SPLA providers want to see their business models working on Microsoft Azure, but they want to quantify their profitability options for themselves.

Jakub Wolinski Jakub Wolinski Cloud Services Manager at Dicker Data
Jakub Wolinski

The Profitability Debate for Hosters: Private Clouds or Microsoft Azure

In 1965, Gordon E. Moore – the co-founder of Intel - discovered that the processing power of computer chips doubles every two years while the cost is cut in half. This regularity is known as the Moore’s law and it is still used today to predict the future cost of virtual machines on Microsoft Azure.

In fact, the recent announcement of new Azure VM series proves that this old regularity still applies; the Dv5 series are twice as powerful as Dv4, and at half their cost.

What does this announcement mean for private cloud providers?

  1. Azure is no longer more expensive than hosting – even without SPLA.
    SPLA is generally a hosting partner’s favourite licencing method to build their economy of scale, as Microsoft doesn’t allow this on Azure. This announcement, however, means that Azure becomes very compelling- even without SPLA.
  2. There’s no need to invest in a new generation of hardware to match that offer – you can replace your VMs anytime – if you are on Azure, of course.

How do you compare your profitability options on Azure?

This blog reviews considerations voiced by Australian hosting providers. We then identify a series of questions that any hosting partner may use to quantify their business case for Microsoft Azure, and finally we outline how Dicker Data and Microsoft will help.

Profitability of Microsoft Azure for SPLA providers

In 2020, Dicker Data invited early adopters to take part in a program, whereby, they completed business planning and strategic workshops to conceptualise and design a tailored Go-To-Market strategy for their Microsoft Azure based services.

The program provided invaluable learning for both partners and us, Dicker Data, alike. The key discovery being that instead of reselling VMs (which many SPLA providers believe is what Microsoft wants them to do), hosters need to first build their own cost projections to understand their profitability with Azure.

Some more specific considerations that SPLA providers asked us to address:

Ongoing cost

Azure can be up to 40% more expensive.

Profitability

Margins proposed by Microsoft are below profitability thresholds.

Customer loyalty

Customers could change their ‘Partner of Record’ any time once on Azure.

Migration

The cost of migration is unbillable. It’s also hard to anticipate at what time Return of Investment is achieved.

Other commitments

Including existing, contractual obligations, depreciating assets, and residual value as well as relationships and investment in warranties.

 

Taking onboard these learnings, Dicker Data determined that rather than a sales pitch, SPLA providers want to compare their real profitability options on Microsoft Azure and quantify on their own how to accommodate for the change.

Introducing ‘Blue Impact’ - Azure profitability program for SPLA providers

‘Blue Impact’ is Dicker Data’s new profitability program for those SPLA providers that are ready to reconsider Microsoft Azure. The program offers tools, methodologies, and resources to build your own profitability-based business case – without the need for technical designs or solutioning - required in the past to conduct a similar study. Blue Impact will make things easier. With your business outcomes in mind, Dicker Data will help you review considerations above and also quantify the following:

Your current monthly cost

What is your monthly of network, co-location, storage, compute, headcounts, licensing, audits, or even additional cost for end-of-support software versions?


It may be obvious, but it is so important – most private cloud providers don’t have an exit strategy, neither do they have a clear visibility of their actual monthly cost.

Benchmark your cost against similar SPLA providers

Understand your current cost components and compare them to similar companies.

 

The ability to check the overall cost structure is a benefit to you - even if you decide that Microsoft Azure is still not the right fit for your business.

Set your own profitability expectations

Quantify Azure margin for any of your costing scenarios.   Including, Microsoft incentives that may be available as well as the additional price of your own managed service fees to the equation.

 

This will allow you to easily review your margins on Microsoft Azure.

Map your Azure resources

Close the communication gap between your technical and non-technical teams. There is no need to invest in technical blueprints to cost your Azure based solution.

 

We will map your Azure resources and your technical team can review options – at the same time as your business team reviews cost options.

Configure your preferred Azure cost structure

Your non-technical executive teams can now experiment on their own with Azure cost configuration options, while keeping your technical team onboard. This includes cost options for IaaS as well as PaaS and even SaaS for Microsoft Dynamics.

Pick your time to start the migration

Your finance team will also need to consider your existing contractual obligations, your depreciating assets, residual value, your headcount and your unbillable effort.

We will help you prepare information they need to quantify options and decide at what time your Return on Investment can be achieved, considering your cumulative and net cashflow.

These insights can be used later to negotiate with Microsoft directly.

 

Summarising, we believe that the level of misconception about Azure profitability among private datacenter providers is still very high. In fact, some have learned how to use the Microsoft’s Azure Calculator to sell their own, cheaper options. It’s not surprising: cost optimisations on Azure work fundamentally different and it’s not always easy to understand. There are also other serious cost considerations, that are difficult to quantify – until now.

We also believe that SPLA providers do want to see their business model working on Microsoft Azure, they just need a genuine way to quantify their profitability considerations for themselves.

Dicker Data now have a way to help you build a business case for Microsoft Azure, our Blue Impact program. You can see for yourself that your customer prices don’t need to change, your current profit levels can stay similar, and you can a choose a migration path that makes commercial sense for your business.

To get started with this program don’t miss our upcoming webinar or get in touch with the team today if you have any questions. 

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