The Partner Opportunity For Creating Microsoft Teams Applications

Add More Customers

Creating applications for the Teams platform greatly increases the number of new customer wins for partners. The 145 million-plus daily active Teams users represent a much larger TAM than most other software companies could target on their own; being part of the Teams ecosystem brings such customers into reach. Beyond the preliminary opportunities associated with a larger TAM, partnering with Microsoft makes it easier for partners to actually engage with more prospects and win more deals.

Partners achieve this scalability by expanding sales channels beyond in-house sales and marketing. Interviewees reported success with joint Go-To-Market with Microsoft, making their applications discoverable in Microsoft AppSource (and in the near future, in-Teams purchases), and some partners are beginning to use other Microsoft partners as a sales channel.

Decision-makers shared the following experiences as they generally relate to increased TAM:

• “We believe that the Teams opportunity is our biggest channel over the medium to long term. Distribution is the hardest thing for a small company. We don’t have a big brand out in the world, but within Teams, we have a very big brand.” CEO

• “In terms of overall marketing opportunity, Teams does expand the addressable market. We get to new customers and engage with existing customers in new ways by expanding the number of use cases we can solve.” Product marketing

• “Microsoft’s focus on frontline workers is opening a whole new channel for us, which greatly increases our total addressable market.” VP, marketing

• “Today, 90% of both our enterprise and SMB [small and medium-size business] prospects ask us if our solution works in Teams. When we launched in 2019, maybe 25% were inquiring about Teams integration.” Alliances manager

Joint go-to-market activities with Microsoft are a goal for all of the interviewed partners. This can open doors, accelerate sales, and improve win rates. Interviewees shared the following go-to-market experiences:

• “Microsoft really helps build our marketing funnel. Being awarded Partner of the Year increased the number of leads from customers and other Microsoft partners. Additionally, access to Microsoft cosell activities helps us accelerate sales and close more deals.” International channel director
• “We have developed a very rich pipeline of future revenues with Microsoft. It has grown much faster than with any other partners we work with.” VP of presales

Interviewees shared the following examples of how they are developing new online and partner channels because of Microsoft Teams:

• “A very good thing about Microsoft is their partner ecosystem. That is really helping us to scale. CSPs [Cloud Solution Providers] as well as consulting and GSI [Global Systems Integrator] partners are helping get us into their customers.” International channel director
• “We are a 200-person company. When they come in and help us with a deal, Microsoft’s brand accelerates the process and improves win rates.” Product marketing
• “Some customers find us in Outlook, some in Teams, and some at our website. More than 50% of our leads are coming from Microsoft online properties.” CEO
• “With AppSource, we can have access to all CSP partners around the world. That is something we will be launching in the next few months.” Alliances manager
• “We are now in the Microsoft app stores, which greatly increases availability and adoption.” Product marketing

Based on partner examples of how their pipeline and win rates have increased, Forrester documented a range of potential outcomes in terms of the increased number of deals a partner can expect from creating an application on the Teams platform, regardless of whether the application is a new version of an existing application, either standalone or integrated with other collaboration platforms, or if it is a brand-new application. Whether an application falls into the low, medium, or high scenario depends on several factors, including:

• How well the application complements existing Teams functionality and solves new use cases/problems.
• The amount of effort that the partner puts into sales and marketing, both on its own and in conjunction with Microsoft.
• The current install base for other versions of the application as well as the partner’s global reach. Partners that are focused in one country or region have the entire world opened up to them.

Although growth as a percentage is more difficult to achieve at larger companies, both very large and small Microsoft partners included examples of triple-digit growth. Partners should consider these factors when thinking about their possible increase in customer install base from building applications for Teams. In lieu of any compelling reasons to choose the low or high scenario, a reasonable assumption would be that they will achieve results along the lines of the Teams medium scenario of 225%.

Sell Enterprise Deals

In addition to selling more deals because of Teams, partner interviewees also said that the deals they are closing are larger. This is primarily because deals done within the context of Teams are, more often than not, enterprisewide for all Teams users rather than targeting specific departments or narrower use cases. Many factors contribute to being able to move into the enterprise space. These include:

• Having Microsoft open doors at the highest levels in prospect organizations to sell enterprise deals.
• Being viewed as “enterprise grade” because of the integrations with Microsoft and leveraging Microsoft’s security stack.
• IT organizations not having to manage a completely independent solution, so they are not too worried about additional effort.
• Ease of turning on all users with the “flip of a switch.”
• Customers seeing additional value in the applications and thus wanting to make it available to all users.

Additionally, Teams deals can include enterprise-focused capabilities, such as back-end integrations and reporting, which can command a higher price. This may be offset by volume pricing for higher user counts, but the overall net result for total deal size can still be significantly larger. Decision-makers at partners of all sizes shared the following examples of how they are closing larger, enterprise deals:

• “We are getting much larger, enterprise rollouts. If they are using Teams, they can roll us out to all their users.” Product marketing
• “Our ARR [annual recurring revenue] with Teams customers is around two-thirds higher than our overall average.” VP, marketing
• “Land-and-expand opportunities are greater when a customer is using Teams. There is also the possibility to sell more add-ons.” CEO
• “With Teams, we are doing enterprisewide deployments using AD. That gives us more distribution, and we can provide more value.” Product manager
• “We are trying to move upmarket into the enterprise space. Microsoft is very good there. They are also well set up for partnering for success.” Leader, strategic partnerships
• “To become an enterprisewide application for all employees, it is very useful to have Microsoft say you are a top app for Teams. It is also important that we have all of the security built into Microsoft. These things give us credibility with enterprise buyers and why our ARR for Teams deals averages €50,000 versus €5,000 to €10,000 for non-Teams deals.” Alliances manager
• “Our shared pipeline with Microsoft is very large. Instead of opportunities being at the department level, they can be an order of magnitude larger and more focused on business transformation. Deals we jointly sell with Microsoft are much larger than what we have historically sold on our own.” Group product manager

Based on partner examples of how they are increasing deal size and better moving into the enterprise space, Forrester documented a range of potential outcomes for the increased deal size a partner can expect from creating an application on the Teams platform, regardless of a partner’s total size. For example, the interviewee at the partner with more than $10 billion in annual sales said that the Teams version of the application helps the partner win enterprise deals and significantly increase total deal size. Whether an application falls into the low, medium, or high scenario depends on several factors, including:

• If a partner is already selling enterprise deals.
• How well a partner’s application applies to all users/solves enterprise use cases.
• The amount of joint Go-To-Market activities taking place with Microsoft.
• The ability to add enterprise features to the Teams version of existing applications.

Partners should consider these factors when thinking about their possible increase in deal size. If a partner is already selling all enterprise deals, it should apply the low scenario of no increase. Otherwise, partners should compare their average deal size in terms of number of users to their customers’ total size/potential user count. This ratio can help determine if the medium or high scenario potential is more appliable.

Improve The Value Proposition And Competitive Differentiation

Creating applications that build upon Teams capabilities can deliver incremental value to users in terms of the scenarios they solve for and by enabling users to complete their work in Teams rather than having to jump to another, standalone system. The value proposition can also be stronger for other buying decision-makers, such as those within IT organizations, because of the tighter integration with Teams and Microsoft’s security stack. These factors all contribute to the two benefits quantified earlier. Partner interviewees also said that their Teams strategy is an important competitive differentiator. Most of the partners have created a licensing model in which their applications can be used across all platforms — standalone, other collaboration tools, and Teams — which they viewed as a real competitive strength. Interviewees shared the following examples:

• “We would not exist if it wasn’t for Teams. We couldn’t do what we do with Office 365 alone.” CMO
• “Where we see value is bringing everything into Teams so users can stay there to get work done. It is a real competitive advantage for us because we want to leave people in Teams. Our competitors want to take users to their own platforms.” CTO
• “We do not charge extra to use our solutions in Teams. A customer making a strategic investment in Microsoft and in us is a key differentiator for us because our competitors charge extra.” Product marketing
• “We are not selling a different SKU. Instead, being on Teams enhances our storyline. The sales organization says this resonates strongly with customers.” Product marketing
• “Because we are native to Teams rather than an application that connects in, we are buttoned up from a security perspective. We are so intertwined with all of the Microsoft technologies that it brings comfort to IT organizations. If you are cool with how Microsoft does security, we do it exactly the same way.” CEO
• “For us, one of the biggest differentiators when selling is that all of your information stays secure in your own Office 365 environment. This tight integration is a big selling point.” CMO

Create Better Usage And Customer Stickiness

Creating applications that combine Teams’ capabilities with a partner’s IP to solve for unique problems and scenarios increases usage. Additionally, enabling users to engage with partners’ applications and complete their work within Teams rather than having to jump over to another system means that users make greater use of these applications on a more frequent basis.

Increased usage creates greater stickiness, which is very important in the SaaS world in terms of customer retention and lifetime value (LTV). Although it is early days, the interviewed decision-makers believe that the greater usage they are seeing will translate into higher LTV. Because most partners’ Teams applications are relatively new to market, Forrester did not quantify this benefit.

Additionally, a couple of the interviewed partners have consumption-based pricing models. For them, increased usage directly translates into higher ARR. Because this is not the typical partner pricing model, Forrester did not include it in the financial model.

Partners that have a consumption-based pricing model should consider this opportunity when evaluating the benefits of building applications on the Teams platform.

Interviewees shared the following examples of how they benefit from increased usage:

• “Our overall strategy is that our applications are imbedded in the ecosystems customers are using every day. That is why Teams is incredibly important to us; people use us more.” Leader, strategic marketing
• “Being on the Teams platform creates a lot of stickiness because that is where people are already working. They have easy access to our applications. All the status alerts are delivered in Teams channels. There is much better engagement than going to a separate platform.” Group product manager
• “We have seen a significant number of net-new users and better engagement. Engagement increases stickiness and the value of our larger accounts.” Product marketing

Reduce Development And Delivery Costs

During the interviews, partner decision-makers spent most of the time talking about the growth opportunities from building applications for the Teams platform. Additionally, some highlighted cost reduction benefits associated with Teams. This is for both building applications and their ongoing management. Partners achieve this by leveraging the capabilities built into Teams and the Microsoft stack — both front-end capabilities such as videoconferencing, chatbots, and Tabs, and back-end features such as Microsoft Graph and Azure AD.

There are also economies-of-scale benefits because so many customers are using partner applications via Teams. Additionally, Microsoft’s robust APIs also contribute to the cost savings.

Interviewees shared the following examples of how leveraging the Teams platform lowers their costs:

• “Our application takes advantage of features within Teams, which saves us money. Furthermore, the way Microsoft does things is easier than other platforms we support. That means we can build natively and port to Teams, which is a cost savings.” Product manager
• “We can leverage what Microsoft has built into Teams. If we would have had to build out a videoconferencing function, we would not have launched this solution.” Product marketing
• “We couldn’t build all the features in Teams that are used in our application. Look at all the other big vendors out there and all the money they have spent, and they don’t even come close to Teams. How could we have done it?” Product marketing
• “One thing Microsoft does very well is making sure that Teams is stable and backward-compatible, which is not always the case with other vendors. On other platforms, our engineers sometimes have to go back and fix things when a vendor makes changes on their side. Not having to do this saves us money.” Product marketing