ISG Provider Lens™ Microsoft Cloud Ecosystem - Microsoft 365 Services - Large Enterprises - Germany 2023
Transformation in times of crisis: How customers can get through crises with Microsoft partners
The ecosystem of Microsoft partners comprises more than 30,000 companies in Germany alone. For Microsoft Deutschland these partners are the most important guarantors of revenue. Worldwide, Microsoft partners account for almost 95 percent of total revenue. In the Azure world, which is the basis for the services in this study, the number of partners has been relatively constant for several years, at around 6,000. Of these, 80 companies were in turn included in the gross list of Microsoft partners to be evaluated in this study.
The companies selected for this study are the ones that operate beyond the basic requirements. They lead the Microsoft partner ecosystem and advance the digitalization of Germany. The important topics covered in the study are managed services for the Azure platform, services for the transformation of work environments based on Microsoft 365, the transformation of SAP environments to the further development of ERP systems based on Microsoft Dynamics 365 and the implementation of the Power Platform with its solutions for the customization and development of apps for users’ business processes.
Investment behavior unclear
The market development is currently uncertain. Europe is in a war-like state; this has had a major impact on users’ planned IT investments. According to NZZ, in Germany, small- and mid-cap indices have performed much worse than the blue-chip DAX Index in the difficult stock market year of 2022, and German smalland mid-caps have been slow in recovery since the low at the end of September 2022. This is also having an impact on IT investments. In addition, clients are often not familiar with the entire set of Microsoft solutions or their functionalities. The providers, particularly the implementation partners, have to deliver the know-how to ensure good overall results.
Small companies, however, need to invest in their IT, despite the great economic uncertainties at the national and international levels. Public authorities and public sector companies are driven to update their IT but are dependent on funds. Public authorities have a large backlog in terms of demand for flexible IT infrastructures and application landscapes. Large companies, on the other hand, can still invest but are also uncertain about economic developments.
Local contact persons, local development capacities, onsite support with the shortest possible response times and, above all, in the event of disruptions, short recovery times are still the critical capabilities expected from a provider. Clients pay more attention to the fact that the contact persons in the projects, in particular the employees involved in the implementation, speak German and that the provision of services takes place from the same time zone.
Most digitalization projects have not been thought through to the end or have been knitted with a hot needle (in short, without caution), especially in the last three years. Process engineers often forget the technology (and its requirements), technicians forget the people, and people forget the systems. Several vendors assessed in this study dedicated their efforts to address the client requirements emerging from the arbitrary deployment of technology. One could be philosophizing easily for hours why advanced technology still allows this way of implementing solutions in the 21st century.
According to estimates from various providers in this study, 60 percent of workloads worldwide still run in private data centers. Reasons for this are often the regulated markets or data-intensive workloads. It is therefore important for Microsoft partners to identify the workloads that can perhaps be processed more efficiently in the Azure cloud. Another client requirement is the scalability of workloads in the Azure cloud.
New partner program at Microsoft
In 2022, which corresponds to the observation period of this study, Microsoft introduced a new system for classifying partners. The new Microsoft Cloud Partner Program (MCPP) replaces the previous Silver and Gold certifications with the following six new Solutions Partner designations.
● Solutions Partner for Business Applications
● Solutions Partner for Data and AI (Azure)
● Solutions Partner for Digital and App Innovation (Azure)
● Solutions Partner for Infrastructure (Azure)
● Solutions Partner for Security
● Solutions Partner for Modern Work
The partners are evaluated through a point system. The capabilities of the partners have been redefined as Specializations to replace the former phrase, Advanced Specializations.
The new partner system is a challenge for the partners; it measures new client business, the number of certified employees and the corresponding sales. For Microsoft, Azure consumption (or the consumption of resources in the Microsoft cloud) is the key metric against which partners in the ecosystem must mainly be evaluated. Added to this are revenues from license sales. The providers evaluated here decide quite independently the license packages or subscriptions they wish to use in respective projects. Astounding, revenue, consulting, design and implementation of IT solutions do play a rather subordinate role in this system for reaching certain levels in the partner pyramid. However, the strengths of a provider are exactly in taking forth and accompanying users, consulting clients and training and, if necessary, dealing with personnel-related bottlenecks.
The core requirements for partners — professional competence, revenue targets, consulting services and complementary solutions — have not changed. However, as many partners also quickly achieved the new designations, the new system of ranking partners has brought only minor changes in ISG’s independent assessment.
The providers’ own partner networks play a major role in the selection of service providers; no provider today is able to solve all tasks simultaneously. Clients today use a network of service providers and specialists if they can, at the outset, and define a general contractor for the project, who is also responsible for compliance with the SLAs.
Enterprise applications and application modernization
The market for services related to SAP on Azure is very mature on the supplier side. Both Microsoft and SAP have been pursuing a clear strategy of migrating workloads to the private cloud and the public cloud, respectively, for several years. According to surveys by the DSAG (German SAP User Group), Microsoft Azure is the most frequently used cloud platform among hyperscalers in Germany for the implementation of new or the migration of existing SAP applications. The big challenge for service providers is the customization of the existing SAP environments. There are various concepts: the approach of starting with the lift and shift of individual workloads and eventually transferring the customizations is particularly popular. Iteratively and gently, even complex environments can be migrated to the cloud in this way.
As users today rarely work in a default environment, service providers in the Dynamics 365 space must also be able to analyze a client’s existing environment to facilitate a complete shift, which correspondingly involves high efforts. Existing ERP projects based on Dynamics 365, in particular, require a great deal of effort for the assessment. The Microsoft Power Platform could be the tool of choice for modernizing applications as it includes Power BI to facilitate citizen development. The Microsoft partners assessed here help to strategically implement the functions of the Power Platform and its components at clients by integrating them with existing back-office applications. Unfortunately, Power BI is all too often used only to visualize data from Excel spreadsheets. Here, the partners do also have the noble task of protecting the users from themselves.
Most service providers recommend that their clients not only transform their application environments to the cloud but also dispose of legacy systems and modernize applications along the way. This requires the providers to have a detailed and comprehensive expertise to assess a client’s existing environment and analyze third-party solutions and subsequently guide them on the path of transformation.
Market forecast
Uncertainty about political and economic developments in Europe will continue to have a strong impact on users’ investment behavior; many clients will think twice before making IT investments.
The partners evaluated here can positively influence investment behavior by providing suitable services. Initially, these are likely to be primarily IT projects in which the hastily brought about cloud transformations of the last 2-3 years can be revised.
The trend toward cloud-first and cloud-native strategies will continue among users. This is where the most important investments are likely to go into workload transformation. Two other topics that users will need to invest in over the next few years are cybersecurity and environmental, social and governance (ESG). ISG believes that these topics hold great potential for innovation in new managed services from Microsoft partners.
Security and ESG will also have an impact on market development in the area of Microsoft 365 and Managed Workplace. ISG estimates that a part of the IT investments will be used for ensuring energy efficiency. Solutions for unified communications and collaboration can play a role here, as can optimization in workforce scheduling. Reducing commuting to the workplace would be an example here. The service providers in this study could explore new market opportunities here, including new clients, but should first put together appropriate service and solution packages.
Finally, it can be observed that value creation within the Open Systems Interconnection (OSI) model continues to rise. Technology and even software are becoming commoditized. Middleware layers and the operating layer will soon follow this trend. In the future, value creation will take place in the application layer. Access to the full report requires a subscription to ISG Research. Please contact us for subscription inquiries.