ISG Provider Lens™ Microsoft Cloud Ecosystem - SAP on Azure Services - Switzerland 2024

A new era for using Microsoft Clouds begins with Copilot and GenAI

Presently, Switzerland’s late majority market is embracing cloud services, with digital sovereignty becoming an emerging trend. The late majority market refers to the phase in which a product or technology is accepted by a broad mass of consumers following its adoption by innovators and early adopters. Service providers possess the unique opportunity to effectively use their experience accumulated in recent years to acquire new customers in this target group. Using automation concepts, proprietary blueprints and the experience curve presents opportunities for optimizing margins amidst the intensifying competition. Therefore, providers need to examine how to optimize legacy services. There are also opportunities for existing and new customers to address topics such as digital sovereignty and explore additional revenue sources through new service concepts.

Digital sovereignty refers to the ability of a person, organization or state to gain complete control over its digital data, processes and infrastructures. A sovereign cloud is a highly controlled and autonomous cloud infrastructure where customers and organizations have full authority over their digital data and operations in the cloud. This implies that they have complete control over the storage, processing and transmission of sensitive information without relying on external service providers. Such self determination creates a sense of security and independence, as users are no longer dependent on third parties, and potential risks such as data loss, unauthorized access or manipulation are minimized. Service providers should design their offerings to support their customers’ digital sovereignty and convince them by defining optimal architectures and operating concepts and justifying the higher price points through value-added services.

Increasing dissemination of cloud services does not imply that the market is in a saturation phase. On the contrary, new or adapted fields of application and solutions are fostering long-term growth.

The year 2024 will see rapidly increased demand for cloud services, with networking increasing significantly. As a pioneer, Microsoft is establishing standards by integrating AI and cloud technologies with products such as Azure, Microsoft 365 and Dynamics 365. The progressive introduction of generative AI (GenAI) catalyzes groundbreaking solutions and fundamentally changes the Microsoft ecosystem. Microsoft’s strategic direction strengthens its position as an innovation leader and promotes sustainable growth and productivity gains. Partners also benefit from GenAI services and security and integration services in the context of data management.

GenAI and various Copilot services are central to Microsoft’s market development strategy. Microsoft is aggressively promoting Copilot on a massive scale and recognizing its role as a sales door opener for other AI solutions. AI, Copilot and related offerings are increasing competitive pressure in the market.

The launch of Copilot represents a historic turning point for Microsoft. This innovation underlines Microsoft’s ambition to consolidate and commercialize its leading position in GenAI.

An impressive example of this innovation is GitHub’s YoY revenue growth of more than 40 percent. Such success reflects the overall growth of the platform and is primarily due to the popularity of GitHub Copilot, the world’s leading AI development tool. With more than 1.3 million paying subscribers and over 50,000 organizations using GitHub Copilot to increase their development teams’ productivity, GitHub Copilot is a testament to the practicality and value of this technology.

Developing zero-trust security architectures is another strong growth area for AI in the context of Copilot (Copilot for Security) and GenAI. Microsoft’s vision is to use AI to prevent cyberattacks and significantly contribute to cyberspace security.

With increasing cybersecurity risks, GenAI is becoming established as a key component for zero-trust security architectures. GenAI enables a new type of prevention by analyzing large amounts of data in real-time to detect anomalies and potential threats at an early stage. It supports adaptive authentication mechanisms that consider contextual factors such as location and user behavior and enables security policies that are precisely tailored to individual needs. GenAI also efficiently automates and orchestrates security processes, improves network security through continuous monitoring and strengthens the security culture through targeted employee training. These developments offer service providers extensive opportunities to actively participate in designing advanced security solutions and consolidating their role in the cybersecurity ecosystem. Thus, GenAI plays a key role in promoting secure and resilient digital environments.

Microsoft partners have the opportunity to tap into new markets with innovative solutions and industry- and customer-specific services enabled by Azure GenAI Services.

Microsoft’s focus on AI is evident through its substantial investment in infrastructure and partnerships. The company is also rapidly entering into forward-looking partnerships. The collaboration with OpenAI marked a pivotal moment of immense significance for Microsoft. The strategic alliance with Mistral AI, based on supercomputing infrastructure, market development and AI research, and the announcement of extensive financial investments in expanding AI and cloud infrastructures demonstrate Microsoft’s commitment to global innovation and digital skills improvement. These measures highlight the company’s ambition to be at the forefront of digital transformation and the ethical application of AI technologies. Microsoft partners can benefit from these and other strategic partnerships. It is important to maintain an overview and actively seek collaboration with these technology pioneers.

Although Microsoft’s focus on AI is attracting significant interest in Switzerland, it does not necessarily imply that all customers are aligning their priorities with Microsoft’s. The maturity level of Microsoft users in Switzerland is heterogeneous, which implies that varied market needs are being realized simultaneously. Certain companies that are pioneers in implementing new services are working intensively on topics such as automating cloud operations and targeted optimization of their expenses — keyword FinOps. The team telephony topic — particularly integrating mobile telephony and Power Platform — is gaining prominence. Some customers are curious about what comes after Microsoft 365 E5 and how Windows 365 can be logically integrated into their overall strategy.

However, many user companies are still beginning their journey and have recently started exploring essential functions and services of Microsoft 365 and Azure to achieve significant success and added value. This situation presents service providers with an opportunity and a challenge: they are required to refine their offerings and focus on the most profitable and sustainable services without limiting their potential for revenue growth. It is essential to analyze the lifecycle of individual managed services and determine the value contribution and cost recovery ratio at the customer level while optimizing the portfolio and aligning it with the future. GenAI’s role in increasing performance efficiency should also be evaluated.

Microsoft is consistently focusing on AI and sees it as a strategic priority. This focus represents a challenge and a significant growth opportunity for Swiss service providers. It is time to carefully evaluate different options for market entry and design a targeted strategy.

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