Toby Damien, thank you very much for the question. SBS is a fantastic product and will be continued to be sold through December 2013. What I can say, and I’ve talked to a lot of partners and customers about the concern which is very real in the market, is that the $9 billion that Redmond is spending on research and development is very much focused on our cloud services product and unfortunately not necessarily investing in another small business server suite like SBS.
That said, we still very much are about providing choice to the market. I talked about this a little bit before. Now it’s potentially a slightly different choice, and I’ll come back to the business model around this.
Just from a technology perspective, and I’m sure you’re aware of this, with Windows Server 2012 and specifically Window Server 2012 Essentials, as our new cloud OS and the connections that model has into Office 365 and the ease with which you can start to bring hosted email, hosted SharePoint into that box on premise and in a small business, has taken some great strides.
I think the reason we are investing R&D in that space is that’s where the market is going. That’s really where we see the markets going and where customers are telling us they want to go. If that scenario doesn’t work for a customer and they just don’t want to do Office 365, we have great hosting partners as well that can do hosted exchange or hosted SharePoint. If that doesn’t work another choice is to install the individual server components and as has been talked about is the more expensive solution.
So those are the three choices that are available for customers. I talked to a partner up in Townsville as well and the further out you go, as in Far North Queensland, there’s some very real concerns around latency performance and things like that.
As far as your relationship with your customers, and you know better than any of us, that trusted adviser relationship that you have absolutely is what we’re talking about before. I think the trick is that that untapped market in the small business area, in those 1.2 million small businesses out there in Australia, if we can scale to take advantage of an incremental opportunity there – which I don’t think anyone has necessarily cracked yet – that is what we want to do with partners such as yourself to enable you to talk to more and more of those customers, as well as try to maintain those trusted relationships that you have to the best of your ability.
Rob There’s no doubt the ultimate beneficiary of infrastructure-as-a-service and software-as-a-service is the end-user customer. It’s a low cost entry point for them, and unfortunately for many resellers that means it hits their bottom line as well. As-a-service, whatever it is, is low cost. It’s DIY everything. DIY download, DIY install, DIY educate yourself, and my view is that extracting the true value out of many cloud applications is going to require people like yourselves and organisations like yours to help your customers to do it.
Because you’re right, the comment was made earlier on, people are attracted to the cloud because it enables them to move stuff off-premise or to minimise the number of technical people they have on staff. The reality of it is, someone’s got to do that piece of work for them.
Brendan From a Telstra perspective, at $7 a user there’s no way the customer can do it themselves on-premise for anywhere near that. There’s definitely going to be a shift of customers wanting to go and seek value in cloud. I think it’s also an ‘over a beer conversation’, but make sure the broader conversation is ‘have I got the right network to run cloud?’ and thinking around ‘how are they sharing information, and are they accessing it remotely?’ ‘Can they do it on their smartphone?’ ‘Have they got a sharepoint set up?’ ‘Have they got other applications that they’re running on-site that we could start putting into the cloud as well?’
There’s a whole lot of other conversations because obviously the customer’s an early adopter if they’re starting to move to cloud, so something about the other doors that they could open can assist them.
Audience question - Keenan Haigh: I’m from Thinkin’ IT in Perth (CRN Fast50 2012 No.10). My business is mainly five or 10 users. My whole business has been built on running SBS server app for clients in the middle of nowhere, such as in Karratha in WA. Now that obviously everything’s been pushed to the cloud and everyone’s promoting the cloud and stuff like that, it’s making life a lot harder for the smaller guys.
They’ll save up just enough money to get their own little three and four user office running, where they don’t even have a mobile connection. They’ll sit out there and they’ll just have their own internal email policy and can’t even take external emails unless they get a mobile tower and they occasionally get a signal if they stand up on a rooftop with a TV antenna type thing – we’re talking the middle of nowhere.
So we’ll go up there maybe once a year, do updates with them and do what we need to do with them. That’s it. We don’t hear from them again. So even this cloud stuff, these guys are essential services to the WA mining industry and gas industry up north. What is the solution here?
The cloud’s great for people in metro areas, but like every other IT company I know in Perth, the biggest problem we face is broadband access. I live less than 3 km from the CBD and I have to have three ADSL lines merged together so I can have 10MB down. It’s a joke.
So the cloud scenario is obviously wonderful for the big business, but what about the small users? They can’t afford to have the higher broadband that you need to have their main capability, so what is the solution in the cloud there for the killing of the SBS side of things – because like you said, we can go to Server 2012. We can do all that sort of stuff, but the budget blows out to ridiculous figures once you start doing the licensing for them.
So how does the cloud cater for those really, really small clients?
Toby I think it’s a great point, and the fact of the matter is that there is still that choice for a completely on-premises solution with individual server components, and I totally understand the pricing and cost impact of that. I just want to clarify your comments around really small customers: I don’t believe it’s a small customer thing, versus a big customer thing. It’s a remote thing, and that’s a very real concern.
The bandwidth, and Brendan you might chime in here as well, it’s a weighing in of the costs, whether it’s bandwidth, or completely on-premises hardware and software solutions.
But the promise of the cloud is to allow those small businesses to use exactly the same tools that their larger competitors use and actually grow their business. So if we can make it work, and I want to continue these discussions, then that is the opportunity for those customers and they may see a return on that investment, and that’s how we articulate that potential return.
Brendan From a network point of view, I think it comes down to we’re a damn big country, and so if you compare us to the US, there’s not much difference in size, but there is a big difference in population. So our land mass is 7.7 million square km and if you look at our NextG network for example it covers 2.3 million square km, so we have an amazing network, but it still only covers a third of the land mass of Australia. So it is a challenge.
When you get to these remote areas where we’ve got to make commercial decisions about what we roll out, there are programs around with government to help assist that, and also if there’s mining companies out there, we do an awful lot of work with the mining companies where there’s appropriate demand for the rollout.
So you have to make sure you’re linked into that. But I just think it’s a reality of being in Australia, and I think NBN will help to some degree, but it would be interesting to see some of the towns you’re talking about, will it be one of the areas where it gets satellite, or will we be rolling out NBN out there, so it is a very genuine concern.
We’ve worked with a number of customers, more medium to higher than the ones you’ve talked about where we’ve rolled out things like brand optimisation where they can get by with small links where they do have those requirements
Audience question: Thanks guys it’s been very informative today, and as a tin pusher moving to the cloud very interested in terms of talking about partners, talking model changes etc. From a partnership perspective, I’m interested in the comment from yourself Michael and David – distributors if I segment the two. I read in the media, CRN etc about a lot of partners creating services.
You don’t see a lot from the distributors so I’d be interested in getting some more specifics around commentary from you guys around strategy and specifically your moves to the cloud.
David Yes, we’ve had a lot of reflection on this as where do we move to in the next 36 to 48 months, and we keep coming back to the philosophy that you know distribution will probably keep doing what distribution does exceptionally well and that is aggregation, funding, billing and facilitating and adding competence to our channel partners.
The point I made early on about understanding your core competency, within that core competency you may have to supplement that. So the aggregation conversation or the catalogue that the distributor has should be leveraged to ensure you maintain your customer set with a fully-fledged aggregated solution.
I think distribution will need to play that role. When it comes to financing, and funding, you will continue to play that role. We, like all the partners in this room, will be going through this transformation from the revenue perspective, which is actually driven by vanity more than reality, because we look at it very differently.
Our business model is an EBIT model. If we come to sell our business no-one checks about your revenue number, everyone goes down the ‘that’s your ebit line’ and I think that’s what we all have to understand as we migrate to cloud, that the value of the business is actually determined by EBIT and not by revenue.
You might get five or six times EBIT, and you will be lucky to get one or two times revenue.
So we’ve been through the transformation and our businesses from a finance viewpoint will change. I think the relationship we have with our partners will continue to be enhanced by the fact we can ensure you’re competitive in the marketplace, by leveraging our catalogue that we take into the cloud.
So we see a very optimistic future in the next 36 to 48 months, and in the next 12 to 24 months, we still see – actually I quite like selling tin and I like Cisco tin too by the way – and because there’s still a lot of infrastructure being built out.
One of the interesting stats is 24 months ago there was about 180 identified SPs. The research we conducted two months ago says there’s now 870. Now we all know that’s not the case; people have changed their position in the marketplace, and as they do that they’re building out infrastructure. They’re buying infrastructure to move into the cloud and we just love it.
So in the next 12 to 24 months we want to work with our partners to build that competency into the marketplace and during that time we’re making a migration from a financial model as our partners are doing as well. Once again the demise of distribution is a myth and it will continue to grow and continue to add value.
Michael Like David said, everything old is new again, so as a solutions distributor, what we do is that we take best-of-breed solutions from our vendor partners, and we take those up, we bundle those up, we aggregate as David mentioned and we give those to our partners to go and sell to their end users.
Now in the old world we took physical product. In the new world, we will take virtual product and we’ll wrap more services around that, to enable our partners to go and sell. It is an exciting time and when the cloud first came out, it was a bit of a threat, we thought ‘ooh, what are we going to do now, we’re going to get bypassed, the vendor may go straight to the end-user’ and so it was a bit of a threat for a distributor and for a partner.
As I said, we work with some of the world’s leading vendors, and we take the best parts of their solutions, bundle them up and then we get the feedback from the business partners and their end users, you know what markets those end users are playing in, and working with those partners to deliver our solutions.
Some of the fundamental changes, David’s already mentioned, you know the financing models. Also the profitability models, that’s going to be the biggest challenge for us as distributors as we move forward, and sales models. How do you sell that subscription service, as opposed to that transactional product type of service as well? - they’re some of the fundamental changes that will happen.
Consolidation of supplier products is exciting as well with this new model. The access to vendor products I think will fundamentally change with this new model, rolling out some of those best of breed solutions not only in Australia but the region. For us looking at where we have centres of excellence, can we now expand regionally, can we now push services in different parts of the world?
Some of those things will really impact our business. Now, we’ll still be a solutions distributor and people are our most important asset. For us that is where our intellectual property resides, and we’ll still be here.
Audience question: Joe Ciancio here from Maxsum Solutions, Bendigo. We are a classic system integrator, mostly based around small business server, and initially we had a relationship with Telstra for over 10 years and we had some initial trepidation against pushing Office 365 because it was going to be provided through Telstra, but we got over that and we embraced it and we’ve signed up.
We did the business transformation models workshops. We’re cloud essentials partners, we’re up with T-suite, and there’s a lot of talk about the value of the channel. But how does Telstra frame that value when from time to time you have Telstra AEs going direct to your clients and undermining opportunities that you may have in cases where cloud might not be the best solution for the client, as happened to us last week?
Brendan While we’re all playing in this space we do kind of trip over ourselves from time to time, there’s no doubt about that. What we want to do is put a stop to it, and so we absolutely see value in the channel. We cannot offer end-to-end service in the cloud domain.
So for us, we cannot go this alone, so the partner community is absolutely vital. Sometimes we won’t always see eye to eye, but we always need to have those conversations and we always need to represent the customer and not our own interests or vice versa. So you will have a channel manager and I really encourage you to go to your channel manager if you’re ever seeing that, we want to stamp on that very quickly. As we move to cloud there’s so many opportunities that we’re seeing for partners.
I think distributors play a key role in this moving forward also. So we’re getting more and more partners coming to us now, just on the broader suite of services, when we went out with one thing like Office 365 I think there was definitely a mixed reaction, but I think now that we’re offering more and more services for the suite, there’s definitely a lot more interest.
I think the quote from me to one of our distributors about 12 months ago has always stayed in my mind, and that is some of their partners were telling them they were starting to be concerned because they weren’t having a cloud conversation. Their value proposition said a number of times here in the panel is that ‘they’re the trusted adviser’.
If the customer’s picking up the paper every day and reading about cloud, and their trusted adviser is not even talking to them about it, bang, there goes their trusted adviser status.
So taking the customer on the journey with the person they trust is absolutely essential here, and what we want to do is play the role behind that to help you be successful and obviously us to be successful. Take the customer on their journey and you have my absolute support to sort those things out when they pop up.
Audience question: Tony Haywood from Weston Group. One of the panellists talked about co-lo, there’s a lot of talk about co-lo – can you just draw a differentiation of where you see co-lo versus hosted rack space, hosted applications in co-los, and proper outsourcing of cloud services, rather than just hybrid cloud infrastructure in a datacentre?
Darren Good question. What we see in the marketplace is quite interesting. You’ve got some organisations that will provide the end-to-end service offering. You’ve got other organisations just providing the space to real estate. Different business models obviously for different parts of the market, and we’re seeing at the moment a shift towards selling real estate or selling floor space, as opposed to providing that end to end service.
So there lies some opportunity for yourselves to step in and take that role. But yes, it’s an interesting space and there are all these different operators, there’s new operators coming, but yes, some do end to end, some do a mix and some just provide the space on a rental basis.
Toby I just want to reinforce what I opened up with earlier, that we really feel as far as this particular topic is concerned, and I’m responsible for the entire partner strategy for MS in Australia, we’re absolutely committed to providing that path to profit for our partners.
We feel the cloud is here now, it’s not coming, and I would just encourage every single one of you. My email is tobybo@microsoft.com if I don’t get a chance to meet you here today, to let us know what more we can do to help support your business, because we are absolutely committed as a general company, we always have been for more than 30 years and we will be in the future.
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