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Microsoft to partners: Build your own IP
Wed, 2nd Sep 2015
FYI, this story is more than a year old

Channel partners building their own IP around their current product portfolio from traditional vendors are reaping massive benefits - and showing the way forward for other channel members.

That's the word from Phil Sorgen, Microsoft Worldwide Partner Group corporate vice president who says monetising IP is a crucial step for channel partners to build a high growth, high valuation, company. And he says there are plenty of ways partners can monetise IP.

“It is not a single, one size fits all,” Sorgen says.

“We have partners taking their first party IP and building it into managed services, we have partners creating SaaS extensions and selling it as subscriptions. We have partners that are just creating repeatable methodology to drive down the risk of projects they do and maintain the highest utilisation in bill rates that they can achieve.

Speaking at Microsoft's Australian Partner Conference this week, Sorgen outlined research conducted by IDC in conjunction with Microsoft, that highlights attributes of Microsoft's most successful partners.

The research shows that partner doing more than 50% of their business in cloud are growing their customer 1.3 times more than those doing less than 50% of business in cloud. Revenue is also growing 1.4 times faster, and profit growth is 1.5 times faster, Sorgen says.

When it comes to the more ‘forward looking' metric of company valuation, Sorgen - who admits he's ‘data driven' - says partners doing more than 50% of their business in the cloud had a company valuation of between five and 14 times EBITDA versus two to four for the others.

“We decided to look at the partners at the highest end of the growth and valuation curve and look at the attributes we saw in them that stood out,” Sorgen says.

He says four key attributes stood out: The ability to create first party capability through IP differentiation; how they were using digital marketing; how they had adjusted their customer acquisition and retention strategy; and they adjusted their measurement within their organisation to motivate their people as well as the culture they were trying to drive.

Sorgen says what could arguably be the most important one was IP differentiation.

“We see today's successful partners building an annuity business model through multi-period or multi-year contracts. They are building a recurring base of business.

“More importantly, at the core of this annuity business is their own first party IP. Their own capability was a key component of their solution.

“They're developing this innovation culture in their organisation and they know it sets them apart from their competitors today and that profitability is heavily driven by this.

Sorgen says the number of partners building their own IP is steadily increasing worldwide and those partners are realising gains in new revenue streams.

He cites the example of US compang Power Objects, whose core business was selling CRM Online to SMBs.

“They saw there were some common capabilities that customers kept asking for and that they kept replicating the implementation of these capabilities for these customers,” Sorgen says.

“And they realised they could build these capabilities as add-ons. And by building them as add-ons and attaching them to a product - CRM Online - that was already flourishing in their product portfolio, they were able to build a multi-million dollar incremental revenue stream in just two years.

“And they did this by taking these add-ons and creating a packaged service.

Sorgen says the packaged service included the Microsoft license, training and support as well as the option to pick from 21 add-ons they had created.

He says in the two years since introducing the offering, Power Objects has grown 370%.

Karl Redenback, co-founder and chief executive of Live Tiles, which provides ‘beautiful' user interfaces for SharePoint and allow end users to make changes without code, was also on hand to outline his company's IP differentiation and monetisation path.

Redenback says the company saw the opportunity three years ago to create some repeatable, scalable and importantly recurring revenue as part of its business.

“In innovation, the trick is not being scared to fail,” Redenback says.

“We had failures. We tried a lot of things. They didn't succeed. But you have to be prepared to fail to succeed.

“And you have to listen to your customers, think outside the box and one of the most important things is getting the right people involved,” Redenback says.

“Don't just use people off the bench, develop a team, invest in a team, build a three year plan out as part of your IP process and really give yourself the best opportunity.

“Finding niche gaps where you can find that IP differentiation is the key thing in driving your product.