Microsoft's Brewing Cloud-Channel Conflict

David S. Linthicum, CTO, Bick Group | 7/27/2010 | 9 comments
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At the annual Microsoft Corp. (Nasdaq: MSFT) Worldwide Partner Conference in Washington, the company's new channel chief unveiled programs giving Microsoft business partners free access to its cloud software as well as training. But might this be something that just won't work for Microsoft? Cloud computing is very different than things that come in a box.

The trouble here is that Microsoft is accustomed to selling through channels, but the pesky question still comes up: Why go to channel partners for Microsoft cloud services when it's right there in the cloud?

We've already seen this type of conflict. EMC Corp. (NYSE: EMC) plans to shut down its Atmos Online cloud storage service immediately, according to a posting on its Website, due to a services conflict with its partners. In essence, the EMC partners saw the new Atmos storage-as-a-service cloud offering as competing with them in the market, and EMC decided to kill it rather than give up the revenue they get through partners.

Could this be the ultimate fate of Microsoft's cloud computing offerings as well?

We'll know more about the issues here as Microsoft continues to extend its Azure cloud computing business, while also relying on partners to sell its products. But I can see a scenario where Microsoft customers begin to wire around the company's channel partners and go directly to the source.

They will do this for a few reasons. First of all, Microsoft partners are used to selling things, not cloud services. There's a tricky transition between the two, and it could cause problems.

Second, the Microsoft partners have yet to understand cloud computing. While they are all about setting up Microsoft networks, Exchange servers, and database servers, cloud computing is an entirely new concept in their world, and it's going to take more time for them to make the transition that their customers may expect.

But the final reason may be the most important one: Why are we going to pay companies that traditionally provide installation and integration of physical hardware and software when we're moving to cloud computing? Are we not moving away from physical hardware and software?

So, I figure this love-in will have some bumps in the road toward the end of 2012. Microsoft will ride the cloud computing wave, but despite its partners paddling as fast as they can, it just won't keep up. Microsoft will clearly have some very tough decisions at that point, much like the ones EMC recently made.
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batye   Microsoft's Brewing Cloud-Channel Conflict   8/1/2010 5:40:59 PM
Re: I'd be happier if cloud computing came in a green box, and was called Windows Cloud

I agree with the third option - some of the Microsoft partners would end up left behind...

but it was always  un official Microsoft vision - divide and conquer...

I do not see anything new from Microsoft... - as Microsoft do have money to spare 

and see how deep it could fail - or just succeeds just for the hell of it
sechristiansen   Microsoft's Brewing Cloud-Channel Conflict   7/30/2010 10:04:16 PM
Storm Clouds?
Great post, albiet the concept is a bit head splitting for me.  It seems this is the same as the company making the virus sells the antidote but run into trouble because they als ohave business partners selling the same antidote.

I have never understood the whole, you cna buy this from our business partners or you can buy this fron us directly mentality.  What ever happend to the KISS philosophy. :-) (not the Gene Simmons one)

SC.
Matthew McKenzie   Microsoft's Brewing Cloud-Channel Conflict   7/29/2010 10:33:20 AM
Re: I'd be happier if cloud computing came in a green box, and was called Windows Cloud
@zerox203: I know that everybody -- everybody! -- wants to be a hip cloud computing player these days, but EMC has the luxury of having to worry less about that than many others. Microsoft, on the other hand, has already publicly committed to going all-in on cloud computing.

Maybe Microsoft has the resources to make an almost unlimited number of mistakes and still recover. But -- for example -- waffling on something like Azure to make nice with its channel partners would be a complete and utter disaster at this point.
zerox203   Microsoft's Brewing Cloud-Channel Conflict   7/29/2010 8:43:41 AM
Re: I'd be happier if cloud computing came in a green box, and was called Windows Cloud
Does Microsoft tolerate that, does it read them the riot act, or does it quietly change course and leave them behind? The third option seems most likely to me.

It's interesting to note that in the example David provided, EMC did something different - it backed down for it's partners, although that might  just be a variant on the first option. Microsoft is different from... well, anyone, in that it can try anything it thinks might be profitable, push it for years even when it's obvious it's not catching, pull the plug far too late (case in point, Windows Vista), and still walk away in good health.  It will be interesting to see how that "X-factor" changes this case, if it even does.
Matthew McKenzie   Microsoft's Brewing Cloud-Channel Conflict   7/28/2010 11:58:34 AM
Re: I'd be happier if cloud computing came in a green box, and was called Windows Cloud
Yep, that's the thing. Microsoft's channel partners are very accustomed to doing certain things, and doing them well. Now they'll be asked to make drastic changes in their skill sets, and those changes could simply be more than a lot of these firms are capable of making -- even if they're willing.

And the "willing" part is where it gets interesting. A lot of Microsoft's partners probably see no reason to quit milking the same cash cow that has produced so much for so long. Does Microsoft tolerate that, does it read them the riot act, or does it quietly change course and leave them behind? The third option seems most likely to me.
white.space   Microsoft's Brewing Cloud-Channel Conflict   7/28/2010 7:32:34 AM
I'd be happier if cloud computing came in a green box, and was called Windows Cloud

Thank you for sharing the report. It was interesting reading.

"We're going to provide a wide array of tools to help partners both drive the deals and once they get the deals, then manage the customers from the support and deployment aspect," said Jon Roskill...

I think Microsoft is clearly asking its value-added-resellers to brush up on their consultancy skills here.

In the US, the enterprise market has only a handful of large retailers and the channel is fairly well-organized. Now think of the impact of this on markets like India, and China, where there are increasing demands of computing power, including cloud computing, but the channel is broken up into several thousand often localized outfits. I am not sure how well the channel, even some of the larger players, can push something like cloud computing, which does not come in a green box. 

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nasimson   Microsoft's Brewing Cloud-Channel Conflict   7/28/2010 4:27:12 AM
Value added by channel partner ...
Channels can add value to the cloud offering in multiple ways: consultancy in the design of the private cloud, migration, testing, support. All these areas are better served by a local channel partner with its resources close by, instead of Microsoft enterprise solutions sales team sitting in Redmond, Hongkong, Shanghai or Dubai.
DBK   Microsoft's Brewing Cloud-Channel Conflict   7/28/2010 12:44:51 AM
Re: It will get messy, messier & messiest

This will be interesting to track.  The distribution is going to be a challenge because it will be hard to track as well as it will be more of an annuity than real sale, hard to get the channel motivated.  It also sounds like a “Me Too” play, is their heart really in it?

zeppy   Microsoft's Brewing Cloud-Channel Conflict   7/27/2010 1:47:59 PM
It will get messy
Very interesting post, and I think you're absolutely right that this will get messy for MS's channel partners. It's a little bit of a strained metaphor, but in some ways it's the same kind of thing that's happened to the travel agent industry. The Internet (or cloud computing, same difference here) definitely has the effect of pushing out the middlemen in transactions. And I don't see how MS's partners will avoid the same thing happening to their businesses. When customers no longer sense any added value by dealing with a middle man, they'll find a way around him.
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