ISG Provider Lens™ Microsoft Cloud Ecosystem - SAP on Azure Services - U.S. 2023

Providers position themselves for a post- COVID world as Microsoft reorganizes its partner program

Microsoft plays a pivotal role in many businesses’ digital transformation strategies and is one of the world’s leading enterprise technology vendors. Its products form the backbone of digital transformation for companies across the U.S. As a U.S.-based company, Microsoft generates half its revenues from its home country and has a strong historical footing in the region, especially among larger firms. The tech titan subdivides its offerings into three main pillars: Microsoft 365, which includes Office 365 and Windows; Dynamics 365, a business application suite; and Azure, a hyperscale cloud platform that operates globally. Power Platform, a more recent addition to the Microsoft portfolio, is a low-code development platform that enables citizen developers to build apps and workflows, thus extending the capabilities of existing portfolios.

Service provider opportunity

Many organizations made rapid technology investment decisions during the COVID-19 pandemic and adopted new Microsoft technology. However, they still need help integrating the technology into their business processes. For many enterprises, navigating, implementing and ultimately integrating the Microsoft suite of technologies can be daunting. Costs, lack of familiarity with the technology, and inadequate skills, among other factors, can be significant hurdles to adoption.

ISG sees these challenges as significant opportunities where service providers can step in. Providers offer specialized expertise and employees with technical understanding who can help guide enterprises and drive implementation. Therefore, many enterprises turn to the Microsoft Cloud partner ecosystem for support, which is a complex and diverse group of global systems integrators (GSIs), IT providers, independent software vendors (ISVs), and specialist strategy and advisory firms that provide additional services and technology components atop the existing Microsoft platforms. In the U.S., engineering service companies and software resellers are increasingly providing services around Microsoft products as they look for new opportunities outside Silicon Valley.

Evolving Microsoft partner program and strategy

In October 2022, Microsoft revamped its partner program, eliminating and replacing the Microsoft Partner Network with the Microsoft Cloud Partner Program. The new approach enables service providers to highlight their expertise in new ways. It consolidated 18 competencies into six Solution Partner designations, which are the following:

• Business Applications

• Data & AI

• Digital & App Innovations

• Infrastructure

• Security

• Modern Work

This new program represents a change in focus from specific Microsoft products to customers’ needs and partners’ capability to deliver on them instead of around specific Microsoft offerings.

The shift in focus toward customer requirements and the built-in integration among all Microsoft offerings enable Microsoft and its partners to deliver solutions that span multiple products and can be uniquely integrated to provide real business value. For example, some service providers are seeing an increased demand for Viva for business applications as opposed to Modern Workplace. Customers are working with service providers to leverage solutions across the Microsoft ecosystem in new ways.

Azure MSP

The U.S. leads the world in migration to the cloud. As Microsoft Azure matures as a hosting platform, enterprises have advanced from just migrating to the cloud to leveraging its unique capabilities, enabling greater resilience and flexibility with multicloud and hybrid cloud environments. They are also re-platforming and refactoring applications and optimizing them to take advantage of the cloud’s technical capabilities beyond reduced costs. For example, the transformation can include moving to modern microservices architectures using containerized applications and Kubernetes orchestration.

The Microsoft ecosystem and developer community in the U.S. are particularly broad and deep compared with other regions of the world. Enterprises draw on this ecosystem for many reasons. Many are new to the cloud and lack the expertise to manage migrations to Azure. Providers are equipped with ready-made frameworks and accelerators to right-size Azure deployments and ease migration. Enterprises often turn to managed services providers, seeking end-to-end support for managing Azure and other clouds. Managed services typically include a range of services such as scaling and provisioning resources, managing incidents, monitoring and managing licenses, assuring security, automating updates and ensuring policy compliance, governance and FinOps.

The adoption of automation is increasing across IT environments. Many innovative IT service providers are investing in automation to streamline the movement of applications and code to the cloud. With enterprises increasingly demanding access to data, service providers are focusing on modernizing databases and migrating them to the cloud.

Microsoft 365

The disruption caused by the COVID-19 pandemic created a huge demand for the Modern Workplace, which has become a must-have for distributed organizations. This drove significant technological investments within a short time to address abrupt changes. Organizations are now much more focused on capitalizing on these technology investments and incorporating them into business processes. The changing workforce requirements and the Great Resignation, which happened across the U.S., are driving Microsoft to reposition Microsoft 365 away from its original focus on employee communications and messaging toward a more rounded platform centered on employee experiences and learning. The introduction of Microsoft Viva is one example. Providers are beginning to take a more employee-experience-centric approach by taking steps such as incorporating wellness and micro-learning elements into the Microsoft 365 platform or using digital nudges to help employees increase its adoption. As investments in technology for hybrid office workers subside, a renewed focus on opportunities to support front-line workers is emerging.

SAP on Azure

SAP on Azure remains one of the most challenging areas for Microsoft ecosystem providers. The SAP environment is widely acknowledged to be extremely heterogeneous, with many legacy applications and databases still in existence and organizations coming from different starting points in their SAP development journey. These systems are also usually business-critical, which makes SAP migrations and database modernizations complex and risky to manage. Thus, SAP providers must understand the current SAP landscape of an enterprise to ensure a safe and cost-effective migration to Azure. This market has begun to mature in the U.S., and opportunities to add differentiated services are limited because many organizations have already moved their legacy SAP applications to the cloud. SAP is also bringing to market RISE with its modernization and cloud offering that helps clients not only move to the cloud but modernize their SAP applications. This new offering from SAP provides another option for modernization, competing with service providers.

Dynamics 365

Investing in business applications is increasingly an area where enterprises can generate significant ROI and solve business problems. The three discrete constituencies migrating to Dynamics 365 are enterprises seeking greenfield deployments of new capabilities, companies migrating from on-premises Dynamics installations, and businesses looking to move away from other business applications such as SAP and Salesforce. Leading providers in the U.S. market can address each of these use cases on a personalized and structured basis, as well as provide quick ROI, by leveraging their expertise. ISG sees the greatest value possible, particularly when enterprises can align with service providers that offer unique, industry-specific solutions. More competitive providers are moving beyond the technology piece of the solution by incorporating business processes and workflows. This is relevant, especially among U.S. enterprises that have moved to the cloud and are looking for new ways to leverage its benefits. The ability to provide solutions that have a direct impact on business outcomes enables providers to deliver added value to their clients.

Microsoft Industry Clouds provides established and standardized data models and configurations tailored for specific industries. Although this makes bringing industry-specific applications to the market easier, it forces service providers to move up the value chain because Microsoft Industry Clouds incorporate much of the value they provide in business apps.

Power Platform

ISG observes the rise of low-code, citizendeveloper initiatives as a major trend across most leading technology providers in the U.S. These services empower the general workforce to create and use their own AIenabled business apps and automation tools. Microsoft’s Power Platform has helped spur the wider development of low-code initiatives, providing tools such as Power BI for data visualization and analysis and automation tools such as Virtual Agent and Power Automate. While many enterprises are experimenting with low-code initiatives to drive innovation within the workforce and liberate business professionals from the constraints of the IT department, they are doing so cautiously. Low-code initiatives can create significant risks around data access, policy compliance, license usage and overall governance. ISG notes that providers are now developing offerings specifically designed to put guardrails around low-code development and channel such efforts in ways that are safe, productive and compliant for enterprises. Additionally, they are establishing CoEs for citizen development, monitoring compliance and policy, creating templates for app development, establishing best-practice guidelines, undertaking training workshops, monitoring data and license use, scanning code for compliance, generating pre-configured APIs and determining templated release cycles.

As databases are increasingly migrated to the cloud and modernized, they become more accessible to applications. Providing citizen developers greater access to data to support decision-making can be one of the differentiators for service providers.

Access to the full report requires a subscription to ISG Research. Please contact us for subscription inquiries.