CRN Exclusive Survey: Microsoft Cloud Cuts Have Partners Embracing Google

Microsoft's decision to slash cloud sales commission incentives on Office 365 for its partners is opening the door to market share losses to rival Google, according to a CRN quick poll of solution providers.

With Microsoft's recent cuts on cloud-computing sales commission incentives for Office 365, 34 percent of solution providers polled by CRN's Channel Intelligence Council, an exclusive community of solution providers providing feedback on channel issues, said in a random survey that they plan to add Google Apps For Business to their product portfolio. The survey results come after CRN reported that partners that sell Office 365 and other cloud services in Microsoft's Advisor Enterprise Agreement Deploy program expect to see their incentive payments drop as much as 40 to 50 percent.

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The Microsoft cloud sales commission cuts on Office 365 are also fueling partners to increase their recommendation of Google Apps For Business, according to the CRN survey. In fact, 70 percent of partners polled said they plan to increase their recommendation of Google Apps for Business in the wake of the Microsoft sales commission incentive cuts on Office 365.

One sign of the increasing momentum for Google Apps For Business: CDW, No. 8 on the SP500 with $10 billion in annual sales and one of Microsoft Licensing Solution Provider (LSP), announced Tuesday that it is now offering Google Apps For Business. The announcement follows Microsoft recent move to cut LSP commissions by 1 to 2 percent in fiscal year 2014.

Related: CDW Disses Microsoft With Blockbuster Google Apps Partnership ]

"CDW is just the tip of the iceberg," said the CEO for a large SP500 company that maintains Microsoft's failed channel strategy has resulted in a wave of partners adding Google Apps for Business. "At the end of the day, partners are going to go where the money is. Profitability is the most important thing. We are going to where the money is. Microsoft continues to cut the commissions for partners. You can only squeeze the lemon so much."

On the other hand, the CEO said, Google is offering good incentives for partners, and the Google Apps technology is comparable to Office 365. "I know enterprise customers who have abandoned Microsoft, ripping out every Microsoft product inside their technology portfolio, and went to Google Apps 100 percent," the CEO said. "Google Apps is enterprise ready."

A Microsoft spokesperson said in an email response that it is "inaccurate to state that all Office 365 incentives have decreased. We have made some incentive changes as a result of updates to product pricing and mix; yet, many of these have increased in value as changes were implemented. In fact, our overall cloud-focused incentives (of which Office 365 is a part) have doubled year-over-year in terms of dollars and a percentage of the overall incentive mix. And Microsoft provides more incentives than any other vendor in the industry."

As to the results of the CRN poll, the Microsoft spokesperson said that "many of our partners sell a diverse portfolio of technology solutions to meet customer demands. However, Office 365 is Microsoft’s fastest-growing product ever, and this is in large part due to the strength of Microsoft’s channel partner program. In the past year, we’ve seen twice the number of partners selling Office 365 than in previous years. In fact, as of last year, the number of partners selling Office 365 surpassed the number of partners selling on-premises Exchange. And with more than 50,000 partners already using Office 365 to run their own businesses, we are confident our partners believe in the product and will continue to see growth and demand."

NEXT: Partners Say They Plan To Add Google Apps For Business

According to the poll, 31 percent of the 229 partners CRN surveyed said they would be somewhat more likely to resell, recommend or implement Google Apps For Business as a result of CDW's decision to resell Google Apps For Business, with 40 percent saying they would be more likely to resell, recommend or implement the technology.

Allen Falcon, the CEO of Cumulus Global, a Westborough, Mass.-based Google Apps For Business partner, said he is seeing a "huge industry shift" to Google, with CDW being the latest example.

"It certainly is a big statement when it comes to end-user computing," Falcon said. "Microsoft is not a given decision anymore."

In the channel, Falcon sees Microsoft moving to take greater margin and even ownership of more of the Office 365 contracts directly -- which is not good news for longtime Microsoft partners.

"[If I were a Microsoft partner], I would be very concerned that Microsoft is not going to stay with a robust partner model," he said.

He said Microsoft's channel model is out of date and not working. Meanwhile, Google is building its channel rapport, he said, by clearly communicating a services-led partner model from the start of its channel program, Falcon said. Falcon said, ironically, he gets more "ubiquitous access" to Microsoft Office through Google Apps on all of his devices than through Office 365 itself.

"What Google has said from day one to its resellers [are] make your money on the services, we'll give you a respectable amount on the licenses [and] they said make your money on the services," he said. "I expect Microsoft is heading in that direction. But what that does is it tells the partner you could be doing the same thing with other technology. I think it will open the door for a lot of their partners to be looking for other cloud solutions from other vendors or to deliver in different ways."

Aric Bandy, president of Agosto, a Premier Google Apps Reseller based in Minneapolis, said he thinks CDW's addition of Google Apps is a positive for the entire industry. "Competition is good, competition is healthy, and competition spurs innovation," Bandy said. "I think it's great that CDW is going with Google Apps because it shows how big that business has become. And I think the rising tide is going to lift all Google partners."

Forty-seven percent of partners surveyed said they are currently reselling, recommending or incorporating Google Apps For Business into solutions for customers. Of the partners polled, 74 percent said they currently resell, recommend or incorporate Microsoft Office 365 into solutions for customers with nearly 42 percent currently offering both Microsoft Office 365 and Google Apps.

NEXT: Google Apps Partners See Increasing Momentum

While Google currently holds a smaller percentage of resellers, Doug Shepard, president of Cloud Sherpas' Google business unit, a two-time Google Enterprise partner of the year, said that the tide is turning and that it is a question of when, not if, Google will take over the marketplace.

"I see long term that Google will become the predominant solution. It will be long battle. I think we're five years into what will be a long war, but I think the wars conclusion isn't in doubt. I think cloud computing will be that solution that organizations use, and I think Google has the long-term strength to win the war," Shepard said.

Shepard said the switch for both SMB and enterprises is a "no brainer."

"It will take some time for organizations to make that decision, but we're seeing that time shorten every [quarter]," Shepard said.

However, John Hoyt, CEO of Greenville, S.C.-based Homeland Secure IT, said that he sees customers long-standing use of Microsoft makes them reluctant to make the switch just yet, though he said he is seeing clients becoming more willing to adopt hosted Exchange and Office 365.

"We are not seeing a shift toward Google Apps from our core clients due to the fact that many are in the legal field and they are simply not going to give up the full Microsoft Exchange experience because they are used to it, it works well and most importantly, it integrates with many of their applications already, while most have no interconnectivity with Google Apps (yet)," Hoyt said in an email.

In the long run, Agosto's Bandy said that Google's growth might actually be a good thing for Microsoft in the long run.

"Google has definitely inspired Microsoft to be better," he said. "Without Google Apps, we wouldn't have Office 365. I think Microsoft has really improved their cloud offerings, and that's a good thing."

Cumulus Global's Falcon agreed, saying that the opportunity is pushing Microsoft to innovate, which it hasn't been forced to do for quite some time.

"The question is: Where's the innovation, where is Microsoft going to lead instead of follow or simply evolve existing products?" Falcon asked.

Additional Reporting By Rob Wright

PUBLISHED FEB. 12, 2014