Microsoft's little secret: A large number of cloud users only register not to use

Several people familiar with the matter told Business Insider that in recent days there was a frightening new word circulating between Microsoft Sales Managers: consumption.

"Consumption" is also referred to as "use", which refers to a customer's actual consumption of cloud computing resources.

There is a disconnect between the number of customers registering Microsoft Cloud Computing Services and the number of customers who actually use those services because of the extensive cooperation agreement.

People familiar with the matter said the disconnect created various problems within Microsoft, such as:

To compete with Amazon's Network Service (AWS), Microsoft has been trying to attract companies to register Azure. Although only a small amount of extra money is charged, not even a penny, many of these customers do not intend to use the service at all. Microsoft has been counting some of the revenue from such deals as cloud computing revenue, but if those customers don't really use Microsoft's cloud computing business, those revenues won't last. The same goes for Office365, a cloud-based e-mail and productivity suite (though we hear that Office 365 is on the fast track).

Microsoft is putting pressure on the sales force to turn these "unregistered" customers into real "users". Microsoft has adjusted many of its sales teams ' pay plans to set a "consumption" target for them.

We've heard that some salespeople will leave, or they won't get bonuses because they don't actually use the data. Not getting bonuses is a fatal blow to salespeople who have to rely on bonuses to develop their careers.

The sales department is holding a variety of meetings to develop plans to improve sales targets.

After we asked Microsoft about it, the company replied that its cloud computing usage was "strong": "We found that companies of all sizes have shown strong use of Microsoft's cloud computing services." More than 60% of all Azure customers use at least one value-added service, such as streaming media video. More than 80% of Office365 enterprise customers use two or more workloads. ”

Into the clouds.

To understand why salespeople have headaches with these new consumer metrics, it's a good idea to get some background information:

In the cloud computing industry, businesses only need to pay for the resources they actually use, such as computing time, storage space, and the use of value-added applications and services.

This model is popular with customers, so they are abandoning traditional software and computer usage patterns to get computing resources from cloud computing.

As a result, all the big technology companies are scrambling to provide cloud computing services lest they be taken in front of rivals. They have spared no effort to grab a share in this huge market. The market for cloud computing will grow from $56.6 billion trillion in 2014 to $127 billion in 2018, according to IDC, the US market research firm.

As previously reported, Microsoft has struggled over the past few years to attract a large number of corporate customers to try out the company's cloud-computing products through what it calls a "test-and-reuse" model. The term "try again" refers to providing cloud computing benefits to companies, hoping that they will continue to pay for the use of Microsoft's cloud computing services after using their concessions.

But in fact, Microsoft will not directly provide users with free vouchers. "Customers must pay for all services in the ' Enterprise Agreement ' (EA)," said one person familiar with the matter. There is no free product at all. "Microsoft's big business customers will almost always sign such an EA agreement.

However, as part of this agreement, Microsoft will offer high discounts for the software part of the agreement-for example, Windows licensing fees or SQL Server database licensing fees-and then apply these discounts to the cloud services covered by the agreement.

In fact, there is little change in the total cost of the agreement compared to the cloud-free services.

But that means Microsoft could include some of the revenue from the deal in cloud computing revenue. We have already reported on this.

It's a smart "try and buy first" strategy that will help Microsoft move money into the cloud computing business. But the business also carries risks, and if corporate customers do not continue to use Microsoft's cloud computing business, but stop using it after the coupons run out, Microsoft will not be able to count it as a real cloud client-though it does seem to do so from the financial statements.

This is actually a true portrayal of some cases.

"Microsoft's nasty little secret is that there are very few customers who actually use Azure. "People familiar with the matter said to us last November.

Another person familiar with the matter said to us recently: "Microsoft has got the money, but the customer is not using cloud computing services." ”

People close to the situation said Microsoft would bind tens of thousands of of billions of dollars in cloud-computing concessions when negotiating a millions of-dollar deal, but in reality, the Enterprise client was simply not prepared to use Azure (or even to authenticate the security of the service).

People familiar with the matter said: "Don't get me wrong, some clients really like Azure and do a lot of things with it." "But in some sales areas, less than 20% of corporate customers contribute 90% of azure usage."

The new system is good for salespeople who make those 20% deals, but it's a bit bad for other salespeople.

The general situation?

Another person close to Microsoft said the problem was not widespread.

After reading thousands of EA agreements and Azure agreements, the person said, he found that only a few of them contained azure concessions that companies did not want or did not use.

When it comes to discounting, the person admitted that the discount described above would also apply to other products so that Microsoft could count on Azure's revenue, but he said the issue was not common.

"We have not discounted azure and we have discounted other products to generate revenue for Azure, which is included in EA," he said. But this is a very low percentage. The person explained.

Microsoft would not "lose money" on these contracts, he said.

"In fact, customers pay for things they don't use (Azure)." The azure protocol lasted a year, so if it were included in their EA agreement, they would have a year to use the service. If they do not use them, they do not enjoy the value of the service, although they have paid the money. ”

"Yes, we will ask salespeople to attract customers to use azure, because that is the real channel for us to charge azure fees," the person said. ”

Other salespeople, however, told us that this pattern of azure-bound is very common.

Software Licensing consultant Cincia Fahren (Cynthia Farren) also confirmed this when we reported the incident last November.

She said to us, "I've also heard from some Microsoft salespeople that all of the EA protocols they're responsible for are accompanied by some cloud computing services, but not all of them are using these services." ”

Wall Street questioning

The crux of the problem is that some insiders are beginning to notice the situation and ask Microsoft to disclose more details.

When Microsoft CEO Satia Nadra Satyanadella said in January this year that the company's cloud computing business would become an annual revenue of $5.5 billion trillion, many industry experts called for more details to be released.

"What I really want to know is the total number of active users actually." I hope that they can disclose the data in a more transparent manner, such as active users. Fallon said to us before.

The same is true of Wall Street analysts.

In the Microsoft earnings Conference Call of January this year, Walter Pritchard, a Citigroup analyst, asked Nadra and Microsoft CFO Ami Hud (Amyhood) about the actual number of users in Office 365, Walter Plittschard, a person familiar with the matter, Enterprise users of this service are increasing rapidly.

"Can you talk about the deployment rate?" I know you have a lot of contracts, but how many users actually use the service, using email, SharePoint, and other cloud computing services? Plittschard asked.

When Microsoft's management shied away from the problem, Hood did not disclose the number of active users, but said: "The real goal is to show users cloud computing services, and then let them move as quickly as possible to such services." ”

Increased pressure

It is clear that Microsoft is now putting pressure on salespeople to ensure that users actually use the service.

"The fundamental challenge is for Microsoft to motivate sales teams to aggressively sell Office365 and azure, regardless of whether the customer needs, wants, or even plans to use these services." A person familiar with the matter told us.

In the past, sales bonuses had only been linked to the number of customers agreeing to increase cloud computing services in their contracts, according to people familiar with the matter. Now, Microsoft has started to list "consumption" as a benchmark for salespeople and sales managers--even if it's already a signed contract.

"The new pay-relativities salespeople are not good because their customers don't have to ' consume ' cloud services," he said. Many regions start a ' consumer business assessment ' every month or two weeks to motivate salespeople to complete their tasks. People familiar with the matter said.

The so-called "complete task" of people familiar with the matter is to allow customers to use all the cloud computing services they pay for, and more.

While some salespeople are worried about the inability of customers to actually use Microsoft's cloud computing services, Amazon and Google are starting to dig up cloud computing talent from Microsoft.

People familiar with the matter said that Microsoft had encountered a massive poaching of Google's Amazon when it was not appropriate and that talent had been badly lost.

Industry consensus

In fact, other companies are also trying to change their minds, not simply to attract users, but to start focusing on the actual amount of cloud computing usage.

Hewlett-Packard CFO Kessi Reysjak (Catihe Lesjak) Last January, the company is also carrying out such projects.

The company's software revenues slipped 5% per cent year-on-year last year, according to HP's latest earnings release in late February. "We will continue to move the product mix and operation model to SaaS and subscription services." The customer's consumption behavior and sales motivation adjustment will also affect the short-term revenue. "She admits.

Meanwhile, Salesforce CEO Mark Benniof, known as the "King of Cloud Computing", also trumpeted how users use the company's cloud computing services at the end of February when the company announced its financial time. Salesforce is one of Microsoft's biggest rivals in cloud computing.

"We have handled 177 billion transactions for our customers this quarter, an increase of 68% per cent year-on-year." You can see that our usage rate is soaring. The number of customers using our products is higher than ever before, averaging about 3 billion business transactions per working day. This is space in the Enterprise technology field, no enterprise platform can reach this level. "he said.

Salesforce has been publishing the company's usage statistics over the internet for years.

Now, Nadra is also under pressure to start disclosing details of use. But before disclosing the information, he apparently wanted to accumulate some real-hand data.

(Responsible editor: Mengyishan)