One of the questions we often get with regards to BPOS (or Microsoft Online Services) is “what's in it for me?”.  The reason for this is probably quite obvious.

If I sell a customer 20 seats of BPOS (lets say exchange online), the partner of record gets a whole 12% of that as a signing fee and then 6% per year thereafter. At $8.62 per user per month, this doesn’t stack up to much money.

So I did some modelling to work out what this might look like and how this might work for partners.

What do I need to earn $100k per year in residual income?

Firstly, when doing this modelling, as a partner the bit to watch is the number of seats, not the number of accounts (although Microsoft will care about the number of accounts). As the number of seats sold go up, so does the revenue per seat.

So how many seats will it take to earn $100k per year in royalty fees?  The answer is it depends on the products(s) you sell, but here is an indicator per product:

In other words if you sell the suite (which includes Exchange, SharePoint, OCS and Live meeting), around 8000 seats are required to have a residual income of $100k per year from 6% commission – and obviously you earn 18% in year 1 which makes it much more attractive.  In New Zealand if you focus on businesses with more than five employees (which BPOS is ideal for), you’ve got a catchment of around 37,000 businesses with an average number of employees of around 41.  So 8000 seats is roughly equivalent to 200 average sized customers fully deployed.

Obviously this doesn’t include revenue from things like:

• Exchange/Mail migration
• SharePoint Customization
• End user training
• Integration between on-premise and online
• Business consulting
• etc

Also, the figures above only take into account BPOS.  Today you can also sell Azure and Exchange Hosted Archiving, but in the future additional products will be available in New Zealand such as Windows InTune, CRM Online and others.  From a partner perspective, selling these additional services will significantly add to the bottom line as you sell BPOS + CRM and Intune to the same customers.

How long would it take to get started?

If you were to get going today and build a nice pipeline and start selling Microsoft Online Services today, here is a simple model of how it could look - allowing for a flat period through the Christmas/New Year break and growth in seat acquisition as the sales pipe grows and is converted to sales. 

To model this, we need to make some assumptions.  For this, I assume that 20% of seats are for SharePoint Online, 40% are Exchange Online and the rest are BPOS Suite.

Note that this is purely from commission – not services.  The blue line is the total number of BPOS seats sold to that point. The purple line is the first year revenue attached to those seats.

The future

However, this changes the game somewhat in terms of how to grow business.  With the online paradigm comes the need to aggressively acquire new seats.  No new seats mean a very flat business – and with this space being competitive to become the partner of record, the key is to retain existing seats while growing new seats.

There are a couple of ways to do this, and obviously one of those is by supplying IT services.  However, as this space becomes more competitive I expect that customers will expect more than just IT services, and that today’s IT companies will need to become much more business consulting focused to provide outsourced services that simply don’t fit the customer’s business model or supplying services that are needed on an ad-hoc basis.

What does it mean?

The bottom line is that if you want to be earning decent residual income from BPOS and other Microsoft Online Services, there is no time like now to start.  Here’s why:

• The market is in its infancy – plenty of scope to carve out a reasonable market share early
• Customers quickly understand the value proposition
• Competition is light
• Microsoft is about to be the farm on this approach – be part of the ride from early
• Some IT companies will be slow to move and risk being left behind while you undercut their pricing

If you’re ready to get started selling BPOS, head to www.quickstartonlineservices.com and user your registered partner Live ID to log in, and sign up as a partner so customers can buy from you.  While you’re there, check out the many excellent resources, slide decks and whitepapers that are there to help you start selling and migrating people to the cloud.

There are many facets to the approach of cloud computing.  One is the various and variations of business models that are available, another is the way different companies are approaching the cloud and how they are offering different services.

There are two primary approaches to offering cloud based solutions.

SAAS

The best known of these is Software as a Service (SaaS). The concept of SaaS is that a company (provider) offers a software product that is consumed and paid for as a service.  Rather than downloading and installing software on computers, a customer would simply open their web browser, type an address and start using the software.

There are benefits of this approach.  Obviously, the application is available on any device that has a web browser.  This means that there is no software to be written for Windows, Mac and other devices – write it once and it runs anywhere.

There are also trade offs with this approach.  These include latency (the time it takes for the computer to talk to the applications over the internet), disconnections (e.g. on a plane) and richness.  Richness can be managed by using technology such as Flash or even Silverlight.  However, not all browsers support these technologies (and I’m not just referring to certain tablets), so when these technologies are relied on, it can break the primary benefit of the SaaS approach.

Who is using this approach today?  Many companies use this approach today including Xero and Google.  In fact, the SaaS model seems to be driven largely by Google – which is hardly surprising given their strategy.

Software + Services

The other approach has been labelled Software+Services (or S+S).  Software+Services emphasises the user experience and offline connectivity over portability. That is that this approach has a client solution that uses web services of some description (be it ReST, SOAP or something similar) to connect to a server on the internet which provides a service.  In some cases, there may be a SaaS solution that fills the gaps in portability but the main solution is based on the client applications.

Benefits of this approach are that there is no problem with richness as information can be cached locally and manipulated by the user on their device. The client application generally has offline capability and is not sensitive to latency as SaaS solutions tend to be.

The disadvantage of this approach is that the client needs to be written for each platform being targeted.  This may mean writing an application for Windows, Mac, Linux or the various i-something devices. Where this becomes a real problem is when an update is made, it needs to be rolled out to each of the applications in turn.  This can make the development process cumbersome.

Who is using this approach today? Microsoft and Apple both tend to use this approach – which makes sense given both companies have a client business to build upon.

Hybrid

Increasingly today, solutions start as a SaaS model but then see the advantage of having the rich clients, but don’t want to maintain them.  What to do?  The hybrid solution provides a middle ground between these two solutions by building a SaaS solution and then building in an API. The beauty of this is that if a customer wants a client application badly enough, they can build one themselves.

The benefits of building an API are several: Firstly with critical mass (note that critical mass must come first) this can enable an ecosystem around your SaaS model, which means that people can build an applications and possibly sell it and make money for themselves or give it away to build their own reputation (and when they are smart, their own business).  When this happens, your customers get the best of both worlds – they get your great SaaS application and the client apps for richness, but you don’t have to maintain it.  Alternatively, if you want to build some limited applications, you are also free to do this.

The disadvantages associated with this is that you don’t control the user experience from end to end.  This has a number of flow on effects.  For example, your company logo/brand is likely to not be used in client applications (or perhaps it will).  Another example is support.  Customers may get used to a client app’s way of doing things and the developer may stop producing that application, which may cause end user confusion.  Often customers don’t understand what services you do and don’t provide, so they may email your support facilities about a problem which is really with the client software they are using.

Who is using this approach today? Flickr, Twitter and a host of others use this approach extensively.  Other companies use it to varying degrees – e.g. Xero has an API as does Toodledo and others, but in some cases finding applications is very hard – and in most cases is dependant on the target audience for that solution as well as critical mass.

What does the future look like?

At the end of the day, when we look at the current range of applications most used by end users, some of them work well as a client based solution and won’t go into the cloud very easily, others will disappear into a SaaS model very easily. There are applications that might need to change before it can make the leap to the cloud (ala Xero taking a direct connection to your bank account), but in some cases this might not happen easily or seamlessly. Some applications need device capabilities (e.g. GPS, scanners, etc) which will likely to necessitate a client approach.  In saying this, there is no one model that will suit all solutions in all cases, however, we will, I believe see some trends particularly with existing application models.

Personally, I expect that the S+S and hybrid models will be generally more popular for the next few years. I see the S+S model potentially strengthening further over time as compelling devices and client delivery methods for accessing the cloud become more commonly accepted among users and drive the S+S model rather than the SaaS or even the Hybrid model.  Watch this space.

Disclaimer: I work for Microsoft as the Product Manager for Online Services (as well as SharePoint).  Below is my opinion only, it is not sanctioned by Microsoft and it may or may not be right.

A few weeks ago I spoke at the Auckland Cloud Camp (and did a repeat last week at the Wellington cloud camp).  You can watch my Auckland presentation from a bad angle here, and the Wellington one here; but I promised Mr Ben Kepes that I’d write up a blog post summarizing my thinking too.  This is that blog post.

As I write this, I’m writing it from the perspective of someone who looks at the entire Microsoft Partner ecosystem from the perspective of both an outsider (I don’t work for any of them) and an insider (I have a vested interest in their success and work with many of them on a daily basis).  Your perspective will make a big difference to how you see things panning out.  For example, my basis is that a large % of the IT industry in discussion below deals with the sale, deployment and maintenance of Microsoft based systems.  I’m not really considering specific vertical applications (e.g. Xero) and the impact these apps have on the industry, nor am I consider companies that focus on non-Microsoft technologies – although I’m sure they too will be affected.

Business models possible with the cloud

The cloud is potentially one of the biggest changes to the IT ecosystem since the mainframe market transitioned to the PC market of today.  I don’t think it will be quite as big as the mainframe/PC transition, but I expect it will be the biggest change since then.

Lets start by looking at business models that are possible with the cloud. There are six business models available today in the cloud.

1. Consumer.  A consumer is one who creates an application that makes use of cloud based technology to create a solution that customers will pay for.  Again the example I’ll use here is Xero.  This is the focus of many entrepreneurs, so I’m not going to focus on it here beyond saying that I think this is where the cloud provides the most opportunity.

2. Consultant.  The consultant I have in mind here is someone who is familiar with the cloud, the opportunities and cost savings it affords and who sells their time to customers to help them figure out a cloud strategy.   In my opinion this is a role that provides value while there is uncertainty and a general lack of understanding of the cloud and what it means. But in two years time the raw consultant will be extinct.  Why?  Because once there is a general understanding of the cloud in the IT industry, the consultant won’t offer particularly good value for money as in house architects, etc will know enough to do this themselves, and given companies that have architects that are more likely to hire consultants, this opportunity will go the way of the dinosaur.

3. Reseller.  The reseller is someone who sells the services of a a cloud provider. Think of this role as the cloud equivalent of the procurement specialist. While this would seem like an obvious place to get involved, there isn’t much money in it. For example Google apps resellers make US$10 from every US$50 per year sale.  Thats a nice healthy 20% margin.  For comparison, Microsoft resellers make 18% in the first year and then 6% for the subsequent two years.

This may (or may not) sound pretty good.  But how many users do you need to sign up to make a living of say US$40k off this. With Google apps that means you need to sign up 4000 individuals. Don’t jump out and write a business case to start a business just yet though, because this market is a commodity market.  Expect prices (and your commission dollars) to decrease year on year, meaning your customer acquisition requirements will increase significantly over time.

4. Implementer. Implementation of cloud based solutions is a twofold opportunity.  Firstly there is the opportunity to migrate customers from on-premises solutions to cloud based solutions.  This would be from (for example) Microsoft Exchange 2003 to Microsoft Exchange Online (or a similar competing offering).  The second implementation opportunity is to migrate from one vendors cloud based solution to another. While we at Microsoft are seeing quite a bit of interest in this space at the moment, generally I would expect that once in the cloud it will be hard to migrate a customer out of it – even to a competing solution.

What this means is that if you are implementing solutions and your business depends on this, you shouldn’t generally plan on getting repeat business.  Once a customer has been migrated they don’t need any server maintenance, license or hardware procurement and won’t be asking you to upgrade them to the next version because that happens at the providers end – without a System Integrator needing to be involved.  In other words, once a customer is migrated to the cloud, that’s it – find another customer because this one now has much lower IT requirements and is largely independent of the implementer – at least for that solution.

5. Provider.  A cloud provider is a company that hosts servers and provides an product based service to customers.  Google is a cloud provider, as is Microsoft, Amazon and a number of other companies. Today, there are a number of companies that have invested in data centres and will use those data centres to become a cloud provider.  This is a logical way to take advantage of existing investments and capacity.

However, this option doesn’t look great in the long term. Being serious about being a cloud provider means significant risk and cost.  Providers pay for the power, cooling, space, hardware, software and technical gurus that keep their solution running – all the things your customers used to pay for.  Don’t forget to multiply that because providers need multiple redundant options – if the data centre in one location is destroyed due to an earthquake, fire, or other disaster, your customers are still going to want to keep running their business – bearing in mind they may be in a different city or even country and not at all affected by the disaster.  In addition to this, the pricing for cloud based solutions will be driven by the companies that have the scale – the big companies – and the direction of that pricing will be down.  So, over time the costs of being a provider will increase (as your customer base increases), but the revenue per customer will decrease. This will affect all providers – small and big alike, but the bigger providers will be more able to weather the storm to market maturity.

Over time, I believe that being a cloud provider for core solutions such as email, collaboration, infrastructure and platform will become a “big boys” game.  That is to say that I expect there will ultimately be a small group of big companies providing 80-90% of these cloud solutions – leaving a declining market share for competitors to play in. This will be driven by the scale these companies are able to achieve and the expansion of data centres by the current big players to meet their customer distribution. 

Today there is a short term opportunity in verticals like government, but in time the big companies will dominate these areas too (Microsoft recently announced a government only option in the US for example).

I expect smaller cloud providers will either be purchased by the bigger companies (primarily for their data centre presence or customer base) or will struggle and perhaps in some cases fail.

6. Combinations. For companies that provide consulting, procurement and solution implementation of on-premises software today, it would seem obvious to expand this into the cloud.  In reality, this is the only way to embrace the cloud as IT services firm.  However, as (for example) email increasingly takes to the cloud, the services revenue from this part of the IT industry will dwindle. The same will happen as more and more workloads head to the cloud.

Companies that specialise in cloud based services today, will in the long run either be purchased by a bigger IT services provider (assuming they can hit critical mass with customers) or struggle to come up with a value differentiator from their larger competitors and disappear except for some niche areas.

Conclusion.

The obvious prediction here is that as the cloud takes off and gains customer acceptance, and more and more of today’s on-premise applications go into the cloud, the IT services industry will also shrink as illustrated  for email and collaboration in the two charts below.

The end result is that I think business consulting (rather than just IT consulting) will be a increasingly important part of the business model of the current IT Services company. In time we may see consolidation between consulting firms like of Deloittes and PWC with today’s System Integrators, but then there are challenges there too.

The end is not yet nigh though. This transition will take several years to make, and there is plenty of opportunity to make sure you work through this transition. Not only this, but there are some scenarios where customers simply won’t make the jump to the cloud for various reasons.  This blog post is really a call to think through your business and how you can embrace the cloud and start you thinking about the opportunities and change that is coming to the IT industry.

In the future I’ll post a number of other posts that will give you further food for thought.

Its been just over a year since I became the Product Manager for SQL Server, BizTalk and Visual Studio.  I took on SharePoint in May, and have really enjoyed that, so I’ve recently taken the opportunity to move a short step sideways.

From today I will be managing SharePoint Server, Exchange Server and Microsoft Online Services (Business Productivity Online Services – or BPOS).

I’m going to miss SQL Server and the Application Platform stack, but I’m really looking forward to sinking my teeth into the online services business here in New Zealand.

Going forward you’ll see a few less SQL Server blog posts and a few more in the world of Online Services and Exchange Server.  At least for the moment.

Today at the SharePoint Conference, we announced the name of Project Gemini would become Microsoft PowerPivot.  Microsoft Powerpivot is an advanced Business Intelligence solution for Microsoft Excel that allows users to work with massive volumes of data (think hundreds of millions of rows) on a standard desktop computer (i.e. 1-2 Gb RAM) at near instant speed.

PowerPivot for Excel is a data analysis tool that delivers unmatched computational power directly within the application users already know and love—Microsoft Excel. Leveraging familiar Excel features, users can transform enormous quantities of data from virtually any source with incredible speed into meaningful information to get the answers they need in seconds.

Using SQL Server PowerPivot for SharePoint 2010 (delivered thru SQL Server 2008 R2 in SharePoint 2010), end users can effortlessly and securely share their finding with others and work seamlessly in the browser with the same performance and features as the Excel client. PowerPivot for SharePoint even helps IT departments improve their operational efficiencies through SharePoint-based management tool called PowerPivot Management Dashboard. IT administrators can track usage patterns over time, drill down to obtain more details, discover mission-critical solutions, and ensure performance by making sure users have the appropriate resources.

The Microsoft Business Intelligence strategy differs from most other BI offerings in that the goal is not to sell high price per user solutions that are available only to a select few in the organization (due to price).  Instead Microsoft is working hard to integrate Business Intelligence into the core data oriented products that Microsoft already sells and ships to customers – namely SQL Server, SharePoint Server and Microsoft Office.  As organizations tend to license these products for everyone, the Microsoft vision and strategy is to deliver Business Intelligence to everyone in the organization at commodity prices.

The future of Microsoft’s Business Intelligence offering is very exciting, if you are interested in BI, then stay tuned – the world is changing rapidly.

*UPDATE* More information now available on the Gemini team blog here.

There are some great Business Intelligence courses coming up that I thought I’d let you all know of.

One day BI Launchpad course

Firstly there is one later this month with Peter Ward (SQL Server MVP from Australia) who is running a one day hands on course designed to show how SQL Server 2008 can be used to solve different types of business intelligence problems, from data warehousing to real time operational reporting and analytics.  If you go, you will:

…learn how to use the SQL Server BI toolset to collect data from heterogeneous data sources and then display the data in a meaningful format to assist in making business decisions and then measure and monitor the results.  This course provides an end to end overview of the entire SQL Server BI stack from extracting data using Integration Services to building cubes with Analysis Services and then displaying the results using Reporting Services.

Full details of this course is available in a PDF for both Auckland, (July 20) and Wellington, (July 21).  FWIW, Peter is very knowledgeable, and SQL Server is his specialty, so this is bound to be a good investment of one day of your time.

Four day BI Depth course

In addition, Altis Consulting are pleased to announce a four day Kimball Group course to be h eld in Sydney in October 2009.  This course is entitled “Microsoft Data Warehouse in Depth” and will run in Sydney from October 20-23rd.  It is presented by Warren Thornthwaite and Joy Mundy, co-authors of the best selling Microsoft Data Warehouse Toolkit.

This course is designed to appeal to all major roles on a data warehouse project  on the Microsoft platform.  It’s for DW team managers, system architects, ETL system architects and developers, data warehouse operational staff, and BI application designers and developers.  Every attendee in this class will receive a copy of the Microsoft Data Warehouse Toolkit.

You can download the course brochure here, registration is available now from here. Additional information is available from the Altis Consulting web site.

A while ago I did a presentation for the Auckland SQL Server User Group (and last years SQL PASS Community Connection).  The topic was building a  business case for SQL Server. 

Since then several people have asked me to post the slides to my blog, but while I’m not going to post the slides here at this stage, I thought I’d do the next best thing and post the model I used to build the business case.

To do this effectively we need to have a framework for building the business case.  The framework I used is a model that Mark Carroll a colleague from my DPE days came up with (incidentally Mark came up with this model before he joined Microsoft).  Mark called the model the 8 business drivers, I’m going to call it the “Mark Carroll business driver model” because it sounds more official and gives Mark the credit for it.  The model looks approximately like this:

1. Tangible costs (How much does the product cost to purchase or maintain?)

2. Skills availability (How easy is it to get people to work on it or solve short term skills shortages?)

3. Customer requirements (Does it meet the stated business requirements?  What about unstated requirements?)

4. Third party products and services (What sort of ecosystem and partner network is there for this product?)

5. Standards and Methodology fit (How will it fit with my business methods? How does it work with established standards?)

6. User Functionality requirements (How easy is the product to learn (i.e. discoverable)? Is there a consistent user experience/paradigm?)

7. Timeliness (What is the time from order to deployment? How quickly can it be modified or customized?)

8. Life expectancy (How long will the vendor be around? How long will they support the product for? Will there be a migration path to the next version?)

If you use these 8 business drivers to build your business case, you’ll find the answers that you are looking for.

Perhaps in a future post I’ll plug SQL Server into this and show how it measures up against this model.

Last week we announced changes to our Business Intelligence roadmap.  In short this means that we are progressing with our vision to empower all users with Business Intelligence capabilities by migrating the scorecarding, dashboard and analytics functions of PerformancePoint Server into Microsoft Office SharePoint Server in the Office 14 wave and discontinuing investment in PerformancePoint Server beyond Service pack 3 for PerformancePoint Server 2007.

For more details on this announcement, I encourage you to watch this short video (5:19) by Guy Weismantel, the director of Microsoft Business Intelligence.  Also have a read of the announcement on the BI blog here.