This year’s research showed an acceleration in customer adoption of Microsoft solutions and associated partner services. This has resulted in an increase in deployment activities, reversing an opposing trend over the past couple of years. Deployment project work margins range between 30% to 40% for most partners. Advisory services around improving security and compliance postures and driving better adoption make up a small part of most deployment projects; the margins for this work range from 30% to 45%.
Business solutions, which include custom development, system integration, and repeatable IP, have become more important as partners tie together disparate systems and signals to improve customers’ security and layer on their own IP to make their operations more efficient and deliver better outcomes to customers. For resalable IP, margins can be as high as 80% (the standard for SaaS software), but the average hovers around 70%. For other systems integration-type work, the margins are between 40% to 50%. Another big trend this year is the increase in managed services, with partners selling a lot more of their existing offerings as well as bringing new ones to market. Security operations center (SOC)-type service margins are low right now at 25% to 35%; this is because it is a new and emerging space and has yet to reach economies of scale. Fully-outsourced security partners are reporting margins up to 50%.
Partner offerings have become more sophisticated in terms of integrating security, compliance, and identity offerings to increase their market opportunity and to improve customers’ security. Overall, the partner opportunity breaks out as roughly 40% Modern Workplace security, 20% cloud security, 20% compliance, and 20% identity. Partners expect the cloud security opportunity to grow significantly in 2022 with greater adoption of Azure and with customers looking for more security- and compliance- related services.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
One additional area of growth is around frontline workers. Providing them with digital identities, including features such as multifactor authentication, is the usual starting point. Partners are also seeing more opportunities around securing Teams, other applications, and devices frontline workers use.
These opportunities usually begin in later phases of the customer journey after addressing the most pressing needs of knowledge workers. Additionally, frontline workers could be included in legal discovery compliance work. The opportunity varies greatly by industry, but partners estimate that layering on frontline worker offerings boosts the total, three-year journey value by 5% to 10%, and are not included in the opportunity estimates described below.
Forrester discussed with partners the likelihood of customers buying any given offering; this is referred to as the “attach rate." For previously existing services and solutions and foundational work, attach rates have improved. Newer services, such as SOC-as-a-service deployment and managed services are attaching at lower rates but seeing strong growth. Identity has the highest overall attach rate, as it is a typical entry point for partners. Specialized partners, such as those focused on legal compliance, have higher attach rates than the more generalized attach rates included in this study. Partners should take their areas of specialization and existing attach rates into consideration when thinking about their opportunities.
Forrester looked at a range of outcomes based on the partner interviews and calculated the most likely offering portfolio and financial outcome for a partner that is focused on building out security, compliance, and/or identity practices. The financial opportunity is based on signing a new customer with 5,000 users and embarking on a 36-month journey to adopt Microsoft and partner services and solutions and to utilize managed services.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
| Deployment |
$13.00 |
48% |
$6.25 |
| Advisory and adoption services |
$3.75 |
53% |
$2.00 |
| Solutions development |
$35.50 |
28% |
$10.00 |
| Managed services |
$37.75 |
31% |
$11.75 |
| Total: |
$90.00 |
33% |
$30.00 |
Security
Modern Workplace Security
Cloud Security |
$55.75
$35.75
$20.00
|
28%
29%
28% |
$15.75
$10.25
$5.50 |
| Compliance |
$15.25 |
26% |
$4.00 |
| Identity |
$19.00 |
54% |
$10.25 |
| Total: |
$90.00 |
33% |
$30.00 |
Modern Workplace Security
Modern Workplace security is about activating Microsoft 365 workloads. Partners have seen more customer interest in moving to the E5 SKU, although most customers are still on E3, sometimes with the security add-ons. Partners are keen to move their customers to E5 because it improves customers’ security and also increases revenue opportunities. One partner that specializes in security requires all of their customers to be “all in on Microsoft security solutions” and on E5 to provide managed services. The Modern Workplace partner solution and services portfolio represents approximately 40% of the total SCI opportunity, or $35.75. The overall attach rate is 29% because newer solutions, such as SOC as a service, are bringing down the average but are expected to attach at much higher rates in the coming year.
Core deployment services around implementing the Microsoft 365 security workloads and E3-to-E5 migrations attach at 85% or higher. This is a typical starting point in a customer journey, along with strengthening identity, which is discussed later.
Partners often start engagements with an assessment phase, and a general rule of thumb is that deployment projects should be 10 times the initial planning phase price. Sentinel deployments is one of the largest growth areas in the past year. They are quick, concentrated efforts and are currently attaching at around 25%. This is expected to continue to grow rapidly, and these deployments often result in managed services.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
Advisory services are usually bundled in as part of upfront deployment work and generally equates to a 10% to 20% uplift on deployment revenues. Most of the effort is working with the IT and security organizations to define and plan the adoption, although there can be some end-user change management consulting. Distinct advisory efforts are included in around 60% of all projects.
There is sometimes custom development and integration work as part of business solutions to tie together different systems for requirements such as ingesting signals. Partners that support multiple vendor solutions are also integrating them with Microsoft solutions. There are very large opportunities around creating and selling IP to improve customers’ security. Partners shared many examples, such as discovery and migration tools, device management/IoT, and monitoring and remediation tools. The various business solution opportunities attach at 25%.
Managed services opportunities have grown significantly, due in large part to the adoption of Azure Sentinel. The types of opportunities vary depending on whether the partner is a more traditional Modern Workplace partner moving into the security space or a security partner moving into the Modern Workplace space. Partners have created a wide range of offerings from point solutions from endpoint management to fully outsourced security. SOC-as-a-service offerings have expanded and attach at higher rates. Some partners who have fully retained their system integration business models, rather than moving to recurring revenue models, sell bundled consulting days as a form of managed services. The overall attach rate for managed services is 30%.
Cloud Security
Cloud security includes the services and solutions partners offer around Azure and other public clouds running Microsoft solutions. For many Modern Workplace partners, this is a new and expanding area. Because of the breadth of Azure’s services, there are numerous opportunities to deliver security services, such as data, virtual server, networking, and applications. There are also emerging security opportunities around advanced workloads like AI and machine learning. The total cloud security opportunity is approximately 20% of the overall SCI opportunity, or $20. The current attach rate is 28% because it is a new area for many partners. However, partners expect this space to grow rapidly in terms of total opportunity and attach as they build out expertise and offerings.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
For the financial analysis, Forrester included the most common deployment areas, such as server and application migration. These are huge opportunities with application migration programs at a 5,000-user organization running into millions of dollars over multiple years. Across the board, security work is estimated to be 20% of a full cloud migration journey. Usually, these projects begin with assessments and planning workshops, which are Microsoft sometimes funds. Deployment attach rates range between 25% and 50% across partners, although more specialized partners can expect higher attach rates similar to the Modern Workplace security deployment attach rates.
Advisory services fall into two broad categories: 1) cloud-related planning and governance and 2) change management consulting. The former category, which focuses on how to securely move to and operate in the cloud, is the much larger category. These activities add approximately 20% to the deployment costs and attach at 50%.
Partners create IP around cloud security for migrating and operating securely in the cloud. Sometimes, partners charge separately for these solutions and other times these solutions are provided without additional charge because they can significantly reduce delivery effort, improving margins. There is also security-related custom development and integration work that is often required, especially for hybrid and multi-cloud environments. Currently, business solutions attach at 20%, but partners reported fast growth in this area.
Managed services represents a large opportunity as customers look to outsource capital expenditures and labor. Additionally, many customers lack the expertise to manage security in the cloud. The most common services are outsourced security management for VMs and cloud-based security appliances, as well as SOC as a service incorporating cloud infrastructure and data. Despite this space being new for many partners, the attach rate is already at a healthy 31%.
Compliance
Microsoft has invested heavily in their compliance solutions, methodologies, and go-to-market messaging over the past year. The rapid adoption of Teams during COVID-19 means that most companies are now playing catchup in ensuring that their deployments and usage are compliant with internal policies and regulations. This all translates into more opportunities for partners and more success in selling. Compliance areas include information protection and governance, insider risk management, communications compliance, advanced eDiscovery/legal hold, and advanced audit. Specialized partners still mainly undertake these last two, and many Modern Workplace partners are moving into the more IT-centric compliance areas. The total compliance opportunity makes up approximately 20% of the overall SCI opportunity, or $15.25. The attach rate is 26%, although specialized compliance partners’ services attach at much higher rates.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
For the majority of Modern Workplace partners, information protection is the first deployment opportunity, and it is usually related to Teams. These journeys often begin with educational workshops and proofs of concept, which Microsoft sometimes funds. Partners described a wide range of project sizes and durations, ranging from ten-week, Teams-specific deployments to end-to-end IT compliance and governance programs. Partners look for the deployment program to be 10 times the upfront assessment and planning work. Specialized compliance partners have very high-value deployment opportunities. For example, eDiscovery data migrations into Microsoft 365 can easily cost anywhere from $100,000 to $1,000,000 for a large enterprise. The overall deployment attach rate is 30% as more partners move into this area.
Advisory services are extremely important when it comes to governance because it is new to many customers who lack the necessary skills and experience to define their requirements and successfully roll them out to IT, legal, audit, and end users. There is often a lot of business process work undertaken, and upwards of half of the total opportunity is involved with change management. Advisory services often cost nearly as much as deployment services, and they attach at 67%.
Partners are building business solutions for both compliance related to information protection as well as more specialized advanced eDiscovery. Some examples included tools for the effective governance of unstructured data, connectors for different repositories and systems, and process automation tools for governance management and reporting. Often, there is no standalone charge for these solutions as they make deployment and managed services more profitable. The current attach rate is 24%.
Compliance-related managed services is the most nascent opportunity for partners. However, partners view this as a good opportunity for future growth and to deliver more strategic services to customers. The most common offerings are related to information protection, outsourced eDiscovery, and ongoing compliance audits. Much of the work is done as part of a retainer model. Some more advanced partners have recently built out compliance-as-a-service offerings analogous to SOC-as-a-service offerings and believe they can charge from 50% to 100% of their SOC-as-a-service prices for compliance. The overall compliance attach rate is 22% with outsourced eDiscovery being much lower at around 10% and ongoing compliance audits/retainer contracts being around 30%.
Identity
Identity is at the core of Modern Workplace partners’ security-related offerings. The widescale adoption of Azure AD is creating many new identity-related opportunities. Additionally, the Zero Trust security approach expands the total opportunity size as customers adopt multifactor authentication, single sign-on, and passwordless authentication as part of identity journeys. Identity is also the most common starting point for selling services related to a customer’s frontline workers. It is approximately 20% of the total SCI opportunity and worth $19 per user per month. Its overall attach rate is 54%.
Partners described multiyear identity deployment journeys that can run into the millions of dollars for companies with more than 10,000 users and consisting of up to 15 distinct projects. After the upfront assessments and planning, Azure AD migrations are the most common starting point. Partners also see many opportunities to migrate customers to Microsoft’s MyApps portal from competing solutions. A full identity journey ranges in price from $1 to $5 per user per month and attaches at 65%.
Advisory services are critical to successful identity projects, since it affects all users and many processes. There is also a lot of education and training that needs to take place to successfully implement a multiyear journey with the in-house IT organizations. Partners said that advisory services typically added 10% to 20% onto deployment services costs and are included in just about every deployment project.
Base: 13 decision-makers at Microsoft-partner organizations with existing security, compliance, and/or identity practices
Source: A commissioned study conducted by Forrester Consulting on behalf of Microsoft, July 2021
There is often a lot of integration work required as part of identity journeys and successfully implementing a Zero Trust security approach. Partners also create their own IP to make migrations more efficient and profitable, as well as ongoing management and monitoring tools. Some form of these solutions are attached to every deployment project.
Partners create a wide range of managed services around identity from simple management of Azure AD to full identity-related outsourcing, including multifactor authentication, endpoint management, ongoing change management, and tier-one helpdesk. Some partners also amortize the deployment costs over the first year of managed services to make it easier to onboard new customers and get them to sign up for managed services. Managed services had a higher attach rate when there was a big identity governance component as part of the initial advisory work, and the current attach rate for some form of managed services is 40%. This opportunity should continue to grow as the Zero Trust approach becomes more widespread.
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