Microsoft Channel Chief Schuster On Why Multi-Cloud Partners Are 'Doubling Down' On Azure

Microsoft is attracting thousands of new partners into its partner network every month—many of them lured by the fast-growing Azure cloud platform—while solution providers that work with competitors such as Amazon Web Services are doing "more and more" with Azure, Microsoft Channel Chief Gavriella Schuster said in an interview with CRN.

Partners who work in "some of the other ecosystems around us, with AWS or Google or Salesforce" are among those helping to fuel Azure's growth, Schuster told CRN.

"I don't know that those are the new partners because a lot of those already had Microsoft in their portfolio. It's just that now they're doubling down on our cloud services," Schuster said.

When it comes to those partners, she said, "I do get the sense that more and more of their business is committed to the solutions in our portfolio."

[Related: Microsoft Channel Chief Schuster On Shifting The Sales Focus To CSP]

Schuster, who is corporate vice president for Microsoft's One Commercial Partner organization, spoke with CRN several days after Microsoft reported that Azure revenue surged 76 percent during the first quarter of fiscal 2019, ended Sept. 30. The results helped to drive year-over-year revenue growth of 18.5 percent during the quarter, to reach $29.08 billion.

What follows is an edited portion of the conversation with Schuster, which included discussion of Microsoft's Cloud Solution Provider (CSP) program, how the Redmond, Wash.-based company is aiming to stand out from public cloud competitors, and Microsoft's approach to hybrid cloud.

Are you attracting AWS partners to sell Azure? And if so, is that a major phenomenon right now?

We continue to see thousands of new partners come in to the partner network every month. Our average is about 7,000 a month. We've looked in to see who are these [partners]—where are they coming from? And they're coming from all over. Many of them used to just be hardware partners, and now they're IoT partners, which makes them want to sell Azure. So then they become part of our network by being Azure partners. Some of them were off platform, selling either CRM or ERP solutions. And now they've said, ‘Hey, Dynamics 365 is actually very interesting, I'm going to [use] that for my customers instead of my homegrown or other vendor tools.’ Some of them are coming from OSS [open-source solutions]—actually a lot of them are coming from OSS—where we didn't really have a great offering before, but Azure really affords them a great platform. And we continue to attract developers through the GitHub acquisition, where they take another look at what our partner ecosystem has to offer when they have a new application or service.

And then I would say they're also coming from—or just doing more with us—from some of the other ecosystems around us, with AWS or Google or Salesforce. But to be honest, I don't know that those are the new partners because a lot of those already had Microsoft in their portfolio. It's just that now they're doubling down on our cloud services.

Do you believe these partners are disproportionately favoring Azure versus your competitors?

We don't really have insight into what they're doing with other people. But with all the partners that I've been meeting with, they share with me the new solutions and the number of people that they're training on our platform. And they talk to me about trying to fill talent gaps, and [ask] where can they recruit more people. Or how can they train people together, because the business is kind of stacked up on them and they need to go faster on their hiring. And so I do get the sense that more and more of their business is committed to the solutions in our portfolio.

I think for a lot of the partners that I talk to, what is most attractive to them is the fact that they can jointly sell solutions with Microsoft—the Microsoft platform. So it's not just the Azure platform, not just the Dynamics platform, or modern workplace. It's all of those things together. And we just recently released our new Teams SDK for our partners. Teams is a new platform for them to build new solutions, and include things they had for Azure and Dynamics 365 into those solutions. The excitement I get from the partners is the ability to do all of those things together.

How much better are the partner margins for Azure versus AWS?

We provide margins and incentives on how much of the consumed Azure is in their solution. We set a price that is our published direct price on the website, and then there's margins for our partners when they sell that through CSP, and then we'll give them rebates as well. And then we give them rebates as they drive up the consumption, month-over-month growth, for Azure as they drive up the usage of various workloads. I haven't had any partners actually tell me that they didn't feel like that was a profitable venture for them. And then in the statistics and study we did with IDC, they told us that partners are 19 percent more profitable in the totality of the services they deliver to customers when they do it with Microsoft than when they do it with any other cloud provider.

So between the margins and the rebates, it's a lot richer to work with Azure?

I can't compare apples to apples on that, but I think based on the support that we provide to our partners and the kinds of services they're able to deliver through CSP, they are very profitable. Because we're encouraging them to move toward the more profitable levels of service. So the average is that you can make 40 percent more selling a managed service than you can if you were just selling core software or core services. You can make 65 percent more in your profitability if you're selling unique IP to a customer. So we're helping the partners find those niches, where the investments they make have a longer life and really differentiate them in the market and give the customer a reason to go with them. And that will drive up their profitability long term.

Why should partners see Microsoft as the leader in hybrid?

Our view of what hybrid is is actually very unique in the industry. Our view about the intelligent cloud and the intelligent edge, and the interplay and interrelationship there, is core to the way that we see the world. We don't think hybrid is some interim state—or that customers are ‘moving from on-prem to the cloud.’ We see that the nature of the edge is actually morphing. The edge used to be this distributed computing edge of PCs, but it's actually moved into mobile-first—so it's this distributed edge of phones. But actually now that's morphing into sensors that exist in everything, which leads you into the whole world of IoT. In many of our conversations with our customers, their products become the edge—whether that is a refrigerator or a car or an oil rig. We enable that edge to utilize technology to connect to the cloud, and also to take advantage of the edge of devices—whether that's Azure Stack on the edge for disconnected scenarios, or scenarios where they can't have any latency whatsoever. Or whether that's about how they cache information. We look at all of those things as we design the technology—assuming that there's always an edge, and then there's times when you want to take advantage of the power and scalability and dynamic nature of the cloud. And so I think we have a unique view on what hybrid really means, that isn't just, ‘Hey, you're going to have a data center and you're also going to use the cloud.’ Yeah, it's that, but it's a whole lot more.

What sort of momentum have you seen for CSP since your Inspire conference in July?

We've continued to see a lot of positive momentum on CSP. Our revenue was up 234 percent over last year, and our partners are just continuing to flock to CSP as really the core way that they want to do business with us. I think in all of the conversations that I've had over the last six weeks, the key things the partners have shared with me are the solutions that they're building, and how they're building in the cloud technologies from us—from Dynamics all the way through Azure—into these new solutions they're bringing out to customers.

There's been a big emphasis on CSP partners adding new capabilities, such as a managed service or building IP for customers. How important does Microsoft see this being for CSP partners?

I think the whole point of this CSP platform is that it's an opportunity for our partners to move beyond just reselling Microsoft services, into selling the value of their services, and us selling the value of their services. This is a key part of us moving from being a partnering organization to a partnership. Over the last two years, our focus has been much more about, how do we actually go to market together—how does Microsoft sell the services of our partners?

And so that means that we have to understand what the services of our partners are. CSP is really a platform that enables it not to be a contract between the customer and Microsoft, but to really be a contract that's led between the partner and the customer—where the partner is in the forefront of that and Microsoft has really just embedded technology into the solutions that they deliver. That enables the partner to then determine the terms of their agreement with the customer and how they want to position themselves. It gives them an opportunity to really be differentiated. If they were just reselling Office—or in the past, Windows Server or SQL Server—there wasn't a lot of opportunity for them to really differentiate themselves.

Now what they're selling isn't Azure—what they're selling is the data capabilities or the AI capabilities. The ability to build a chatbot on Azure that has the customer's data all enclosed in it, or the ability to deliver a certain number of workloads for the customer and manage it for them. And it just so happens that they also host it on Azure. So it's really about leading with the partner's business. We then train our field on the partner's services, and then the field sells the partner's services to the customer—as opposed to just selling something like a plain vanilla Azure [reserved VM instance] or compute instance. It really gives us an opportunity to sell the value of each individual partner.