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Cloud Resources
The Cloud Opportunity Why Customers Are Moving to the Cloud Why ISVs Should Move to the Cloud
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Drive Down Costs Expand Reach Increase Velocity Grow Revenue Augment and Cross-sell Cloud Extensions Develop New Cloud Applications Migrate Existing Applications to the Cloud Marketing Sales Operations Finance
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Executive Summary
This guide is designed to provide independent software vendors (ISVs) with an overview of cloud services and the wide range of cloud opportunities available to them, including examples of how to monetize these opportunities and successfully establish a cloud practice. ISVs are partners that build new applications or extensions to existing applications and sell them to customers directly or through other channels such as distributors. In the cloud, this can mean developing applications on the Windows Azure technology platform or developing additional functionality on top of other cloud technologies such as Microsoft Dynamics CRM Online. Over the next few years, the demand for cloud services is expected to grow continuously and rapidly. Some market research suggests that within four years, one quarter of total enterprise IT workloads will be made up entirely or partly of cloud technologies. The convergence of a number of customer demandsincluding expectations of pervasive network access, tighter IT budgets, and the emergence of platforms for developing and delivering cloud applicationsresults in enormous opportunity for ISVs who develop applications for the cloud. The cloud IT transformation also necessitates some changes in the way that ISVs package, sell, resource, finance, and manage their businesses. This guide includes action plans as well as resources that will help ISVs launch and enhance their cloud services practice. It includes the following topics:
Why ISVs should invest in the cloud The broad range of cloud solutions ISVs can offer What ISVs can do now to capitalize on the cloud opportunity Where to find more information about building cloud services
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Delivers applications and their associated data on demand. This is the primary field of opportunityfor ISVs. SaaS applications are hosted in the cloud and accessed via the Internet. According to Gartner, SaaS is forecast to have a 17.7-percent compound annual growth rate (CAGR) through 2013 in the aggregate enterprise application markets, nearly five times the projected CAGR of 3.6 percent for the total application market.1 This includes high-demand workloads such as web conferencing, collaboration, content management, messaging and productivity, customer relationship management (CRM), and enterprise resource planning (ERP). Delivers a computing platform as a service. PaaS offerings provide for the development and deployment of applications without the cost and complexity of buying and managing the underlying hardware and software. Delivers computer infrastructuretypically a virtualized environment as a service. IaaS allows organizations to buy IT as a fully outsourced service, on a utility or pay-as-you-go basis.
Means
Software as a Service (SaaS) Platform as a Service (PaaS) Infrastructure as a Service (IaaS) Application Software & Data IT Services
Provides...
Empower Users Develop Apps Rapidly Reduce Management
Examples...
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The cloud opens up many opportunities for ISVs to extend market reach and grow revenue by reaching new customers, new market segments, and new geographies around the world. At the same time, cloud computing offers ways for ISVs to reduce costs and increase time to market. For ISVs, the move to the cloud creates increased opportunity in several important ways. Drive Down Costs
The emergence of public cloud platforms for developing and delivering cloud-based offerings removes critical barriers for vendors that want to develop and deploy cloud-based solutions. Prior to the existence of platforms such as the Windows Azure technology platform, ISVs were hampered by having to create and manage their own hosting solutions, leading to costly capital outlays and much slower time to market. The cloud allows ISVs to reduce their investment in infrastructure, which means increased ability to invest in development and research. The cloud also lowers development costs and makes them more predictable. When ISVs move to the cloud, they no longer need to support multiple versions of middleware and operating system configurations. By writing the software for a single infrastructure they are able to increase efficiencies and save on costs. All customers use the same software and require the same training. This means that company resources and assets can be shared far and wide and usually remotely instead of having to meet the on-premises requirements of each individual customer. The cloud also puts ISVs in control of the speed and reliability of applications, which in turn can lead to an overall better customer experience. And with a shared infrastructure and code, as business grows, the development, maintenance, and operational costs are spread across an ever-increasing number of customers, allowing ISVs and their customers to enjoy the economies of scale. With cloud computing, ISVs have opportunities to reach new clients as well as expand their business with their current clients. The cloud allows ISVs to have a global presence, giving customers around the world access to their products. For example, ISVs can add new cloud-based functionality to their existing solutions, providing for greater mobility, more ease of use, and new features. Or they can extend existing solutions to new markets, given the greater geographical scope of the web. They also have an opportunity to serve new markets, with lower price points due to reduced development costs.
Expand Reach
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Increase Velocity
The increase in the speed with which ISVs can bring their products to market and reach customers is another benefit of being in the cloud. Cloud computing provides greater capacity, faster time to market, and shorter sales cycles, as well as greater agility and flexibility. Organizations have more flexibility to roll out and support new business models and adapt business processes to meet market demands. ISVs have a number of opportunities in the cloud to grow revenue, just as the cloud opens doors to new customers. ISVs can: Develop scalable applications that grow with their customers needs. Making scalable applications recognizes that one size does not fit all. The cloud enables ISVs to develop applications as customer needs change rather than build applications based on estimates of future capacity and demand. Migrate existing tools and applications to the cloud. For example, ISVs with traditional on-premises applications have moved their solutions to the Windows Azure platform, enabling them to increase their customer base without significant recoding. Augment existing applications with cloud features and provide the back end to mobile interfaces on Windows Azure. Add-on solutions such as online alerts and mobile extensions can be productized and marketed separately for additional revenue opportunities. These additional tools and features can enhance on-premises software solutions. For example, an ISV that develops and sells on-premises supply chain solutions can use the cloud to create improved online collaboration features. ISVs can also build on existing cloud-based technologies. For example, using the cloud, an ISV could develop additional functionality for Microsoft Dynamics CRM Online.
Grow Revenue
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The cloud offers ISVs many ways to develop their businesses and reach new customers. These include the following opportunities. Augment and Cross-sell Cloud Extensions
Often companies have deployed or developed software for their employees to use or for customers that resides internally on a network. By moving to the cloud and developing add-ons to existing software, companies have found that they can better serve their employees beyond company walls. With Microsoft cloud solutions, ISV partners can use the development and integration skills they have already developed to expand their offerings. For example, they can develop customized tools such as alerts for Microsoft Dynamics CRM Online. Or, using the tools and services of the Windows Azure platform, they can augment existing applications, or blend on-premises IT assets with cloud computing capabilities to help their customers become more agile with scale-up, scale-down flexibility.
A global technology company wanted to help its employees print from anywhere, even outside the companys walls, using their smartphones. To provide this functionality, it built a cloud-based printing service that allows mobile workers to print to any available public printer from their mobile devices. Outcome: Greater reach with existing customers, increased opportunity with new customers, new offerings with reduced development cost.
A global news company with an API for presenting news was looking for a way to make the news more readily available without investing in new infrastructure. The company decided to deploy the solution via the cloud to allow external customers to access their news feeds. Outcome: Streamlined deployment and planning, enhanced reliability, fast time-to-market, new opportunities for growth.
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ISVs can translate their experience with developing on-premises applications to developing for the cloud. The flexibility of the web and the ability to test code without major commitment allows for greater creativity in development. Among the many possibilities for development, some examples include: Monitoring and management tools. Business intelligence applications that extend solutions into the cloud. Content management and delivery tools. Rich media training applications. Digital marketing solutions. Online data storage and retrieval applications.
A statistical forecasting company in Europe has exponentially increased its ability to provide forecaststo up to 100 million statistical forecasts per hourby developing their apps specifically for the cloud. Moving to the cloud has allowed this company to focus on business and development rather than infrastructure. Outcome: Rapid development, reduced IT maintenance costs, improved service offerings for customers, greater competitive advantage.
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By migrating existing applications to the cloud, ISVs can provide affordable, highly scalable solutions for customers and in fact expand their customer base greatly. Moving to the cloud also allows the ISV to provide lighter versions of their software, thus allowing more people to use it, especially because difficult deployments and maintenance are eliminated. This also means that customers can get the benefits of the software without the expense of having to make large investments in hardware, software, and staffing up front.
A start-up company that had developed a suite of products that augment Microsoft Outlook decided to move to the cloud. They wanted to be able to provide new technology for their clients who often didnt have internal IT staff. By using the cloud this company can provide scalable, flexible products specific to each clients needs. Outcome: Greater flexibility in development, improved scalability, enhanced security and reliability.
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Marketing
The go-to-market process for cloud services defines not only who the customers are but how they like to buy, where they buy, and which channels will be effective. ISVs that operate in the cloud have an opportunity to capitalize on new market dynamics, from customer segmentation to pricing. Segmentation. With cloud services, understanding customer personas is fundamental, because they influence everything from features and functionality to pricing and financing. ISVs that operate in the cloud need to work to understand their target audience and different customer segments. These activities including understanding: Who the target audience is. Their needs and pain points. Their preferred ways to buy. The experience they are looking for. Who they buy cloud services from today. How they think about the partner as a provider of such services.
With this information in hand, ISVs may want to develop offers that provided extended or enhanced customer support and generate additional revenue. ISVs will also want to develop subscription renewal and upsell offers to help retain customers and build loyalty.
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Pricing. Customers keep paying for cloud solutions because they derive value from them. If they stop realizing value, they will stop paying for the solution. The most successful cloud providers think beyond the concept of pay as you go and focus on pay for value. One way to manage these expectations is to develop tiers or classes of service that simplify choices and encourage upgrades. Another strategy is to create bundles or suites of products. Increasing complexity by letting customers choose features and functions individually creates customer confusion and complicates billing. The goal is to provide a clear path that will enable customers to start out small and expand as their needs and confidence with the offering grow. This also enables ISVs to offer low-end introductory packages that are attractive to customers. Pricing models for cloud services are evolving, and range from free and ad-based models such as those employed by Facebook, to pricing based on volume, transaction, or user, as shown in Figure 4. For example, an ISV may opt to provide a basic level of service for free, with premium upgrades. This freemium model reduces barriers that customers may have in trying out the software. Once theyve started to derive some business value from it, customers are likely to consider upgrading to a paid version of the solution. Usage-based or transaction-based models also closely map to value. Transaction pricing and paying per unit of measure may not be applicable for every application, but sophisticated billing, provisioning, and metering techniques enable cloud providers today to offer more flexible pricing models.
FREEMIUM
Free basic level Premium upgrades
PER TRANSACTION
PER METER
AD-BASED REVENUE
One cloud-based ISV offers a variety of pricing bundles for its customers. Depending on whether the customers are high volume, low volume, or luxury, they are charged based on how they use the different aspects of the products. As the customers needs change, their billing requirements change as well. Outcome: Increased customer reach, greater customer base.
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An online publishing business based in the United Kingdom offers its initial software for free. By offering customers the tools to build high-quality books for free, the company is bargaining that a good percentage of customers will want to take the extra step and have their books professionally printed. They offer a wide range of print options, from low-budget books to more expensive professional albums. Outcome: Expanded customer reach, more effective use of marketing dollars.
Demand generation Demand generation in the context of cloud services is focused on achieving two critical and measurable marketing goals. Acquiring customers. Here demand generation activities are focused on generating awareness or capturing existing interest and ultimately turning that interest into orders. If demand generation activities are successful, they will result in increased contracted monthly recurring revenue (CMRR). Also, optimizing marketing spend will ensure that customer acquisition costs remain low. Activating usage. Here demand generation and cultivation activities are focused on both increasing CMRR and reducing customer churn. Helping customers quickly realize value shortens the sales cycle, increases the opportunity to up-sell and cross-sell in complementary products and services, and builds customer loyalty.
ISVs should also consider developing free trial offers that enable users to try an application before they buy. Free trials are not necessarily appropriate for every offer, but in the cloud services world, customers most often want to start using an application and realizing value before they will commit to paying for it over a longer term.
One global company, a leader in its field, realized much greater capacity for up-selling to customers by moving its suite of products to the cloud. Solutions are highly scalable for customers. Outcome: Reduced time to market, greater reach, reduced latency.
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Sales
The cloud opens up new ways for ISVs to reach customers across a range of sales channels, such as: Direct sales (field sales organization). Telesales. Online sales. These can include vendor-driven sites such as Microsoft Pinpoint and the Microsoft Dynamics Marketplace, third-party online marketplaces such as those organized by distributors or by vertical through trade groups, or via a partners own e-commerceenabled website. Breadth partners. For example, ISVs might consider partnering with system integrators to reach new customer segments.
This range of distribution models provides new opportunity for ISVs. Account management is another important consideration. Maintaining an ongoing relationship with the customer provides more opportunity to increase revenues through upselling and cross-selling opportunities.
Operations
Establishing a successful cloud-based business means evaluating each part of your business and planning for change, from establishing a financial plan that integrates annuity revenue streams to defining solution offerings, establishing service-level agreements (SLAs), and creating customer on-boarding processes. In every aspect of business, the goal is to reduce the cost of goods sold (COGS) while creating repeatable practices that will support growth in revenue without an increase in costs. Developing software for the multiple deployment scenarios made possible by the cloud may mean creating new application architectures that are different from those required for on-premises application development. ISVs will also need to evaluate their operation and support models.
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Finance
As cloud services shift the cycle of payments from one-time, up-front lump sums to recurring revenue streams, cash flows for cloud services will likely differ from more traditional business models. Establishing a financial plan based on a specific cloud services strategy is a foundational element of a cloud services business. ISVs will also need to shift some of their investments from technical infrastructure to marketing. To increase the volume and velocity of sales, partners will need to invest in marketing engines, including the development of pay-per-click campaigns, search engine optimization updates, data-mining tools, and marketing automation tools for lead routing. Partner organizations in transition to building a cloud practice will also need to invest funds in training. ISVs that have not established a cloud development practice will need to identify and build the skills and capabilities necessary for supporting cloud services. ISVs that already offer cloud-based technologies can augment existing skills to expand their product portfolio of cloud offerings. By reconsidering every aspect of their business, ISVs that go to the cloud can capitalize on its opportunities. By employing new ways to manage, market, sell, and price their services, cloud ISVs will be well positioned to increase their market share as demand for cloud technologies continues to grow.
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Get Started
Find out more about how to move your business to the cloud by making use of Microsoft resources.
Learn
Join the Microsoft Cloud Program.
Try
Make use of one of three free offers available to partners: Windows Azure Platform Introductory Offer free trial
Cloud Resources
Microsoft Cloud Essentials MSDN Subscription free to qualifying partners, available for purchase to others
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Cloud Resources
For more information visit the links below. Learn more about Microsoft cloud services
Microsoft Cloud Power Information about cloud opportunities for other partner business models
Read about how other partners have built successful cloud businesses
Partnering with Microsoft in the Cloud
Drive sales
Partner Marketing Center For more information go to the Cloud Solutions section on the Microsoft Partner Network Portal
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