understanding and planning for the economics of the cloud rob sternowski [email protected] small...
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Understanding and Planning for the Economics of the CloudRob [email protected] and Midmarket Solutions & Partner Finance ControllerMicrosoft Canada
Cloud Momentum by the NumbersStrong Demand
1MH1 FY14 Trials
50,000Partners in FY14
Will surpass On-Premise
UnitsSept 2014
Tremendous Potential
Worldwide Cloud Market*
2017
$108B
5xThe IT Industry growth rate
30%Worldwide Compound Annual Growth Rate
*Source: IDC
Comparing Vendors
FY16 SMB Aspiration for revenue distribution (cloud vs. on-premise)
50%Of the most popular workloads are covered by Office 365 & Azure**
70%24%
15%
12%
11% 8%
Productivity BDR Website App Host Content
**Source: Spiceworks, 2014
~150%
33% 33% 34%
Transforming the Microsoft Business
201% YoY Growth Target
*Base: 348 North American and European software decision-makers at companies with 100 to 999 employees that have implemented SaaS or have plans to do so; Source: Forrsights Software Survey, Q4 2011
Allows us to focus on more important projects
Speed of deployment
Lower overall costs
Lack of IT staff to maintain the solution
Change upfront costs to monthly payments
Improved business agility 74%
64%
62%
59%
49%
48%
Agility!
Primary Demand Drivers
Profitability Comparisons
Partner Evolution: Building the Snowball
$143B
2013 2018
Managed Services Market Growth(Markets & Markets, 2013) $256
B
1.6xGross Profit
2.4xFaster Growth
A Simple Example (5 Year)25 Seats of Office 365 & Windows Intune
$22,50025 users x $180/yr x 5
years$9,000
25 users x $72/yr x 5 years
Deployment Fees $3,125One time, $125/user
Other Billable $25,0001 Week per Year
@$125/Hr
Managed Services $75,00025 users x $50/mo x 5 years• Delegated Admin• Front Line Support• End User Tranining• SharePoint Templates• Remote Monitoring• Patch Management• Policy Management• Device Management• Diagnostic Reports
$134,625
Managed Service Offerings
$5 Service Monitoring Exchange Configuration SharePoint Set-Up Lync Set-Up Front Line Support User Training SharePoint Templates
$52 SAM Remote Monitoring Managed Security Patch Management Policy Management Desktop Management Diagnostic Reports Network Monitoring
$167 Custom Apps Website Management Identity Management Backup & Disaster Recovery Media Hosting Big Data
Small Apps 3rd Party Tool Connectors Vertical IP Business Function
Solutions$55
Building The Annuity
Year 1 Gross Revenue
On-Premise
$9,225Office Standard
$3,725Migrate & Deploy
$12,950
$4,500Office 365 Midsize Business
$3,125Migrate & Deploy
$15,000Partner Managed Services
Cloud
$22,625
5 Year Total: $100,625
Infrastructure Monitoring Exchange Configuration SharePoint Set-Up Lync Set-Up Front Line Support User Training
Software Asset Management Remote Monitoring Managed Security Patch Management Policy Management Desktop Management Diagnostic Reports
$19.5kAnnual Annuity
Paid
23%Of an IT
Resource
Office Standard vs. Office 365 - Midsize Business: 25 Seats
5 Advantage*: $74,725*Traditional customer upgrades in Year 5
*Source: Forrester: Market Overview, Managed Service Providers, Part 2 May 2013
1.5 to 3XCurrent State
5 to 8XStrategic State
Valuation Multiples*(X of EBITDA)
What attracts a premium price*
Cloud Services
Geographic Reach
Vertical Expertise
Specialization
Variable Before
Revenue $5M
EBITDA 8%
Operating Income $400k
Valuation Multiple 2.25
Price $900k
After
$8.45M
12%
$1.01M
6
$6.59M
The Reward is on the Horizon
How Cloud Helps Company Valuation
Valuation determined by…1. Future Revenue
Predictability2. Terminal Value Year 1 Year 2 Year 3 Year 4 Year 5
Cloud
Incremental $22,625 $22,625 $22,625 $22,625 $22,625
Existing $ - $15,000 $30,000 $45,000 $60,000
Total $22,625 $37,625 $52,625 $67,625 $82,625
Cumulative $22,625 $60,250 $ 112,875
$ 180,500
$ 263,125
Traditional
Incremental $12,950 $12,950 $12,950 $12,950 $12,950
Existing $ - $ - $ - $ - $12,950
Total $12,950 $12,950 $12,950 $12,950 $25,900
Cumulative $12,950 $25,900 $38,850 $51,800 $77,700
The Five Keys of Successful Partners
Build Own AnnuityMulti-Workload
Web Centric Marketing High Services Margins
Volume Sales
ProcessCompensation
Volume Sales
A New Type
Incent on Volume
Higher Rate on Your Annuity
MonthlyCommissions
QualifyWeek 1
ProofWeek 2
ProofWeek 3
CloseWeek 4
30 D
ay T
rial P
eri
od
BANT Criteria 5 Pivotal Questions SKU Selection
SKU Review Feature Overview Trial Maximization
IT Review Deployment Planning SOW Development
SOW Sign-Off Onboarding Review Scheduling
Prevent laziness Focus on acquisition Renewal Rep @11 mo’s
A Deal Per Week Accelerated Process Minimum Thresholds
Variable Paid on Year 1
Attach to every deal
Yours = higher margin
CI = 5-7% of Revenue
Treated as Income Raise Comfort
Zone Normalize Revenue
OfSales Rep
Project Activity Hours
Sales, Assessment, and SOW 4Hoster/Registrar Discovery 2Mailbox / Alias / DG Discovery 2Email Architecture Planning 6Office 365 Account/User Provisioning 4
Client-side (POP/IMAP) migration / PC
1 per PC
Server-Side Migration, QA 8DNS Changes, QA 1Project Management 3Company/End-User Comms 4Outlook Setup 6Total ~40
52%40%Traditional Time & Materials Automated Utilities (ISV)
Gross Services Margin
Sell MoreNo delay due to resource availability
Increase MarginsAutomation creates efficiency and fixed cost
No SurprisesKeep scope creep out and customers happy
Incremental ValueMore than just an automation tool
High Margin Services
Attracting a Web Centric Buyer
Attract
10%
of Gross Revenue
SEO Pay-Per-Click Blogging Back-linking E-mail Campaigns Vendor/Influencer
Educate Short Videos Whitepapers Customer Videos Case Studies Customer Training Assets
Nurture Monthly Nurture Assets Nurture Engine Execution Retention Assets
50%
35%
15%
1:1Differentiation Maximizes Profit
Higher Price Point
Influencer Advocacy
Maximum ARPU
Marketing ROI
Sales Efficiency
Service Margin+
Subject matter expertise adds value to services and solution recommendation, justifying high cost.
Domain expertise builds trust and enables additional offerings to be sold.
Proven capabilities can establish stamp of approval from others target customers trust.
Increased focus in audience identification improves message strength and campaign results.
Repetition in process and pitch improves win rates and requires lower cost resources.
Consistency increases efficiency and reduces the dependency on high cost technical staff.
Transformation Decisions: Recap
Increase Sales Volume and Efficiency• Requires investment in new sales roles, changes in
compensation, method of attracting customers
Greater importance on the timing of sales• In a Cloud sale, cash flows are different than in traditional
sales
Higher returns from Managed Services require new tech skills• Requires investment in time, training and/or experts
What’s Next?http://aka.ms/cloud-surestep 1:1 Business Plan (PCDM)
Schedule an appointment:[email protected]
1 2
3 Deal Clinic (PCDM)
Schedule an appointment:[email protected]
© 2012 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation.Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation.MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.
. Thank you so much for your time today. We are incredibly excited about the Cloud and the potential that it provides to partners. We have a large number that are seeing great