Remarks by John Case, Corporate Vice President, Microsoft Office Division, in Orlando, Florida, on July 13, 2015.
JOHN CASE: Hello. Hello and thank you. I appreciate those of you that are sitting tight and waiting through this last session. I felt like the last one in the green room at the NFL draft. That’s never a good feeling. But anyway, happy to be here.
I promise if you sit tight with me for 10 more minutes, I’m going to make four major announcements that will have an influence on your business this year, and it will be worth your time if you stay with me for 10 more minutes.
So we talked several times today about business transformation, where we’re going. You know what a priority that is for us at Microsoft. You’ve also heard from several folks today about the product innovation that we’re making, where we’re adding value in the product, where we think you can make money off of that.
I’m here to talk about the other side of it, the channel evolution, what are we doing in the channel to help you this year make money, be more productive, create more loyalty with your customers. Our success on this is really happening, and we’re really so glad to see that. I talked about momentum last year at WPC. We’d seen so much traction in the commercial cloud, but that traction is only continuing. A few of these stats, $6.3 billion of commercial cloud run rates for Office, Dynamics CRM Online and Azure; 84 percent year over year Office 365 commercial seat growth.
These numbers are going to keep growing. They’re going to be even greater in future quarters. We’re very happy about that. It’s not just Office. CRM Online has doubled paid enterprise seats this year. Azure, 6,500 Azure partners in Open, over 20 times AWS’ partners in the same sphere. And as Scott mentioned before, $45 billion of services revenue were attached through a C&E project in FY ’15.
This is all work that you’ve done with us. We thank you so much. Let me add my thank you to the thank yous from all the folks that have preceded me on stage today. This is why we’re here. This is why the partner community is so important. So thank you again for all the work you’ve done for us this year on the commercial cloud.
I want to talk about how we win together and what our philosophy is. We have a unique way of looking at the partner channel in the cloud space, we believe, and the first is, we believe incontrovertibly that new product innovation will drive partner opportunity. Everything you see us shipping, creating, innovating on will land in your channels, in your hands to deliver to customers. That’s a huge part of our value proposition.
We’ll also make those things everywhere we possibly can available everywhere customers want to buy. We’re not going to push them towards one channel or another. That’s why we innovate on things like the Cloud Solution Provider program or CSP. We want to make things available where our customers are buying, and we need your help with that.
Third, we will take an active role in deployment. Stuff we did in Office 365 this year with our on-boarding enter or fast track. While we help do some of the commoditized deployment work it opened a space for partners to add IP, to add management, to add support, and we need you to do that. So we’ll continue to take an active role in deployment. We need you to take an active role in finding the new space along with us.
And finally, all these pieces of our platform will be open and extensible. And we’ll help you monetize and do things with our certification programs, our websites and our marketplaces. That’s our philosophy. That’s how we win together.
You’re going through a channel evolution, and we know it’s not easy. We know it’s hard. Every partner starts at core transactions and selling. Then they learn how to deploy. Then they learn how to manage things like networks, and manage support. Then they add IP and custom solutions. But, increasingly we want you; we need you to be in the full service experience, to own the entire customer lifecycle. We need you to not just sell and onboard, but to enhance manage and then renew customers. That’s the whole reason behind a lot of the changes we’re making in the programs and policies and products.
That channel evolution is not easy. We’ve studied this, we’ve studied partners that are doing this well. We believe our best partners, for example, with Office 365, are right now at 1-1/2X revenue for employee of an average partner. They are three times the margin of an average partner and they attach something like double as many services. I’m going to show you some partner examples today, people who are doing this well, knowing how to take our core products and enhance, expand and renew and own that entire customer lifecycle.
So I have four announcements for you to make. I promised you four announcements, all right, four. Some have been hinted at, some have not yet, but they’re all interesting and significant. The first is the expansion of the CSP, or the Cloud Solution Provider program. I was on stage in Washington, D.C., last year. I announced the first generation of the CSP in Washington, D.C. I announced the first generation of this. It’s the program we created for you to own that end-to-end lifecycle, to own provision, maintenance, billing, support, et cetera, for multiple subscriptions and cloud services. And it’s been — we’ve seen lots of great momentum with the CSP. The average CSP provider, for example, is triple the frequency of an open partner, which is interesting. We’re seeing real traction in that space.
But limited availability, Office 365 only, only in certain geographies, and we were fairly tight on partners being in the CSP program. And that is changing this year, which is actually very important to understand. We have added over the last few days and weeks Azure, EMS, CRM Online in 131 countries around the world, and we’ve just released a new commerce API for automated transactions. All of that has happened in the last few days. So this is now open for business with you. We’re very excited about that.
We also have great partners that are doing things with consoles, like Odin and AppDirect. If you don’t want to integrate directly with our commerce API, you can work with these partners to automate transactions, to integrate directly with your system. There will be more partners like this, but these are two that we’re going to market with right away. We’re very happy to have them onboard.
Taylor Rhodes from Rackspace was on stage a few minutes ago with Scott Guthrie talking about what they were doing with Fanatical Support, which is a really technical solution built on Azure to really help customers. What you didn’t know is it actually was all done through the CSP. Rackspace is one of our first CSP partners on Office 365. Now that Azure is in the CSP program, that’s now how they’re doing the entire end-to-end thing. So we’ll see more and more examples of this.
You as a partner effectively have two ways of working with us on CSP. One is to be in a one-tier model, and we expect the one-tier model to be much larger this year and much more open than previous years; or in a two-tier indirect model if that’s better for you. There are something like 39 sessions at WPC this year talking about some part of the CSP. So I really hope as you go through the sessions — that doesn’t include this, by the way, I don’t count myself — as you go through the sessions, you’ll find out more about this every day. There are some end-to-end sessions just on the Cloud Solution Provider program. I hope you realize this is the single biggest investment we’re making in expanding our channel for cloud, and we hope you participate with us. So that’s announcement No. 1.
No. 2, let’s talk about new incentives to drive active usage. Certainly active usage is really how you deliver a real end value to the customer, it’s not just getting it sold and deployed. And right now we are reorienting for Azure, Office 365, Power BI and EMS. We are reorienting all our cloud competencies and our partner incentives to be based on active usage as opposed to the sale, which is an incredible shift. And I really thank the Microsoft Partner team for getting this work done with us.
Office 365, Power BI, EMS are seat-based entitlements, which is interesting for Azure and which partners can get up to a 20 percent rebate on customer consumption, which is an incredible investment that Azure is making in the partner channel to drive consumption.
Of course, that’s all great. You’ve also given us a lot of feedback that you need data. You need to know what your customers are doing with the workloads that you’ve sold. And so we’re also showing you here a screenshot of it, we’re releasing a new dashboard to give you visibility into that usage pattern for your customers. So for Office 365 and Azure, Dynamics will follow soon after, for 365 and Azure, we’ll be giving you this data where you can see active usage by workload for the customers for which you are the partner of record. And that’s a tremendous shift. I think it is going to be great for the partners that are really invested in active usage as a discipline.
One example, ProServe IT, which is a great partner in Canada, who really built themselves a business around active usage and selling it right. They’ve seen, as they’ve focused on active usage, they’ve seen an 8 to 1 ratio in services to licensing. So for every dollar of Microsoft licensing revenue, they’re getting $8 in services revenue. And the revenue is up 55 percent over three years. So congratulations to ProServe IT. I hope to talk to many more partners over the next few years that have embraced this active usage mindset.
No. 3 three, I’ve just done 1 and 2, here’s No. 3. No. 3, Azure Certified for the Hybrid Cloud. I had the privilege also last year in Washington, D.C., of announcing the first Azure Certified program, and we’ve seen tremendous momentum on that, something like 250 partners in 21 countries with 600 datacenters in the Cloud OS Network, which is what we call that.
But you gave us a lot of feedback saying, look, we want to be able to do this for hybrid. We need your help integrating our hybrid solutions with Azure. We need your help with things like solution readiness, technical enablement. We need your help attracting new customers. That’s what we’re doing. We’re announcing now, and here’s the link that you can go find out more, the program for Azure Certified for Hybrid Solutions. You can take the badge. These will merchandize on the Azure website. We think this is a big, big fast-forward for customers building hybrid solutions that are based on Azure, and we welcome and embrace that. So that’s No. 3.
A great example of a partner that’s doing this well is Data Pipe. Data Pipe is the Cloud OS Network partner now. They offer cross-cloud managed services across a range of platforms, including our stack, Open stack, VMware, Azure, you name it. They’re excited, you can see from this quote, they’re excited to leverage their technical solutions with our brand in a joint go to market. It’s a great example of application partner who is working with us on Azure Certified for the Hybrid Cloud.
Announcement No. 4, and probably the most significant or different than what you would expect, is a new Office 365 Enterprise Suite that we’ll be releasing to the market in the coming year. We’re very excited about hits. This is the first time we’ve talked about this publicly.
You’ve seen us do a lot of talking innovation recently announce things like Skype for Business with PSDN Service and Cloud PBX. We’ve talked about updates to Power BI. We’ve talked about things happening in advanced security like Lockbox and Advanced Threat Protection, stuff that Julia went through earlier. We have not talked previously about how we’re taking that to market. So this is that moment. We will be releasing again sometime during this year a new Office 365 E suite, or E5, that we’ll be able to sell to customers that will include all the rich functionality in Skype for Business on the comms side, like Cloud PBX and PSDN conferencing, include deep analytics like Delve Org Analytics, and Power BI Pro, and it will include advanced security.
The meetings functionality in Skype for business will land in E3, which we’re excited about, as well, and we’ll continue to have great add-ons and promotions with Dynamics CRM Online for sales productivity. But, E5 will be a way you can go to your customers, upsell them on new value, in current customers. You can unlock new customers who want advanced security, and we’re excited to deliver that with you. And you can build new practices in communications. We think this is probably the biggest new business for us over the next few years in Office 365.
PBX, PSDN related services, we’ll partner deeply with operators, deeply, who will be great PDSN providers, Express Route providers, you name it. We’ll partner deeply with operators. But we also believe that Office 365 as an end-to-end communications value prop that will pay off with this Office 365 E5 suite. There’s a blog about it out right now. We’ll talk about it as the conference goes on. We’re very excited about this. That was our fourth major announcement. (Applause.)
Just to sum up now, last couple of minutes, the opportunity for this stuff is massive. We believe with these changes in E5 the opportunity for Office 365 is around $56 billion, which is an incredible number. Phil quoted a number this morning saying the total cloud market according to Gartner is something like $200 billion by 2018, that’s not very far away, it’s amazing. And CRM alone is a $21 billion market opportunity and we believe two out of every three customers will deploy into the cloud for CRM.
These are massive, massive numbers. And so we want to embrace these businesses and we want you to go to market with us on these businesses. And there is opportunity ahead. And we’re incredibly excited about it. We’re incredibly excited about you seizing the opportunity of these new innovations, whether that be Skype for Business, CRM Online, Azure and EMS. We’re excited about you engaging to drive active usage, using the new incentives, using the new portals and data, we think there’s tons of opportunity to sell it right and get customers using as fast as possible and we’re excited about you accelerating your growth into these new models like the CSP. We’re building that specifically for you to own your customers’ end-to-end lifecycle.
That’s it for me. I know, again, I appreciate those of you that stayed. I very much do, really. As you walk out it’s time for lunch. As you walk out we’ll play a video, in that video we’ll announce the location for WPC next year. Thanks very much for your time, and I look forward to seeing you as the week goes on.