Today’s post is written by Michal Morciniec, one of our Partner Solution Consultants:

One of the frequently repeating questions from Microsoft Partners new to Windows Azure is about the business models, discounts and sales incentives. Or to put it bluntly- how Partners can make money and be successful with Azure related projects? In this blog I will give you my personal opinion and point you to the official documentation on Microsoft Partner Network. Cloud transformation is still going on in the industry so by no means I have all the answers but I hope to give you a starting point.

Business Models

There are two basic models depending if it is Partner or Customer who purchases the Windows Azure subscription and therefore has a billing relationship with Microsoft. It is common for ISV Partners to own the Azure subscription as they offer to customers their solution(typically a web based application) as a Software as a Service (SaaS). The Customer typically is not aware of where the software is hosted. He pays a subscription fee (typically per user per month) for the service. In this model the Partner has to ensure that the Azure infrastructure costs (virtual machines.) required to run the software and the variable costs derived from the user activity (bandwidth, storage costs) can be recovered from the subscription revenue he receives. It is easier to do that, if it is possible to share parts of the Azure infrastructure to deliver the software to multiple customers. SaaS developed by ISVs as well as multi-tenant services  delivered by hosting partners acting as Service Providers would fall into that category (for a technical example of multitenant hosting see Windows Azure Desktop Hosting Reference Architecture Guide).

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In the second model it is the Customer that owns the Windows Azure subscription and has a billing relationship with Microsoft. This model can typically be found with System Integrators (SI) that help customer to move their infrastructure to the Cloud. Apart from the consultancy fees for the execution of the project there is an opportunity for partner to provide value added services such as: backup and recovery services, reporting, monitoring, capacity planning, disaster recovery, IT outsourcing and management for a recurring revenue. For Partners that commit to this model, Microsoft offers sale incentive (see below) that is a percentage of Azure consumption that his Customers generate during a specific time period.

There is nothing stopping any one Partner to have relationships with various Customers in one or the other model.

Azure Discounts

The prices for Windows Azure services published on Azure portal are for the Pay-As-You go tariff but Partners as well as Customers can obtain discounts in return for commitment to consume Azure services during a fixed period of time (6 or 12 month) or by prepaying. “Flexible Savings” page has a summary of the various tariffs available for purchase on-line. You can terminate the Pay-As-You go subscription anytime, however with the commitment tariffs you are committed to stay with the subscription for the specified time period so make sure you read the details.

ISV Partners that implement SaaS type services typically will use the same Azure subscription for multiple customers and therefore will reach quickly the minimum $500 Azure consumption per subscription required for commitment tariffs. However, it is very common for Partners to have separate Azure subscriptions for their Customers and may end up for example with 10-20 subscriptions but where none reaches the $500 minimum. In that case Partners can opt for purchasing Azure through Enterprise Agreement (EA).  This allows them to pull together all new (and also existing) subscriptions to get them qualify for a volume discount. The current guidance for EA is that the total Azure consumption is of the order of $24 K/year but it is a guidance and it can be negotiated.  The EA is typically a multiyear contract and you need to commit to certain Azure consumption level each year and prepay it. You can find more information about EA contracts on Volume Licensing site.

Azure Sales Incentives

Because in the SI Model the Customer owns Azure subscription he will get the Azure discounts described above. Partner obtains money for migrating customers infrastructure and for value-added services he may be offering. Microsoft offers a sales incentives in this model where the Partner will receive a percentage of the influenced Customer revenue during a time period of 2 years. You can find all the details and conditions in “Windows Azure incentive guide” on Microsoft Partner Network site. Starting January 2014 the incentives will require MPN a Cloud competency. You can find out more about the upcoming changes in the Cloud competency, requirement for Silver and Gold Cloud competency levels and the incentives in “Microsoft Partner Network Disclosure of Upcoming Program Changes”.