Cloud Service Providers Are Beating On-Prem Competitors, But Still Have A Long Way To Go

IDC just published the first installment of a five part report about Microsoft’s partner ecosystem. The key takeaway: cloud-focused partners are beating their on-prem-focused competitors. Here are some numbers from the report:

  • Cloud partners are growing twice as fast year-over-year as their on-prem competitors (24% compared to 12%)
  • Cloud partners gross profit is 50% higher than their on-prem competitors (41% compared to 27%)
  • Cloud partners have 1.8 times more recurring revenue than on-prem partners (52% compared to 29%)

These numbers look good on the surface but, when you really analyze them, I think they show that cloud service providers still have a long way to go. Look at the recurring revenue stat. Cloud partners only get about half of their revenue from recurring revenue? This means the other half of revenue is coming from onetime project services. Why? Yes, customers should pay for valuable consulting and onboarding services. But why not amortize the cost of those projects services over time in to recurring revenue managed services? Customers will be happy having no upfront costs and partners will differentiate themselves and win more business.

Some modern managed service providers are already employing this strategy because they know recurring revenue is actually worth more to their business over time. Take email migration to Office 365 as an example. A modern MSP would look at their fully burdened (software, services, mark-up, etc.) per-mailbox migration cost of $15 and, instead of charging their customer up front, build in $0.75 per mailbox per month in to their monthly cost to manage Office 365 for the customer. Note that the modern MSP offers full Office 365 management for their customer to begin with. 🙂  They break even after 20 months and then continue earning $.75 per mailbox per month for the rest of their relationship with the customer. For those of you that didn’t pay attention in math class, those numbers are pretty good!

Read more from the IDC report click here.