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THE CLOUD CHAMPION JOURNEY

Full agenda listed on www.aka.ms/CloudChampionBlog

Join MPN Training Time

Eye on the Opportunity

Transform the

Business

Go To MarketDemo ArmyCompeteSell Cloud

Deploy Cross Sell/Upsell

Introduce ISVs

Change Manageme

nt

4

Martin Gregorymarting@MG365.com.au

“You can do anything if you put your mind to it!”

Short Business Model Transformation Videoswww.aka.ms/bmtau1. Identifying the Change Imperative2. Understanding the Road Ahead3. Learning from other Organisations4. Revenue and Profitability in the Cloud5. Understand Who Buys Cloud and How They Buy It6. Creating and Packaging Cloud Solutions7. Refining Market8. Refining Sales9. Transforming your Team

The World Has Gone Mad - For Devices and Enabling Services

2005 2013

The Top 10 Strategic Technology Trends for 2014

http://www.gartner.com/newsroom/id/2603623

“The Effects of Mobile and Cloud Dominate Our Top 10”

1. Mobile Device Diversity and Management 2. Mobile Apps and Applications 3. The Internet of Everything 4. Hybrid Cloud and IT as Service Broker 5. Cloud/Client 6. The Era of Personal Cloud 7. Software-Defined Anything 8. Web-Scale IT 9. Smart Machines 10. 3D Printing

http://www.gartner.com/newsroom/id/2603623

C O N N E C T E D “ T H I N G S ” V S P E O P L E

Source: Internet World Stats

2003 2015 2020

Est. 50 Billion connected devices in 20202013 - Est. 10 Billion CONNECTED Devicesvs. Est. 7.14 Billion People World Population

2008

More connected devicesthan connected people

CHANGE

people

selling

marketing

cash flow

solutions

customersstructure

competitionvalue proposition

processes

So, what does this mean for partners?

Product Revenue Stream

Rapid Deployment + wrapping managed services

Marketing

Sales Motion

The cloud effects every aspect of business, from sales and marketing to operations and finance.

Sell smaller “projects for recurring revenue.

Focus on building a self owned annuity stream and becoming the trusted advisor.

Focus on generating self educated prospects and continue to provide ongoing value in order to retain.

Sell more deals targeting business decision makers.

Partnering IN the Cloud

Sell projects for one-time up-front revenue.

Focus on deployment and implementation.

Invest in Customer Acquisition.

Sell Fewer bigger deals to IT decision makers

Partnering BEFORE the Cloud

Sales Compensation

Incent to drive volume and annuity stream.

Incented to drive deal revenue/ Size.

Managing Utilization

Predictable Utilization and engagement of more lower level resources.

Driven by delivery efficiency and is cyclical in nature.

TRANSFORM THE BUSINESSCLOUD PROFITABILITY

Hui Cheng TanSnr Financial ConrollerSmall Midmarket Solutions & Partners Group

Hui Cheng, TanSnr Controller, Small Midmarket Partners and Solutions

10 years in Microsoft, Australia and Singapore

Prior to MS, spent 8 years in PricewaterhouseCoopers US, Hong Kong and Singapore

Introduction

Today’s Objectives

Cloud Transformation – Financial Considerations

Sales, Marketing and Operational Changes

Key Financial Indicators

Building a Cloud Business

Building an annuity stream

Creating a High-Volume Sales Engine

Investing in customer retention

Wrapping Office 365 with complementary products &

services

Sales Compensation

Managing Utilization

Rapid DeploymentRevenue

CO

GS

OPEX

GM: 10-23% GM: 35%+ GM: 50%

CM: 20%+ for Established Cloud Business

P&L Impacts

P r o d u c t Project Based Services Annuity Services

1

2 34

5

76

Product GM Drivers

Gross Margin

Billed Revenue

Channel Incentives

(if Managed Partner)

RPL Number of Licenses Sold

Number of Sales Reps

Deals Per Rep

Licenses per deal

COGS

Number of Licenses Sold

Cost of Acquiring a

license11 (a) 1 (b)

1 (c)

1 (d)

A

1 Input Legen

dKey Variables Ranges

1(a)

1. Office 365 RPL2. Windows Intune

RPL3. Other Product

RPL

1. 180/ year2. $6/year3. Depends

on the product

1(b)

1. Margin on O3652. Margin on Intune3. Other Product

Margin

1. 10-23%2. 15-23%3. Depends on

the product

1(c )

1. Sales Rep hired in the first year

2. Sales rep ramp as you build the business

1. 5-72. 20-40%/

year

1(d) 1. Deals/ rep 1. 45-90

1 In the model the input for this is in the form of product margins. If you are not a managed partner the margin is 15%. If you are a managed partner than the margin calculation takes into account is 15% on product +8% CI.

17

Product P&L - Model

Building a Cloud Business

Building an annuity stream

Creating a High-Volume Sales Engine

Investing in customer retention

Wrapping Office 365 with complementary products &

services

Sales Compensation

Managing Utilization

Rapid DeploymentRevenue

CO

GS

OPEX

GM: 10-23% GM: 35%+ GM: 50%

CM: 20%+ for Established Cloud Business

P&L Impacts

P r o d u c t Project Based Services Annuity Services

1

2 34

5

76

Deployment and Billable Services GM Drivers

Gross Margin

Billed Revenue

Number of Customers

Deployment or billable services Price

/ Customer

Number of Sales Reps

Deals Per Rep

COGS

Deployment/billable services

Reps

Compensation/ service rep

Hours needed for deployment /

service

Number of Customers

Total number of hours worked

Utilization rate

2 (a) 2 (b)

2 (d)

2 (c)

1 (c)

1 (d)

2Input Legen

dKey Variables Ranges

2(a)

1. Deployment revenue/customer

2. Billable services revenue/customer

1. $1250 -$3500

2. Average of $2000

2(b) 1. Billable consultants

1. 2-4

2(c )

1. Billable Services Rep Compensation

2. Deployment Rep compensation

1. $70,000-$100,000

2. $70,000-$100,000

2(d)

1. Billable consultant Utilization rate

2. Deployment Consultant Utilization rate

1. 75-85%2. 80-85%

20

Deployment and Billable Services PnL Model

Managed Services GM Drivers

Gross Margin

Billed Revenue

Number of Customers

Managed Service Package Charge/

Customer

Number of Sales Reps

Deals Per Rep

COGS

Number Service rep

Compensation/ service rep

Average Length of calls

Calls/ Customer

Number of Customers

Total number of hours worked

Utilization rate

3 (a)3 (b)

3 (c )

3 (d)

3 (d)

1 (c)

1 (d)

1 Managed services for O365 includes Infrastructure Monitoring,Exchange Configuration,Sharepoint Set-up,Lync Set-up,Front Line Support,User Training.

Managed Services for Windows Intune include Software Asset Management, Remote Monitoring, Managed Security, Patch / Policy / Desktop management, Diagnostic Reports

3Input Legen

dKey Variables Ranges

3(a) 1. Managed Services Charge /seat

1. $39-$59

3(b)

1. Service Management (Year 1)

2. Service Rep to Service Management ration (year 2 onwards)

1. 1-22. 7:1 to 10:1

3(c )

1. Service Management Compensation

2. Service Rep Compensation

1. $80,000-$120,000

2. $50,000-$80,000

3(d)

1. Number of calls/ customer/ Month

2. Average length of calls (Min)

3. Service Rep Utilization rate

1. 2-82. 45-75 min3. 80-90%

22

Managed Services PnL Model

Summarizing The Revenue Streams

Office 365 Licensing Revenue

Deployment & Migration Services

Managed Services and Packaged IP

Baseline Good Better Best

High

Low

Structure of Office 365 Deal

Revenu

e

$48-240 / seat

$40-120 / seat

$50-80 / seat

Note: Estimates are based on partner interviews so actual numbers will differ from market to market

• Tier 1 / Tier 2 support)• New user set-up• Updates• End-user training• SharePoint Templates• Windows Intune• Desktop Management• Policy/Patch Management• Software Asset

Management

• Assessment / planning

• Migration of data• Establishment of

service

= Recurring

Add-on Projects and Solutions

$40+ / seat

• Expansion• Customization• LOB integration• IT infrastructure

design• IT planning• IT training

Billable Services Margins: 35-42%Managed Services/IP Margins: 50%+

OPEX

4

G&A

R&D

Infrastructure

1 Other Personnel includes Execs, Marketing HC, and support HC (such as Finance and HR HC)

Marketing Infrastructure

Customer Acquisition Cost

Customer Retention Cost

4 (a)

OPEX

Program Cost

Microsoft Program Cost

Migration tool cost

3rd party tools cost

Personnel

Sales Personnel cost

Other Personnel 1 Cost

Marketing Program Other

4 (b)

4 (c )

4 (c )

4 (d)

Input Legend

Key Variables Ranges

4(a)

1. Sales Rep Compensation

2. Sales Management compensation

3. Technical Sales Specialist Compensation

4. Retention Rep compensation

1. $75,000 -$90,000

2. $100,000- $125,000

3. $100,000 - $125,000

4. $60,000 - $80,000

4(b)

1. Exec Management Comp

2. Marketing Rep Comp3. Finance and Admin

Comp

1. $200,000 - $300,000

2. $60,000 - $80,000

3. $75,000 - $90,000

4(c )

1. Marketing Customer Acquisition cost

2. Marketing Customer Retention Cost

1. $1,000 - $1,5002. $200 - $400

4(d)

1. G&A as a % of Revenue2. R&D as a % of Revenue3. Infrastructure as a % of

revenue

1. 2%-6%2. 2%-6%3. 1%-3%

25

Opex Drivers

26

Overall PnLCloud+ On Premise Cloud+ On Premise Cloud+ On Premise Cloud+ On Premise Cloud+ On Premise Cloud+ On Premise Cloud+ On Premise Cloud On Premise Cloud+ On Premise

Billed Revenue 14,822,660$ 20,170,025$ 25,473,889$ 31,132,254$ 37,344,535$ 44,300,451$ 52,220,881$ 30,428,457$ 30,946,500$ 61,374,957$

Product 9,537,700$ 10,579,195$ 11,730,153$ 13,040,577$ 14,569,574$ 16,388,143$ 18,582,577$ 11,862,660$ 9,396,000$ 21,258,660$

Annuity Services 187,200$ 1,563,120$ 3,083,652$ 4,814,854$ 6,834,814$ 9,237,326$ 12,136,395$ 15,671,771$ -$ 15,671,771$

Deployment/other billable/ Hardware 5,097,760$ 8,027,710$ 10,660,084$ 13,276,822$ 15,940,147$ 18,674,983$ 21,501,909$ 2,894,026$ 21,550,500$ 24,444,526$

COGS 10,788,679$ 14,678,109$ 18,273,978$ 22,100,714$ 26,259,229$ 30,855,719$ 36,021,499$ 17,968,948$ 23,947,225$ 41,916,173$

Product 8,847,558$ 9,650,751$ 10,538,362$ 11,548,951$ 12,728,102$ 14,130,569$ 15,822,901$ 9,148,396$ 8,738,280$ 17,886,676$

Annuity Services 75,771$ 539,429$ 1,240,760$ 2,028,428$ 2,941,390$ 4,021,715$ 5,320,374$ 6,899,713$ -$ 6,899,713$

Deployment/other billable 1,865,349$ 4,487,929$ 6,494,856$ 8,523,335$ 10,589,737$ 12,703,435$ 14,878,224$ 1,920,838$ 15,208,945$ 17,129,783$

Gross Margin 4,033,981$ 5,491,916$ 7,199,911$ 9,031,540$ 11,085,306$ 13,444,733$ 16,199,382$ 12,459,509$ 6,999,275$ 19,458,784$

Product 690,142$ 928,444$ 1,191,791$ 1,491,626$ 1,841,472$ 2,257,574$ 2,759,676$ 2,714,264$ 657,720$ 3,371,984$

Annuity Services 111,429$ 1,023,691$ 1,842,892$ 2,786,427$ 3,893,424$ 5,215,611$ 6,816,021$ 8,772,057$ -$ 8,772,057$

Deployment/other billable 3,232,411$ 3,539,781$ 4,165,228$ 4,753,487$ 5,350,410$ 5,971,548$ 6,623,685$ 973,188$ 6,341,555$ 7,314,743$

GM % 27% 27% 28% 29% 30% 30% 31% 41% 23% 32%

Product 7% 9% 10% 11% 13% 14% 15% 23% 7% 16%

Annuity Services 60% 65% 60% 58% 57% 56% 56% 56% #DIV/0! 56%

Deployment/other billable 63% 44% 39% 36% 34% 32% 31% 34% 29% 30%

Operating Costs 3,454,730$ 4,184,130$ 4,675,052$ 5,254,859$ 6,196,134$ 7,261,908$ 8,221,240$ 6,087,934$ 3,558,222$ 9,646,156$

Vendor Program Costs 52,600$ 69,500$ 79,375$ 90,969$ 104,636$ 120,812$ 140,035$ 118,676$ 44,289$ 162,965$

Sales Direct Costs 1,726,667$ 2,044,750$ 2,194,846$ 2,397,256$ 2,644,652$ 2,949,122$ 3,325,652$ 2,257,863$ 1,535,000$ 3,792,863$

Marketing Costs (excluding hc) 522,912$ 692,739$ 800,928$ 929,079$ 1,083,375$ 1,271,355$ 1,502,277$ 1,373,400$ 414,180$ 1,787,580$

Other Personnel Expenses 530,000$ 530,000$ 530,000$ 530,000$ 795,000$ 1,060,000$ 1,060,000$ 1,060,000$ 265,000$ 1,325,000$

Other Expenses 622,552$ 847,141$ 1,069,903$ 1,307,555$ 1,568,470$ 1,860,619$ 2,193,277$ 1,277,995$ 1,299,753$ 2,577,748$

Contribution Margin 579,251$ 1,307,785$ 2,524,859$ 3,776,681$ 4,889,172$ 6,182,824$ 7,978,142$ 6,371,575$ 3,441,053$ 9,812,628$

CM% 4% 6% 10% 12% 13% 14% 15% 21% 11% 16%

Year 6 Year 7Year 01 Year 1 Year 2 Year 3 Year 4 Year 5

Key IndicatorsBilled Revenue Contribution Margin

Revenue Generating Customers

So Moving to the Cloud – what does this mean for partners financially?

The Cloud transformation affects every aspects of business, from sales and marketing to operations and finance.

Product Revenue Stream

Sell projects for one-time upfront revenue.

Sell smaller projects for recurring revenue46% more revenue over 7 years. 5X more margin

Sales Motion Sell Fewer bigger deals to IT decision makers

Sell more deals targeting business decision makers

7X more revenue generating customers over 7 years

Business Model Rapid deployment + wrapping managed services

Focus on deployment and implementation

Forcus on building a self owned annuity stream and becoming the trusted advisor.

Building an annuity managed services stream

Managing Utilization

Driven by delivery efficiency and is cyclical in nature.

Predictable Utilisation and engagement of lower level resources.

Reduced cost due to lower level resources and predicable utilisation

Sales Compensation

Incent to drive deal revenue/sizeIncent to drive volume and annuity stream

12% COS

Partnering BEFORE Cloud Partnering IN the Cloud Key Stats in Cloud

Marketing Invest in Customer AcquisitionFocus on generating self educated prospects and continue to provide ongoing value in order to retain.

10-12% of gross revenue spent on marketing after reaching steady state

Action PlanDocumenting Your Transformation

30

Top 3 Cloud Objectives By Business Group

Management

1. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

3. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Marketing

4. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

5. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

6. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Sales

1. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

2. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

3. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Professional Services

4. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

5. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

6. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________