Microsoft Partners Weigh In On Channel ‘Challenges’ After CFO Comments
‘I have yet to have one customer ask me about AI,’ one Microsoft solution provider tells CRN.
Multiple Microsoft solution providers who spoke with CRN after the tech giant’s latest quarterly earnings call said the partner program of more than 400,000 members has emphasized artificial intelligence workloads over the bread-and-butter work popular with customers before the current generative artificial intelligence hype.
The solution providers agreed with and added more details to comments made by Amy Hood, CFO of Redmond, Wash.-based Microsoft, during Wednesday’s quarterly earnings call for the three months ended Dec. 31.
When explaining Azure’s 31 percent growth year over year, coming in at the low end of Microsoft’s forecast, and lower-than-expected guidance for the next reported quarter, Hood cited “go-to-market execution challenges” with “customers we reach through partners and through more indirect methods of selling.”
She attributed the challenges to the time it took to implement changes made in the summer— Microsoft’s fiscal year started July 1—around balancing AI work with “migrations and other fundamentals.”
“As you do that, you learn with your customers and with your partners on sort of getting that balance right between where to put our investments, where to put the marketing dollars, and importantly, where to put people in terms of coverage and being able to help customers make those transitions,” she said.
Microsoft Q2 Results
CRN has reached out to Microsoft for comment.
Hood told analysts on the call that Microsoft is “going to make some adjustments to make sure we are in balance because when you make those changes in the summer, by the time it works its way through the system, you can see the impacts and whether you have that balance right.”
Although “the teams are working through that” and are “already making adjustments,” Hood said to expect “impact” through the second half of Microsoft’s fiscal year.
Microsoft appeared to be making major changes to its partner program by Thursday. The company published a blog post naming Ralph Haupter president of a newly formed Microsoft Small, Medium Enterprises and Channel partner organization.
CRN has reached out to Microsoft for more details about Haupter and the new organization.
Dawn Sizer, co-founder and CEO of Mechanicsburg, Pa.-based 3rd Element Consulting—an honoree on CRN’s 2024 MSP 500—told CRN that Microsoft needs to make sure it takes in feedback from a variety of partners, not just the largest global systems integrators and consultancies.
And the vendor needs to understand that not all customers and not all solution providers are comfortable adopting AI for business purposes or require a long time implementing the new technology, Sizer said.
3rd Element has had plenty of work improving customers’ security postures and still migrating customers to the cloud. “We’re taking some old data from somewhere, and we’re putting it into SharePoint and doing it properly, and surrounding it with best practices,” she said.
She voiced frustration with the partner program’s targets for badges such as solutions partner designations, saying the goals change too much and can seem opaque. She compared the scoring system to the improvisational TV show “Whose Line Is It Anyway?,” saying, “It’s all made up, and the points don’t matter.”
“They have unrealistic expectations based on what they are determining internally, with never being a solution provider,” she said.
That said, Sizer said Microsoft has been making the right investments in improving its products and adding more security.
Azure AI Vs. Non-AI Azure
One analyst firm understood Hood’s comments to mean that 150,000 partner customers have tried out and invested in GenAI, contributing to Azure AI revenue. But those customers delayed implementing, rolling out and expanding traditional workloads based on CPUs, according to a Bernstein report Thursday. That showed up in the numbers as slower Azure growth and a deceleration in Azure revenue that didn’t come from GPUs.
Although enterprises creating separate, dedicated AI budgets this year instead of borrowing from other budgets for AI experiments should help cloud migrations and non-AI projects, Microsoft’s lower-than-expected guidance for the next reported quarter shows the vendor expects issues to continue for now.
Microsoft said to expect 31 percent to 32 percent growth ignoring foreign exchange, implying more than 19 percent growth in non-AI Azure, Bernstein said. The Wall Street consensus was for 32 percent to 33 percent.
“We would really be surprised not to see improvement and an Azure beat next quarter and a guide to Azure acceleration for Q4,” according to the Bernstein report. “Our comment to management: You have shown that you can deliver AI revenue better than competitors and better than we expected, but now you need to deliver on the core Azure revenue and we very much believe you can do it.”
Wayne Roye, CEO of Staten Island, N.Y.-based Microsoft partner Troinet, told CRN that part of the problem has been executives and operations personnel talking about AI while customer IT forces try to understand, manage and prioritize. Unfortunately, for a lot of customers, AI and even cybersecurity come out of the IT budget, taking money otherwise used for migrations or upgrades.
“It will take away from other initiatives,” Roye said. “Security should come out of the operation budget, but I don’t see many companies doing that. Everything is numbers and budget.”
Roye noted that Microsoft has been the one “driving everyone to look at AI as the answer for everything.”
A Microsoft solution provider who asked for his name not to be used to speak candidly told CRN that he hasn’t seen a major wave of Copilot license purchases, with data governance and licensing shifts taking time.
“Many SMBs don’t have a governance strategy in place,” he said. “That could be hindering it.”
Roye said that Microsoft could simplify the partner program and transactions and agreed that elements of the program have too many major changes too often. “It seems like a crazy matrix we are forced to navigate,” he said.
Another Microsoft solution provider who asked for his name not to be used to speak candidly told CRN that Microsoft is too focused on incentivizing AI instead of its more bread-and-butter partner activity.
Almost all of his customers, mostly smaller businesses and organizations, still have servers on premises, the provider said. Instead of concerning themselves with AI, he and his customers are focused on hardware cycles, keeping up security, rightsizing when employees come and go— the bread-and-butter of a Microsoft practice.
“I have yet to have one customer ask me about AI,” he said. “None of them are worried about it yet.”
Luis Alvarez, CEO of Salinas, Calif.-based Alvarez Technology Group, told CRN that while ATG has been quick to embrace Azure as an offer to customers, other partners have not. And solution providers set the direction for what Microsoft tools small and midsize customers will adopt.
A lot of smaller Microsoft partners have been “overwhelmed by the pace of change” in the AI era, Alvarez said. He recommended partners look at offers from distributors to build advanced practices as a potential help.
“It’s hard for them [partners] to dedicate the time, energy and resources necessary to build an Azure practice,” he said.
