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COVID-19 Impact on Microsoft Insights and strategies for Partners

Posted By Pavan Jangid, Thursday, May 28, 2020

Normally, I reflect on Microsoft earnings releases from a business and content point of view, looking at subtle changes that Satya Nadella, CEO of Microsoft, might be making through a lens of the topics on which he speaks. I do that because Nadella launches concepts which then pop up in speeches, interviews, quarterly earnings calls and annual shareholder letters.

 

Satya iterates on these concepts and you see the refinement with each iteration. These concepts then become strategy. Then structure follows strategy, and finally other supporting processes get adapted to support the strategy and structure. This consistency means that, by studying what Nadella says, you can foresee where Microsoft is going over the next couple of years. There is no surprise.

A world on the move

Thanks to COVID-19, we now live in an accelerated world that is rapidly transforming at the same time. Where we used to react in months, now we need to react within weeks and, similarly, weekly adjustments have become daily adjustments. I decided to focus this review of Microsoft earnings on the past and future impact of COVID-19 for partners. 

 

As Nadella stated in the Q3 earnings call on April 29th, “COVID-19 impacts every aspect of our work and life. We have seen two years’ worth of digital transformation in two months. There is both immediate surge demand, and systemic, structural changes across all of our solution areas that will define the way we live and work going forward.” 

 

Summary of impacted areas of business going forward 

  • Certain Industrieslike travel, tourism, retail
  • SMB Segment  
  • Transactional business 
  • Advertising 
  • New Dynamics projects 
  • Consulting business 

 

Summary of opportunities 

  • Accelerated digital transformation 
  • Healthy Azure consumption and increased usage across:

 

  • Windows Virtual Desktop,
  • Power Platform,
  • Microsoft 365, particularly in Teams and advanced security solutions 

 

IAMCP Covid-19 Impact Survey 

The IAMCP conducted a global survey on the impact of COVID-19 on its associates´ businesses at the end of March.  Here are some of the key takeaways from that survey:  

 

  • More than 90% of IAMCP partners see their business impacted and more the one third see their business impacted by more than 25%. 

 

  • The biggest impact is in a reduction of pipeline followed by cancellation of signed projects that have not started yet, and issues with customers allowing remote work for consultants.  

 

 

The impact of Covid-19 on Microsoft´s Q3 numbers 

 

Microsoft summarized the impact as follows: 

 

“In our consumer business, the landscape evolved quickly following our mid-quarter guidance update. The supply chain in China returned to more normal operations at a faster pace than we had anticipated. And, we saw increased demand from work, play, and learn from home scenarios, benefitting Windows OEM, Surface, Office consumer, and Gaming. This was partially offset by a significant reduction in advertising spend, which impacted our Search and LinkedIn businesses.” 

 

“In our commercial business in March, we saw healthy Azure consumption and increased usage across Windows Virtual Desktop, Power Platform, and Microsoft 365, particularly in Teams and our advanced security solutions. However, we also saw some changes to our sales dynamics particularly in the industries and segments most impacted by COVID-19. We saw a slowdown in our transactional business across segments, but particularly in small and medium businesses. In enterprise services, growth rates slowed as consulting projects were delayed. And on annual contracts in LinkedIn's Talent Solutions business, renewals were impacted by the weak job market.” Amy HoodExecutive Vice President and Chief Financial Officer, Microsoft Corporation.

 

Microsoft included an additional slide in the earnings call addressing COVID-19 impact: 

 

  • Net revenue: Minimal impact to total company 

 

  • Productivity and Business Processes, Intelligent Cloud: Increased cloud usage driven by remote work and learn scenarios in Microsoft 365 including Teams, Azure, Windows, Virtual Desktop, advanced security solutions and power platform. Slowdown in transactional licensing, particularly in small and medium businesses. Reduced customer advertising spend impacting LinkedIn revenue.  

 

  • More Personal Computing: Increased demand to support remote work and learn scenarios benefitting Windows OEM and Surface. Supply chain constraints in Windows OEM and Surface that improved late in the quarter. Increased engagement in Gaming following stay-at-home guidelines. Reduced customer advertising spend impacting Search revenue.  

 

  • Capital expenditures: Delayed cloud infrastructure spend due to supply chain constraints.  

 

  • Operating expenses: Reduced discretionary spend in areas such as travel and marketing.  

 

Current quarter impact 

However, this was this past quarter. What I think is most interesting is to see what Microsoft sees for the quarter ahead and the immediate future.  

 

Microsoft sees a higher variability in the range of guidance. However, for Productivity and business processes and Intelligent cloud, 80 percent of this revenue comes from the earnout on existing contracts and agreement renewals. The remaining 20 percent of revenue, primarily from annuity agreements and transactional licensing, is subject to more volatility in the current environment. This is in stark contrast to More Personal Computing where roughly 75 percent of revenue, across OEM, Surface, Search, and Gaming, is earned in-quarter and therefore will be more susceptible to the overall business climate. 

 

Positive impact Microsoft sees 

  • In Office commercial, revenue growth will continue to be driven by Office 365, with strong upsell opportunity, particularly to advanced security solutions. 
  • In Azure, revenue growth will again be driven by our consumption-based business, with continued strong growth across the customer base for Azure, but with some moderation in the most impacted industries and segments.  

 

Negative impact Microsoft sees 

 

  • Overall transactional weakness (all on-premises transactional licensing).
  • LinkedIn and Search ad revenue. 
  • In Dynamics a slowdown in new projects with longer lead times. 
  • In Enterprise Services, expect a low, single-digit revenue decline driven by continued delays in our consulting business. 

 

Some additional insights from the analysts’ Q&A 

 

Question on the monetization of some of the first responder help Microsoft is providing 

 

Satya Nadella: “Overall the approach we take is really to be there for our customers at their time of most acute need. We don't go in there with the mindset of what does it mean for our revenue. When our customers do well, we'll do well on a long-term basis, that's at the core of our business model.  

 

Amy Hood on expanding the customer base versus adding seats or consumption within that customer base: “We actually saw both this quarter again, the way you would have seen a little bit of weakness, I guess, in on-premises Office Commercial due to transactional weakness and maybe SMB. The one difference I will say is just because there was so much deployment done in the past 4 weeks, especially around Teams and some of the other workloads, there's certainly a distinction that a lot of that was expanding the footprint as opposed to deployment much faster than I think many enterprises had initially planned to do so.” 

 

Amy Hood on Dynamics: “As long as business applications like Dynamics 365 address the immediate pressing needs, these projects will happen because that's the way for economic activity to return. But at the same time, with business applications that have longer lead time in terms of implementation, people are probably going to take some more time to decide on it. But we think we are well positioned to capture the new scenarios with Power Apps, because we think about Power Platform and Dynamics as both what we do with business applications, and we feel that between these two, along with Azure, are well positioned to address what are going to be increasing digitization needs, where people don't have months to deploy or months to implement.” 

 

Amy Hood: “And I think that you would say that we've seen that in our pipeline and really in the customer demand scenarios. So, I think what we've seen is really more of a shift to some of these quick time-to-value deployments and a real change in terms of new, long lead time projects there, and I think that's probably not surprising.” 

 

Insights and strategies for partners 

 

Industries 

There is a general impact on certain industries like travel, tourism, retail etc., which is affecting Microsoft customers and, of course, partners that work with customers in these industries. At IAMCP we have also seen the most impact on partners that have a customer base across these most affected industries. Partners will have to devise diversification strategies. 

 

Segment 

As a segment SMB is more affected than Enterprise, and Microsoft is admitting this impact as well. At IAMCP we have seen strong continued business in the enterprise and a mix of impact in SMB. Most partners have been busy getting their SMB customers up and running in a remote working environment which has caused a spike in business, but we need to wait and see if that continues. Partners that focus on SMB will have to have a diversified portfolio of customers in order to balance the positive and negative impacts. Partners working in the enterprise space can see an increase in work as some customers have decided to accelerate their digital transformations (except for the most affected industries). 

 

Transactional Business 

Most transactional business is affected as customers will reduce spending where they can. However certain categories have seen growth in demand only restricted by supply chain issues (PCs, Office365 consumer). At IAMCP we do have anecdotal feedback that some SMB customers are reducing consumption of CSP licenses. On the other hand, there is feedback of growth in O365 CSP revenue from distributors because of the spike in home working.  

 

Dynamics 

Microsoft sees a delay in new Dynamics projects and a longer lead time for closing deals. At IAMCP we have seen some Dynamics partners more impacted than partners that work on other parts of the Microsoft stack.  

 

Enterprise services consulting business 

Microsoft enterprise consulting business is a reflection of most project-based partner business, so if Microsoft foresees a decline in MCS, that is not a good overall sign. Then again MCS is working, in general, on mission-critical, leading-edge projects and less on pure cloud infrastructure projects.  

 

Where are the opportunities? 

Before going into detail on the opportunities, I would like to reflect on something I see as a milestone. Microsoft has been on a transformation to become a cloud company but more personal computing (to simplify = Windows) has been the biggest revenue generator all these years. Productivity and business process (Simplified = Office) was structurally the segment that generated most profit. In the figure below you can see that Intelligent Cloud is becoming the biggest revenue and profit generator (Simplified = Azure). This is an excellent trend for partners as this means more complex services will be needed long-term.

In the short-term, Microsoft sees healthy Azure consumption and increased usage across Windows Virtual Desktop, Power Platform, and Microsoft 365, particularly in Teams and advanced security solutions. 

 

If you are a partner specializing in these workloads, you can see a short- to medium-term boost. Long-term, the secular trends of cloud, data and AI will be the most important drivers for business.  

 

Michiel van Vliet has been working for and with Microsoft and the Microsoft ecosystem since 1995 in several positions and within Microsoft Spain as Services Lead, responsible for the EMEA enterprise partner Team, working with some of the largest Microsoft alliances. In 2018 Michiel published a book on how to work with Microsoft called ´Refresh the Road Ahead´, and currently runs his own consulting business focussed on business and work transformation. Michiel is the president of IAMCP Spain, President of the IAMCP in EMEA and is a global IAMCP Board Member.

Tags:  Michiel van Vliet  Microsoft; Microsoft Q3 results; strategy 

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Overcoming the Pandemic Together and Scaling to Over 40,000 Users Globally

Posted By Pavan Jangid, Thursday, May 28, 2020

When the COVID-19 pandemic hit and our world changed overnight, everyone had questions about what was happening. And for every question, there were multiple answers – some legitimate, many not. Some companies wondered about how to assist their employees, now working in remote circumstances, to maintain their productivity from a home environment with their families around. Employers wanted to communicate vital company updates, provide assurance, and a sense of protection. Also, they needed to help their workforce understand the scope of the outbreak and the impact on their lives.

 

That’s when the BindTuning team – founded by Beatriz Oliviera, a long-time IAMCP member and the current president of the Portugese chapter - recognized a global need and a way to help.

 

With companies struggling to communicate accurate facts to remote teams, BindTuning leveraged the power of Microsoft Teams to build a solution. Outbreak Preparedness Kit – a template built for Microsoft Teams – was originally envisioned as a tool to enable accurate communications, and quickly grew to much more.

 

Spreading fast

After its initial splash, the Outbreak Preparedness Kit quickly caught the attention of the media and other partners in the Microsoft ecosystem. With offers of partnership, starting with Insiso, and followed by Claranet Portugal, DevScope, Progel, SharePrime, and C2C Onlinethe Outbreak Preparedness Kit was localized both by language and country-specific information to serve people in different communities with relevant information.

 

“At Insiso we were seeking an opportunity to provide support and advice in the face of the COVID-19 pandemic. When our long-term partners at BindTuning released their Outbreak Preparedness starter kit, this provided us with the perfect opportunity to both participate and collaborate with BindTuning in configuring the starter kit for distribution within the UK.” Ravikumar Dinakarkumar, Senior Software Developer, Insiso

 

With collaboration from partners in several countries – from Europe, South America and Australia, the template quickly took off – to the tune of 40,000 users, worldwide.

 

Localized kits currently available on the BindTuning app:

  • UK Kit – Insiso
  • Portuguese Kit – DevScope
  • Portuguese kit plus very specific content for customers – Claranet Portugal
  • Italian Kit – Progel
  • Brazilian Kit – SharePrime
  • Australian Kit - C2C Online

This rapid adoption rate is largely due to the fact that no coding or IT support is required, making it easy to setup. And, to sweeten the pot, the template is free to download and use for the first 3 months, to help companies get started while adopting austere measures in their businesses.

 

The Outbreak Preparedness Kit was released at the onset of the pandemic in early March 2020, the exact same time at which Microsoft generously announced a worldwide, free 6-month Teams subscription.

 

By leveraging the power of Teams as the go-to virtual workspace solution, the template provides companies with a crisis communication channel and a reliable information center for their employees, now working from home. What would have taken organizations weeks to establish and install is now ready-to-go in this pre-packaged solution that they can deploy in seconds and customize in minutes.

 

“It is rewarding to be able to bring our expertise together to help others, especially in times of crisis. Creating the template was the first step, but our partnership with other teams is the real crux of the success of this initiative. By enabling companies to deliver real-time, relevant information during this pandemic, we know that we are facilitating a value that many of us hold dear: human contact.” - Beatriz Oliviera, CEO of BindTuning and President of IAMCP Portugal.

The success that this partnership demonstrates lies in the country-specific data and translated content within the app, which open the potential of this product beyond the initial deployment. It could be white-labeled to content providers that issue reliable content about the pandemic (WHO, CDC, Government health organizations, etc.). Also, the app can serve as a resource beyond the current outbreak to support the needs of other events, like weather-related disruptions.

 

"At DevScope we strongly believe in the power of partnerships, where "one plus one" is more than just two. When BindTuning released its Outbreak Preparedness starter kit, in the face of the COVID-19 pandemic, we were helping our local customers gather data and PowerBI data for similar challenges. Making this content deployable in minutes made it way more useful for many more." - José António Silva, R&D Director, DevScope

Tags:  COVID-19  IAMCP  Microsoft  Microsoft Partner  P2P 

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