Five top takeaways from this year's Microsoft APC

CRN's William Maher sums up his observations from the Microsoft Australia Partner Conference held at the Gold Coast this week.

1. BiIling is a big decider in the cloud program

The big message here at Microsoft’s Australia Partner Conference on the Gold Coast is to move beyond reselling. Microsoft trotted out a claim this week that product reselling provides the lowest margin compared with managed services, or productising your own IP.

You may be aware of the Cloud Service Provider program, which allows partners to package together Microsoft cloud offerings with other third-party products and their own services, and put it all on one bill.

One important decision is whether a partner should head down the one-tier or two-tier CSP path. The first option means you'll be buying directly from Microsoft. The second means you'll buy from one of Microsoft's two local cloud wholesalers, Rhipe and Ingram Micro.

The way Microsoft explains it, partners should be heading to Rhipe or Ingram, unless they are doing a huge volume of transactions or have very unique IP where a direct relationship with Microsoft could be useful.

For everyone else, Microsoft argues that the cost of providing billing and support and rest of the framework required under a one-tier model will be less profitable. It says margins will be better by dealing with a distributor, which will offer billing, support and portals with third-party products.

Both Rhipe and Ingram Micro have major stands at APC, with cloud foremost on their agendas.

2. Take a reality check before cashing out

During APC, there’s been a lot of talk about the pros and cons of selling your business. Today, CRN sat in on a session titled "How to retire early and be a hero to your shareholders".

A common mistake is to assume buyers are focussing on your current revenue, said Brent Combest, Microsoft director of partner profitability and compete within the Worldwide Partner Group.

"When I talk to partners in the early days, they will tell me they think their valuation is a multiple on top of revenue. Companies don't buy revenue," he said, saying Microsoft prefers to look at earnings before interest, tax, depreciation and amortisation (EBITDA).

Microsoft also reckons partners should consider the margins they'll be making from selling software licenses or even project services in the next few years. Project services revenue is "stagnant", he argued.

"Whether hourly or daily,the billable rate for resources has not fundamentally changed, and every single year you've got inflation hitting your P&L," he said.

Also think about what would happen if the founder left after an acquisition. CEOs involved in every minute detail of the day-to-day business, from hiring to sales, could have a big impact if they leave after a buyout. At a closed-door session hosted by CRN editor Steven Kiernan, well-known IT industry identity David Shein said he wouldn't consider buying a business unless the management were sticking around. This has been the case with Breeze and Technology Effect, two Microsoft partners that Shein rolled into new publicly listed entity, MOQdigital.

3. Monetise your intellectual property

If your business doesn't have its own IP, expect to keep hearing about why it should. By 2020, analyst firm IDC predicts 75 percent of application purchases supporting digital businesses will be built, not bought.

Microsoft name-checked several local partners here at APC that are doing this, including Livetiles, which has a SharePoint interface tool being sold worldwide. The company, which was spun out of local integrator nSynergy and is now headquartered in New York, has more than two million education users globally.

This doesn't necessarily mean creating your own software. Monetising IP might mean taking repeatable methodology to drive down the risk of projects, or creating and selling SaaS extensions as a subscription, or building their own IP into managed services (something that the Cloud Service Provider program is designed to allow).

Another example is PowerObjects, a US company that builds add-ons to attach to Microsoft Dynamics CRM Online. After two years, the company now has a multimillion-dollar revenue stream, and offers a package called PowerSuccess, which includes Microsoft licences, training, support and the option to pick from 21 add-ons it created.

If you are creating your own applications for the Windows ecosystem, there are three main channels to have them promoted: via the Azure marketplace, via in-Office app promotions, and the Windows Store for consumer and business apps.

In Office, contextual promotions will suggest apps that might be relevant for users. These promos won't just promote Microsoft apps but also your third party apps.

4. Consider cloud cross-selling

Some might find it scary that we're already hearing mutterings about cloud services becoming commoditised. Cloud mailbox migrations – not long ago a booming revenue stream – are now being offered free to customers by Microsoft as part of its Fast Track service.

The next wave, we're told, is the opportunity to cross-sell Microsoft cloud offerings. While the big opportunity right now is moving customers to Office 365, the next will be adding value by selling backup for on-premise into Azure, for OneDrive, PowerBI and CRM Online.

Gaining CSP status also means the ability to wrap services and other products around the current Microsoft offerings. That could be your own managed services, your own IP or your own project services. It could also mean wrapping Microsoft’s Enterprise Mobility Suite and Office 365.

Interestingly, while cloud services are often touted as a way for customer to avoid costly year-long annual lock-in, we’ve heard that some customers prefer to pay once annually for cloud. CSP businesses can bill their customers however they want: monthly, annually, daily or even hourly.

5. Surface is not front and centre

The Microsoft hybrid devices are everywhere at APC on the Gold Coast – on the Microsoft stand, on stage during presentations, in the hands of partners – but Surface has not been a major conversation piece during the event.

Partners have railed against Microsoft's restricted channel strategy for Surface since its launch, and especially after the success of the Surface Pro 3. Their calls were finally answered at the Worldwide Partner Conference in Orlanda in July, when Microsoft announced it was opening up the device to distribution, with Ingram Micro and Synnex providing the product in Australia.

But we could count on one hand the number of times we've heard Surface mentioned in keynotes and other major media presentations at APC. (That said, there is one device-selling session tomorrow, and a session devoted to Lumia and the cloud.)

The Surface may be ever-present, but cloud, managed services and unique IP are all getting far more focus than devices at the conference.

CRN is a media partner of Microsoft Australia Partner Conference.