Part 2: Microsoft’s ‘Cut Your Own Throat’ Strategy

Written by Pete Manca, President & CEO, Egenera

This is the 2nd installment in a series sharing my perspectives on a terrific post I stumbled upon recently by The Cranky Admin (aka Trevor Pott) that I recently came across. You can read my first post here,  and Pott’s original post – “Does Public Cloud Spell Doom for Channel Partners” .

The whole article should be required reading for anyone in the channel, especially the section subtitled: “Microsoft’s ‘Cut Your Own Throat’ Strategy” (quoted below):

Microsoft’s ‘Cut Your Own Throat’ Strategy

Ownership of the customer relationship is king, and this is something the large public cloud providers know all too well. If you carefully examine Microsoft’s partner “strategy,” for example, you’ll quickly see that Microsoft is strongly encouraging their channel partners to cut their own throats.

Microsoft has pulled virtually all incentives for channel partners to sell on-premises software. Similarly, they have jacked up the Service Provider Licence Agreement (SPLA) rates and difficulty, making it harder for those who want to rent access to Microsoft software as CSPs.

If a Microsoft partner wants to make any money in the short term they must migrate their customers to Azure and/or Office 365. The channel partner will then get a small percentage of the public cloud revenues, decreasing over time until it’s irrelevant.

The pittance channel partners get from being the Microsoft “partner of record” for a public cloud account isn’t enough to run a company on in the long term. This means that in order to survive, a Microsoft channel partner has to go find more companies and move more of them into the public cloud.

This continual shovelling of organizations into the public cloud inferno is unsustainable: in relatively short order the channel will have moved everyone that wants to go public cloud into the public cloud. By feeding Microsoft their customer base, they will have survived a few extra years, but at the cost of a lack of a long-term business model.

The customer, of course, doesn’t need to have a “partner of record.” They can simply be a Microsoft customer without being a channel partner. Of course, without channel partners customers will have a hard time finding, buying and integrating solutions from multiple vendors, or creating a “hybrid” environment in which there are both on-premises and public cloud elements of the customer’s IT.

Of the big public cloud providers, Microsoft is the one with the strongest hybrid cloud “story.” Despite this, Microsoft is emphatically not interested in supporting customers continuing to deploy workloads on premises. If, for whatever reason, a customer no longer has a channel partner they can work with and is interacting directly with Microsoft, they are going to push public cloud offerings as the solution to everything.

Amazon, Google and IBM are no different. Having a customer’s primary relationship directly with a public cloud vendor is akin to having an individual read their news only from a highly partisan extremist news site: everything becomes monofocused, outside ideas are rarely discussed, and when they are they are often vilified. On-premises becomes “legacy,” and everything from the development languages chosen to the details of what “as a service” technologies are chosen become an almost religious “old vs. new” debate, with the “old” being treated as purest evil.

In tech, homogeneity leads inevitably to a mantra of new being important for the sake of newness. Practical considerations, economics, or even functionality become irrelevant. Only newness matters.

At Egenera, we’ve been in the cloud business for several years now, and we’ve heard about the tactic from many of our partners, who have experienced Microsoft’s “Cut Your Own Throat Strategy” first hand. Pott backs up his rather bold statement by saying:

“Microsoft has pulled virtually all incentives for channel partners to sell on-premises software. Similarly, they have jacked up the Service Provider License Agreement (SPLA) rates and difficulty, making it harder for those who want to rent access to Microsoft software as CSPs.

If a Microsoft partner wants to make any money in the short term they must migrate their customers to Azure and/or Office 365. The channel partner will then get a small percentage of the public cloud revenues, decreasing over time until it’s irrelevant.

The pittance channel partners get from being the Microsoft “partner of record” for a public cloud account isn’t enough to run a company on in the long term.”

Basic math says that if you’re making less money per customer, your survival strategy is to expand your customer count. But since Microsoft is disincentivizing the channel to sell and support on-premise solutions companies are basically forced to move new customers to Azure. And keep in mind that while channel partners are busy pushing Microsoft products to their customers, Microsoft is aggressively pushing its SaaS solutions to small, mid-size and enterprise businesses. This makes your job very, very difficult. Pott  hit the nail on the head:

“This continual shoveling of organizations into the public cloud inferno is unsustainable: in relatively short order the channel will have moved everyone that wants to go public cloud into the public cloud. By feeding Microsoft their customer base, they will have survived a few extra years, but at the cost of a lack of a long-term business model.”

I’ve heard from many partners that the reason they look to smaller cloud providers like Egenera is because they could no longer work with Microsoft. Not only were they nervous about their future existence, but they were also tired of the complexity and costs of working with the behemoth. Time and time again I’ve heard from partners that Microsoft’s complex SLA’s and expensive partner programs have made partnering with them impossible. The other “loud and clear” message I’ve heard is that unless you have deep pockets to pay for the highest support tier, Microsoft’s partner technical support is sub-par.

Simply put, with the momentum behind cloud, it’s critical that service providers do their due diligence when choosing a CSP to partner with. You don’t want to cozy up to someone who charges exorbitant partner and support fees. At Egenera we view our partner programs and support as costs of doing business – our costs. We know that we have top-notch cloud technology but as a smaller cloud provider, we also know that we need to differentiate ourselves from the behemoth commodity cloud providers by delivering the programs and support that makes our partners successful. To succeed long term in the cloud, make sure you partner with a cloud services partner, not one who acts like Tony Soprano.

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