Point of View

As Public Cloud adoption heats up Services Providers jump on the Azure train to growth

July 13, 2021

In two recently published studies, Top 10 Hyperscale Cloud Service Providers and Market Analysis: Disruptive Hyperscale Cloud Service Providers, HFS examined two dozen service providers’ strategies for building hyperscaler capabilities and partnerships. Through in-depth interviews with services providers and enterprise leaders, we collected insights into the cloud services offerings and partnerships associated with hyperscalers.

An important execution aspect was exploring talent to accompany the centers of expertise (CoE) many services providers established for their hyperscaler partnerships. We believe understanding the investments in talent for certified and uncertified professionals will provide insights into current opportunities and shape how service providers will position themselves to support services in the future.

Investing in talent is about delivering solutions for current opportunities while placing bets for long-term revenue growth

In HFS’ studies of hyperscalers’ partnerships, we found the top 20 services providers now have over 450,000 cloud professionals and roughly half are certified for one or more hyperscaler solutions. This is a boon for enterprises struggling with attracting, developing, and retaining talent. The investments a services provider made can augment, train, and support staff in planning, executing, and optimizing cloud adoption. This is essential for many stressed enterprise technology teams to deliver solutions for the business while ramping up new cloud-native capabilities.

From a hyperscaler’s vantage point, establishing programs to drive certifications and skill development is very important as their parent firms expect significant future revenues for their cloud offerings. To build future revenue stream hyperscalers are investing millions of dollars in partner programs to entice service providers to focus on their solutions knowing that the limitations in staff will make these partners choose where they are going to focus.

One player with decades of partner program and certification experience is Microsoft. Microsoft’s ability to develop partnerships is valuable during this mass transformation of how (and where) people are working. On the back of many existing relationships, Microsoft is rapidly accelerating its presence as the Cloud partner of choice within its services provider ecosystem, boosting internal and external skills to help customers migrate Microsoft workloads to Azure cloud offerings.

In HFS interviews, it became clear that Microsoft’s Azure platform is the leading platform for services provider investment. Azure cloud professionals account for roughly 50% of the headcount in the services provider workforce. While many providers have invested in partnerships with Amazon’s AWS/EC2 cloud solutions before expanding their Microsoft relationship to include Azure certifications and professional offerings, the demand for moving Microsoft applications, workloads, and data has tilted investment (and revenues) in Microsoft’s favor.

Azure posts solid growth over the past 12 months

Service provider investments in Microsoft solutions appear to be ramping consistently with the vendor’s revenue growth over several years (see Exhibit 1). During this time, Microsoft published that its Intelligent Cloud revenues had nearly doubled since Q3 2018 while operating income increased 2.5x over the same period! For the 12 months from April 2020 to April 2021, Microsoft’s financial reports show Intelligent Cloud revenue increased 21% from $46.4 billion to $56.1 billion. Note, Microsoft doesn’t officially break out Azure-only revenues, and its intelligent cloud filings reflect other high-value products, including its SaaS solutions like Dynamics and Office 365, but recent news indicates strong growth.

Exhibit.1 Microsoft Intelligent Cloud by financial quarter shows significant cloud revenue growth

Source: Microsoft quarterly earnings releases

While we cannot attribute all this growth to its partnerships with services providers or the transition to cloud services—we cannot discount a 21% growth in revenue during an economic downturn.

It is worth noting that many services providers increased their investment in the Microsoft Azure partnership program between late 2018 and 2019, just months before the pandemic. Some notable signs of increased Azure efforts include the Accenture Microsoft Business Group (AMBG) formation in February 2019, HCL’s IoT Works’ selection as Azure Elite Partner FY 2019, Capgemini’s selection as the 2019 Microsoft SAP on Azure Partner of the Year, and Infosys’ recognition as Microsoft’s Azure Partner of the Year for 2019.

Azure preferred as differences blur

Interviews with services providers revealed that Azure has a higher number of certified professionals among leading Global Systems Integrators (GSIs), including Accenture, TCS, Wipro, Capgemini, Cognizant, EY, and Hexaware, than AWS, which was not the case two years ago. In HFS’s recent Pulse Survey of Global 2000 firms we saw an increasing shift in the market preferring Azure over others in 2020. Azure’s robust capability set—hybrid competencies, superior PaaS capabilities, AI and ML capabilities, flexible pricing options, hassle-free integration with existing products, and security and compliances—is the impetus for the shift.

As one services provider puts it, “From a hyperscale provider standpoint, we see that the lines of separation between AWS and Azure as preferred cloud providers are increasingly getting blurred for organizations.” HFS’ 2021 OneOffice™ Pulse survey reflects this shift. A lack of differentiation may is resulting in the hyperscalers getting more involved in account planning with their top partners. Again, Microsoft experience and ability to bring together customer lists with heavy Microsoft licensing and contracts to jointly plan sales opportunities is a compelling reason for services providers to choose Azure over AWS, GCP, or others.

Azure is using its partner program experience to drive market leadership

During our discussions with service providers and their enterprise clients and in our study’s results, we observed some common reasons enterprises invest in Azure.

Relationships: Enterprise clients that use Azure have a long association with Microsoft, as long as two decades, and have already used some Microsoft products. It is a natural extension for these companies to choose Azure, as many already have an enterprise agreement. As a result, Microsoft’s services partners are in the best position for negotiating licenses with a greater potential for better discounts for their customers. In addition, Azure offers a wide range of cloud solutions comprising numerous products and services.

Programs: GSIs like Accenture, Capgemini, Cognizant, Infosys, Hexaware, LTI, and others are entrenched in Microsoft’s ecosystem. These GSIs have 1,000s of professionals who are very savvy at maximizing the partnership between their firms. The GSIs are experienced in building industry-focused solutions and go-to-market frameworks with Microsoft. These are some of the reasons why many Tier-1 service providers and consulting firms have rapidly increased the number of Azure certification professionals.

Investment: We observed that GSIs are increasing their focus on Microsoft Azure. Accenture, HCL, IBM, EY, Hexaware, and LTI are some of the GSIs working on joint investment efforts to scale talent and cloud-native solutions. Cloud-native solutions built on Azure include functional computing, developing in GitHub, and Azure Kubernetes Services (AKS). Furthermore, Azure’s capabilities in Microsoft’s no-code/low-code cloud-native solutions, specifically in the PowerApps suite, are growing.

The Bottom Line: Microsoft is winning the war for talent with services providers and boosting market growth via a mature partner program aimed at winning over services providers

Microsoft has more experience developing, executing, and growing partner programs. Its gains in revenue and talent allocation are a direct result. As hyperscaler services become less differentiated, Microsoft’s doubling down on wooing services providers and enterprises to certify their professionals on Azure is both a near-term and long-term play to own the market.

By attempting to win the talent war, Microsoft can influence more individuals, businesses, and services providers to develop cloud-native solutions for its environment. While this doesn’t preclude its competitors from offering similar programs, it can make it harder for organizations and their partners to justify the talent needed for multi-cloud. Because of this, HFS expects services providers to play an increasingly important role for businesses to gain access to talent across all cloud platforms and leverage a variety of innovations in technology, workload, and industry functionality emerging from the cloud marketplace.

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