Anyone hoping for new products or major announcements out of this year’s WPC would have been sorely disappointed. In fact, most big reveals came the week before the Washington DC conference – its new Office 365 bundles, as well as developments in Azure Machine Learning and its StorSimple appliance for hybrid cloud storage. Instead, the 2014 event went big on big picture strategy.
What took place was three days of repositioning: rebranding Microsoft as an agile challenger not a slow-moving incumbent; repeating its new warcry ("mobile-first, cloud-first") over and over; and restructuring, with some 18,000 layoffs, many from the Nokia business unit. (While the third point wasn’t part of the WPC message, it is certainly part of new CEO Satya Nadella’s vision.)
It was a glimpse into the helicopter view strategy from a company trying to guarantee a place in an IT world where the PC is no longer king. Did this big-picture agenda satisfy many Australian partners who made the trip to the States? If CRN’s interaction with Aussies at WPC was anything to go by, the answer was a firm yes. During the three-day affair, dozens of partners waxed lyrical about the path being forged under Nadella.
Brian Walshe, general manager, Microsoft solutions infrastructure at Dimension Data Australia, said it was a new tone from the new CEO. "The strength of vision, together with a really strong focus on culture from Satya, differentiates his keynote from most WPC keynotes."
It was markedly different to the numbers-focused sales pitch from previous CEO Steve Ballmer. (It’s been less than a year since Ballmer’s departure, and CRN didn’t hear his name uttered even once in any single presentation).
Under Nadella, the tone has shifted, said Walshe. "I asked a number of Microsoft execs recently whether they were a software company or a Windows company and they all said a software company. A year or two ago, they would’ve said it was a Windows company."
Walshe is a decent yardstick: he has been to every Microsoft Partner event since the first, Fusion in San Francisco in 1997. "Satya is changing the focus at Microsoft and in a substantial way. Under Gates, Microsoft was predominantly an engineering company. When Ballmer took over the focus shifted and with it the balance of power internally. It became far more business-focused, and a marketing and management ethos ran the place.
"With Satya, I think we are seeing the rise of the engineering focus again, which will fundamentally change the organisation over the next couple of years. Satya’s slide on culture in his keynote was a highlight for me. I can’t remember Microsoft ever talking about their internal culture to an external audience and it speaks volumes that Satya would stand up in front of his partner community and lay down his expectations of the culture he wants to foster," added Walshe.
Change ahead
Speaking to WPC veterans in the partner community, there was consensus that tangible change is being driven from the top down, and not just touchy-feely cultural change.
It was clear in the focus on software – not just Windows. And it was clear from the Office for iPad demo given by Julia White, general manager of the Office division – a display of cooperation with Apple that many have said would have been unheard of in the Ballmer era.
Partners told CRN they were glad to see an engineer in charge. One partner said that while Ballmer’s sales and marketing focus built Microsoft into the powerhouse it is today, Nadella’s background in technology is a better fit for the battles currently being waged with the likes of Google and Amazon.
Another partner, Geoff Rohrsheim from Melbourne’s Kloud, said: "I think it is great to see a technologist as the CEO of a technology company.
"The biggest surprise was seeing iPads and Macs on the stage during presentations at a Microsoft WPC. Normally they might be rubbishing those products, but not this year. I work in the enterprise and government space where those devices exist. Now we can talk about all devices; Microsoft has woken up to the fact they are a software company, so we can sell across all devices," added Rohrsheim.
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Nicki Page, managing director of Sydney-based development partner Breeze was impressed with a newfound humility under Nadella – a level of emotional intelligence (EQ). As she posted on Breeze’s Twitter account, "Loving the new EQ leadership-style Satya brings to the new Microsoft. Winning respect."
Speaking to CRN, Page said: "It is definitely a new Microsoft.
They are really pushing innovation again. They are recognising they’ve been behind on this. That is clear from Satya’s messaging to staff: have the courage to innovate again. It is great change and a needed change. Satya comes across as a humble leader."
Nadella’s personality is chiming with Microsoft staff. Coming out of the CEO’s keynote, Phil Goldie, director of partner business & development at Microsoft Australia, told CRN: "As an employee, I loved it. It was a great message for the partners and a very consistent message that Satya has been talking about since he came into the role."
Reality hits
A sensitive CEO, maybe, but soft, no. On the last day of WPC, the news broke that Microsoft was cutting 18,000 jobs, or 14 percent of its workforce – the largest layoff in its history. More than two-thirds came from the Nokia Devices & Services part of the business, after last year’s acquisition helped swell headcount to 127,000.
It was another symbol that the new Microsoft is parting ways with Ballmer’s former strategy to get into the hardware game. That’s not to say its tablet play, Surface, is taking a back seat. Partners stampeded the onsite Microsoft store to take advantage of a special show deal on the new Surface Pro 3, more than $400 cheaper than the pre-order price on the Australian Microsoft Store.
But Surface won’t be front and centre in the new Microsoft. At WPC, partners and Microsoft staff alike told CRN that the main aim of the Surface was to spur on PC makers to create the kind of must-have devices that were once the sole domain of Apple. Brendon Ford, chief operating officer of New Zealand-based partner Provoke, said: "After the Surface, we’re seeing great technology out of other OEM vendors."
Perhaps this explains why the device is still restricted to a small group of authorised resellers, a fact that grates with many Microsoft partners. The topic of expanding the Surface channel wasn’t raised during any sessions CRN sat in on.
The Ballmer-era "devices and services" slogan had been written out of the script in 2014, and the new "mobile-first, cloud-first" mantra was uttered again and again in every session CRN attended. The other message is "productivity and platforms". This puts Office 365 and Azure in the driver’s seat. The message from Microsoft to partners is that they had better get behind these cloud solutions, because that’s where the focus is – and hence the lucrative channel incentives pushed out by the powerful Microsoft Partner Network (MPN) machine.
The most concrete announcements at WPC were around specific changes to the channel program. There was the news that Azure will now be available on Open licensing, which John Case, Microsoft’s corporate vice president, Office Division, dubbed a "true cloud reseller program". Microsoft partners can take Azure solutions – spinning up cloud servers and provisioning them with applications from multiple vendors – and aggregate them with other products, package in services and add pricing over the top. It also means that the partners own the billing, which had been a sticking point across the channel.
Goldie told CRN: "The billing relationship has been a constant piece of feedback across all cloud services. It is not just about a margin or monetisation issue, it is about owning the customer relationship. Partners want to show they can provide the service as part of an overall value-add for the client."
Microsoft has also overhauled its "cloud competencies" – three classifications for partners who want to sell Office 365 and Azure. Not only has the vendor waived fees for partners to jump to the silver tier, the company has also made a wholesale 10 percent fee cut across its on-premise program – saying it hopes partners will reinvest in the cloud.
Perhaps the most significant change is in the way partner performance is measured. From now on, the focus is on usage by the customer. It is not enough, says Microsoft, for end users to just pay for a licence; they need to see value. Partners can’t just set and forget after a three-year licence sale. Microsoft wants them out driving uptake of different parts of the Office 365 and Azure stacks. Microsoft faces stiff competition from Google in the productivity software space and from AWS in infrastructure-as-a-service.
The odds are against Microsoft to win in price wars against two competitors for whom enterprise IT is a sideshow to their main game (web advertising and online retail, respectively). But perhaps Microsoft – and its partners – can convince buyers that Office 365 and Azure offer an advantage in features and functionality.
There’s a goldmine in cloud as customers pick a vendor. Once embedded on a platform, customers will prove difficult to shift. Microsoft wants its fair share of tomorrow’s cloud market.
The stats should help convince partners to join the cloud movement. Microsoft reports that in Asia-Pacific, its cloud business was 4.2 times the average cloud market growth. Its cloud business saw triple-digit growth, or 146 percent. Microsoft estimates that cloud will be a US$8.8 billion opportunity by 2015.
But it seems partners are not moving fast enough. Microsoft has revealed changes to its FastTrack program, offering free migration to Office 365 for customers of 150 seats or more. While some partners have interpreted this as an incursion on their turf, Microsoft has been quick to stress it is focusing solely on the most vanilla onboarding and email migration, and leaving the high-value complex services for the channel.
A fighting chance
There is an even bigger opportunity in the mobility market, which Microsoft forecasts will be worth US$68 billion in 2017. But the vendor has a fight on its hands. While the Windows Phone operating system has made some hard-fought inroads in share in certain markets – around 10 percent share of sales in France, Great Britain and Italy, according to Kantar Worldpanel figures for the three months ended May 2014 – for many major regions, it is far less, with US sales share at 3.8 percent and, gulp, 0.6 percent in China.
Microsoft COO Kevin Turner set the new tone for Microsoft’s challenger mentality. He said that while Microsoft has a 90 percent share of the PC market, it has just 14 percent of the total device market.
Microsoft hopes its Enterprise Mobility Suite (EMS) will also help gain more share of the BYOD space. The suite offers device, network and app management and security. It will challenge mobile device management vendors, such as Good Technology, BlackBerry and VMware’s AirWatch. By managing both Android and iOS devices, EMS may be a beachhead to get the Windows Phone platform into the enterprise.
In the confines of WPC, it was easy to be swayed by Microsoft’s messages: that it understands enterprise better than Google or Amazon; that its joined-up mobile and cloud offering surpasses iPhones and iPads. WPC delegates speak fondly of drinking the "Microsoft Kool-Aid". It was a beverage being served on tap in Washington DC.
But it will take more than rich applications and channel programs for Microsoft to go from challenger to leader. In a surprise deal, IBM has signed up as a new channel partner to sell and manage Apple devices for enterprise users. IBM will be a powerful force to help Apple gain credibility in corporate IT departments. Microsoft has been pushing its mobile operating system to the enterprise for quite some time, and another major competitor was the last thing it needed.
But Microsoft is not going to give up without a fight – and its Worldwide Partner Conference showed it has an army of passionate partners marching at its side.
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