There is no question that Office 365 is a massive success for Microsoft, and that it is disrupting the entire productivity software category. Nowhere is that more evident than in the SMB customer segment. Adoption of Office 365 by SMBs is already off the charts and even seems to be accelerating lately. However, as is often the case when a new, disruptive technology comes along, partners can be left wondering “What’s in it for me?” and “How do I take advantage of this massive change?”
As a long-time veteran in the SMB space, both as a channel partner and in various roles in Microsoft, (including the initiation of a concept that eventually became Office 365), I’ve spent quite a bit of time thinking about these questions and discussing them with partners, customers and other industry experts. The good news is that there are some relatively simple ways for partners to turn Office 365 into an efficient and economically viable business model for themselves and their customers.
Let’s start by recapping some of the key benefits of Office 365 for SMB customers:
- Cash flow and ease of purchasing: For SMBs, consistent and predictable cash flow can be more important than profitability. Office 365 gives customers the ability to purchase via monthly subscription instead of having to fork out a lot of money up front. This really helps smaller businesses spread out their IT investments, and enables a lot more flexibility.
- Simplicity and reliability: Not having to worry about things like buying and maintaining on site servers, keeping up with product updates, and data security are real pluses for SMBs.
- Better functionality: Since Office 365 is based in the cloud, customers have the ability to access their information from pretty much anywhere and on pretty much any device.
- Lower costs: With simplicity comes cost savings. Not having to purchase and maintain servers, purchase product updates, and retain expensive IT staff are just some of the ways that Office 365 saves customers money.
Now, if you’re a partner that serves the SMB customer segment, you’re probably looking at this list and wondering if this transition to simpler, easier, cheaper solutions means the end of your business model. The answer is “maybe”. Partners who refuse to adapt will likely miss out on the opportunity and risk becoming obsolete, while those that choose to keep up with these changes will continue to thrive. The key is to quickly adapt your business to new opportunities that are opening up as a result of this transformation. While Office 365 is a great product, it doesn’t solve for all of your customers’ needs, and they still need your expertise and support to help them get the most out of it.
In Harry’s three-part blog “How to Make Money from Office 365,” he identifies a number of key ways for SMB partners to evolve their business model and generate additional revenue from Office 365, including service. Harry covers a lot of ground in the series, but the most exciting opportunity to me is what he calls “application layering”. I know from first-hand experience that Office 365, while a great product, is missing some key functionality that SMB customers need. Filling in these gaps with applications represents a good, simple way for partners to increase their Office 365-related revenue. The possibilities are endless. That’s why I left Microsoft about a year ago to lead a company called attachedpps. We have built a set of subscription-based apps that are tightly integrated with Office 365 and Outlook, and enable partners to layer in key functionality around managing customers and growing sales.
Also, one of the key things to keep in mind when choosing which applications to layer in to your Office 365 customers is how much services revenue can you generate on top of the sales of the application. Product margins or referral fees are typically not going to be enough to justify the effort you will have to put into add new applications to your portfolio. A lot of vendors don’t seem to understand the role that partners play in selling IT solutions to SMBs, and further, don’t understand how partners make money. Those are the vendors that create apps, stick them on a web site and spend a lot of money on direct marketing in and attempt to get customers to come buy them. Thus, you should look for apps that are built by vendors that understand partners, and enable you to not only sell their apps, but also add higher margin services like migration, remote administration and customization on top.
I’m really excited by the flood of possibilities that Office 365 is bringing to SMB customers and partners like you. I agree with Harry that these are the early days of opportunity cycle that will last at least 10 years, if not longer, and partners that jump in now will reap the benefits.
