Microsoft's Record Partner Bets & 387% Surge of AI Purchases on Marketplace

Nov 22, 2024

Hi, it's Roman - welcome to the Partner Insight newsletter, where I deconstruct winning Cloud GTM strategies and the latest trends in cloud partnerships and marketplaces.

First, a big thank you to everyone who joined our event with AWS last week—it was a fantastic success with nearly 200 leaders participating live. Stay tuned, as I’ll be sharing key takeaways from the event and insights from the upcoming AWS re:Invent in the weeks ahead.

Today, we’ll dive into a few standout highlights from this week’s Microsoft Ignite, focusing on Microsoft’s record-breaking investments in its partner ecosystem and marketplace—a strategy packed with opportunities for partners.

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Now, let’s get into the insights from Microsoft Ignite.

Microsoft’s Record-Breaking Partner Investment

At this year’s Microsoft Ignite, much of the buzz revolved around AI Co-pilots and AI acceleration. But before diving into AI, let’s unpack something equally transformative: Microsoft's unprecedented momentum in partner investments.

Microsoft CEO Satya Nadella set the tone by reinforcing Microsoft’s identity as both a platform and partner-first company:

“I always say we are a platform-first and a partner-first company. … when I think about Microsoft, what's core to us… it's about building platforms that create partner opportunity, that add value to our customers.”

The highlight for partners? The scale and speed of Microsoft’s investment.

Judson Althoff, EVP and Chief Commercial Officer, delivered a bold statement:

“We’re investing more in our partner ecosystem than we have ever invested… it is growing at a faster pace than any other single investment that we make in the entire company right now.”

This is no small claim, especially from a company pouring billions into AI. Here three areas where this investment is realigning MSFT partner ecosystem.

1. Channel Evolution: $1.5B+ Shift to Corporate and SMB

Althoff emphasized the importance of strengthening channel execution:

“We still need a tremendous amount of help in terms of channel execution in our corporate accounts and SMB businesses.”

Over the past two years, Microsoft has reallocated over $1.5 billion in channel incentives toward the SMC (Small, Medium, and Corporate) segment. This strategic pivot signals a belief in the untapped potential of smaller organizations—particularly as AI adoption extends beyond large enterprises.

2. Systems Integrators: Billions in Customer Investment Funds

Microsoft is doubling down on partnerships with systems integrators (SIs), recognizing their critical role in turning products into solutions:

“It’s super critical for us to be working with systems integrators large and small because… without you, our products are just products. They don’t become solutions until we partner together at the face of the customer.”

To further accelerate GTM with SIs, Microsoft has "significantly increased" access to customer investment funds, specifically targeting migrations, AI design wins, Copilot wins and solutions.

“we're spending billions there, folks, billions in incentives for customers that you can take to go and light up the solutions at the face of of the customer.”

3. Marketplace Investments: A Customer-First Approach

Perhaps the most striking move is Microsoft’s marketplace strategy. According to Althoff:

“We’ve made massive marketplace investments. We’ve restructured our compensation models to have more co-selling bias, even with ISVs that have competitive overlap with our first-party solutions.”

This shift signals a focus not on product protectionism, but on prioritizing customer choice and marketplace growth. By incentivizing co-selling with ISVs—even competitors—Microsoft is leaning heavily into its marketplace as the central hub for partner-driven solutions.

The scale of these partner investments is staggering. Althoff noted:

“When I say we’re spending more on the partner ecosystem than ever before, trust me, it is the single largest line item in my entire P&L.”

This approach reflects Microsoft’s long-term bet on enabling partner-led transformation, where the marketplace serves as the foundation for success.

Recent IDC data highlights why Microsoft is a magnet for partners, showcasing the economic power of its ecosystem:

Services Partners: Earn $8.45 for every $1 of Microsoft revenue
Software Partners: Earn $10.93 for every $1 of Microsoft revenue

These numbers underscore Microsoft's role as a revenue multiplier. Nicole Dezen, Microsoft's Chief Partner Officer, frames it succinctly:

“Partners are the trusted advisors for customers to harness all of this AI innovation.”

The momentum is amplified by AI: 81% of partners report Microsoft AI is already “enabling their revenue growth”. This dual benefit—economic multipliers and AI accelerant—cements Microsoft’s partners as the catalysts for AI transformation.

Microsoft’s Partner Investment Strategy

Dezen revealed that Microsoft has dramatically scaled partner investments in five strategic areas of the company focus. These included:

10X Increase in Copilot Investments
A massive year-over-year boost signals Microsoft’s belief in partners as the drivers of Copilot adoption.
$150M+ Azure Innovate Fund
Allocated to pre- and post-sales investments, this fund accelerates partner-driven AI innovation.
50% Boost in Migration Funding for the Azure Migrate and Modernize (AMM) offering
“Migration, migration, migration—customers cannot leverage all the benefits of AI without being in the cloud,” Dezen emphasized.

These investments reflect Microsoft’s recognition of cloud migration as foundational to unlocking AI's full potential.

The $661B SMC Opportunity

One of the standout themes is Microsoft’s focus on the Small, Medium, and Corporate (SMC) segment. Dezen highlighted a 50% increase in SMC-targeted investments over the past two years, now representing 70% of total partner investments.

“The TAM for SMC is a whopping $661 billion,” Dezen shared, highlighting that Cloud Solution Provider (CSP) program is Microsoft "hero motion" in this segment.

Cloud Solution Providers (CSPs) are often “the face of Microsoft,” managing the entire customer lifecycle in this segment from pre-sales to support.

Enhanced Co-Sell Focus
Microsoft is doubling down on co-sell capabilities, prioritizing partners with designations for inbound and outbound opportunities. As Dezen noted: “We are heavily investing in capability to enhance co-sell with you.”

In response, partners are doubling down, with Microsoft seeing 2-3x increase in number of partners getting key AI designations.

Marketplace: Microsoft’s 24/7 Co-Sell Engine

Microsoft’s marketplace has become a linchpin of its co-sell strategy. Nicole Dezen explained:

“One of the very best ways for you to Co-sell with Microsoft is through our marketplace. This is 24 by 7 digital commerce… We provide you access to millions of Microsoft customers.”

AI is fueling the marketplace's growth at breakneck speed:

387% increase in customers purchasing AI offers in the marketplace
163% increase in AI offers listed

AI is now "the most purchased category by net new customers," according to Nicole Dezen.

The massive surge in AI-related transactions suggests Microsoft's marketplace is gradually evolving from a procurement tool into a strategic platform for AI solution discovery and deployment.

This aligns with what we've seen across cloud marketplaces - AI is becoming the key accelerator of marketplace adoption.

To further accelerate marketplace adoption, Microsoft has introduced key updates:

AI-Powered Discovery
Natural language tools simplify product discovery, making it easier for customers to find solutions.
Accelerated Publishing
AI-driven enhancements streamline the ISV publishing process, enabling faster time-to-market.

From Skepticism to AI Strategy in Just One Year

To illustrate the broad AI impact on organizations and its potential Judson Althoff, EVP and Chief Commercial Officer, shared a telling shift in customer attitudes toward AI over the past year:

“A year ago, we were really frankly just talking about AI concepts and the demos were all fresh and pretty early. A lot of customers were kind of questioning, ‘hey, is AI just a fad? Is it going to take root?’

Now, the landscape has transformed. Customers come to Microsoft armed with ‘literally 400 big ideas of all of the things they think they can get done with AI, with the number one question being:

‘Hey, where should we get started? And how do we know if the investments we're going to make in AI are actually going to take root?"

The AI Value Checklist

Althoff advised to evaluate AI use cases, using a 4-step "checklist" to determine whether an AI experiment will deliver measurable impact:

Employee Experience
Is it going to enrich the experience of your employees?
Customer Engagement
Will it transform how you engage with customers, enabling more personalized relationships and improving your ability to sell?
Business Process Reshaping
Is it going to enable you to reshape business processes as a whole? And how are you thinking about AI first business processes inside your organization?
Bending the Curve on Innovation
Will this scenario enable you to bend the curve on innovation?”

AI in Action: Microsoft’s Internal Results

Judson Althoff, EVP and Chief Commercial Officer at Microsoft, highlighted a significant milestone: Microsoft’s decision to invest heavily in rolling out M365 Copilot across its own organization. This move, applied to all 65,000 employees in MCAPS (Microsoft Customer and Partner Solutions), was not only a substantial investment but also a strategic test of AI’s transformative potential within the company itself.

The results speak volumes. "Top tranche Copilot users" compared "against their own baseline" show:

10% increase in pipeline generation
23% faster close rates
9% higher revenue generated per head

Althoff emphasized the significance of these metrics and the importance of measuring direct impact:

“We’re actually measuring the causality of production and improvement inside our own sales force, and they yield out the back end. So the investment, of course, pays for itself.”

Beyond its impact on sales, Copilot has played a pivotal role in Microsoft’s innovation engine. Althoff revealed an impressive statistic:

“Copilot has written more than 30% of the code for all of our Copilots out there.”

This underscores AI’s ability to enhance productivity, not just as a tool for end users but as a foundational element in Microsoft’s development process.

Final Thoughts

Microsoft’s partner ecosystem is rapidly expanding, driven by economic multipliers, AI momentum, and strategic investments both in partners and technology. From SMC opportunities to marketplace transformation, the message is clear: partners are central to Microsoft’s vision.

Source: Images and stats.

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