ERP world will live for a long enough time for them to comfortably sustain and then exit their businesses.
I think both are right.
D365 and all that Microsoft is doing around it represents a new and exciting (and unknown) business opportunity. Yes, the buying behavior will change. Yes, the license revenue that VARs get will go down. But none of this changes that fact that ERP is complex and that the people who buy them can’t implement them by themselves.
As one Jet partner put it, “Think about the 300-person oil and gas services firm. They buy parts, assemble those into finished goods, warehouse them, distribute them and provide services for them. Are they going to click a ‘buy now’ button and instantly have an ERP system that can run their business? No Way.”
VARs still have a big opportunity to make money by doing the things they are good at.
Traditional on-premise ERP is not going anywhere fast. Think of that same O&G firm. They went live on ERP a year ago, they are only months away from being completely implemented and stable. What is their appetite for jumping onto some newfangled technology that Microsoft just introduced? None.
The people working at their desk, processing orders, placing PO’s for raw materials, building BOMs for finished goods, and generating income statements probably don’t even know about what just happened at Inspire, and they sure don’t care. Their CTO might care, but do you think that CTO wants to be the one to tell the business users that everything is about to change? No way.
A friend of Jet Reports and Co-Founder of eOne Solutions, Martin Olsen wrote a great piece about this particular topic and more. In fact, it’s so good, I probably could have skipped writing this piece altogether. His thoughts on why partners can be successful with their current model is in the last section.
We are in a fluid and changing world right now folks. What we think today might be obsolete by tomorrow. Of all the opinions in this blog– that might be the only one that is correct.
In closing, I’ll end with a sales pitch (I am in Sales after all): Jet Reports entered the Microsoft Dynamics world about the time of NAV 2.6. Remember that – no one could get reports out of their ERP…?
We changed that.
And as each major new technology came along: business intelligence, multi-tenant cloud, Power BI, we have been THE ANSWER for our partners and customers.
We’re in a time of change and that’s super exciting. As a company, we are well positioned and ready to take whatever direction the future goes and we have a big head start. Dynamics 365 in all its guises will be no different.