Artificial intelligence (AI), once a promise of futuristic innovation, is now a flashpoint for Microsoft's channel partners as they navigate the rapidly evolving demands of their customers and the tech giant’s strategic focus. Following Microsoft's latest earnings report, partners and solution providers have voiced their concerns about the company’s partner ecosystem, particularly the challenges caused by AI prioritization, Azure growth issues, and program complexities.
Let’s break down what’s going on, why it matters, and how these dynamics affect both Microsoft's future and its partners' business strategies—including yours.
The partners are feeling it—some are saying that Microsoft's strategy has been too AI-centric, with bread-and-butter services like migrations and basic cloud workloads taking a back seat.
Here’s the skinny:
Ask yourself: When was the last time your business focused solely on AI-driven decision-making, versus ensuring your file storage integrity, data security, and hybrid work infrastructures?
"It’s not enough to deliver flashy AI tools," one prominent analyst noted, adding, "Microsoft needs to reassure its partner community and win back customers prioritizing non-AI workloads."
In essence, this change signals that Microsoft has realized a critical truth: Not all partners—or customers—are ready for the AI revolution. While some segments move quickly, traditional revenue-generating projects still dominate many markets.
But will this change be enough? Or will Microsoft's increasingly AI-obsessed strategy leave SMBs and smaller partners behind?
Whether you're a Windows Forum reader looking for actionable strategies or a business owner considering a move to Azure, remember: Cloud and IT should simplify your life, not complicate it with rushed AI promises. Your move, Microsoft. What’s next on your chessboard?
Source: CRN https://www.crn.com/news/ai/2025/microsoft-partners-weigh-in-on-channel-challenges-after-cfo-comments
Let’s break down what’s going on, why it matters, and how these dynamics affect both Microsoft's future and its partners' business strategies—including yours.
AI: The Buzzword That’s Polarizing Partners
Microsoft's CFO, Amy Hood, acknowledged issues related to “go-to-market execution challenges.” Translation? The tech titan’s push for AI adoption might be leaving some traditional cloud and migration opportunities in the dust. Since Microsoft’s fiscal year kicked off in July, its balancing act between AI innovation and core operational needs has seen mixed results.The partners are feeling it—some are saying that Microsoft's strategy has been too AI-centric, with bread-and-butter services like migrations and basic cloud workloads taking a back seat.
Here’s the skinny:
- AI's Overwhelming Presence:
Hood pointed out that while AI investments are blossoming, the transition is taking time. Partners noted that Microsoft's laser focus on AI (think generative artificial intelligence like OpenAI-powered Copilot tools) has distracted from the traditional workloads customers are still asking for—like security improvements, on-premises hardware refreshes, or even basic Cloud migrations. - Unprepared Ecosystem:
Many solution providers reported a lack of interest or readiness for AI adoption among their customers, particularly small-to-medium-sized businesses (SMBs). “I have yet to have one customer ask me about AI,” a partner shared anonymously with CRN. The general sentiment? AI is being hyped ahead of real-world demand.
Are Partners Falling Behind?
The sheer complexity of Microsoft’s partner program is aggravating the situation. Microsoft's partner ecosystem boasts over 400,000 members, ranging from small IT providers to global systems integrators. However, smaller partners are finding it increasingly tough to keep up with the growing demands for AI expertise and the intricate certification requirements.What Partners Are Saying:
- Frequent Changes to Partner Incentives:
The certifications and badges necessary to remain in the partner network are shifting too quickly. One partner likened Microsoft’s ranking system to the long-running improv comedy show: Whose Line Is It Anyway?, where "everything’s made up, and the points don’t matter." - AI vs. Core Revenue:
While AI sales performed better than market expectations, Hood admitted traditional Azure workloads (such as basic virtual machines and apps on CPUs) saw slower-than-expected growth.
That's right: Microsoft’s AI innovations might be cannibalizing funding for other needs, such as cloud migrations and infrastructure refreshes. Budget pain points are real—some customers are prioritizing AI experiments, leaving less cash for crucial cybersecurity upgrades or hardware refresh cycles. - Modernization Fatigue:
SMB-focused partners—those working with customers who still have physical servers humming away in dusty backrooms—are complaining they can’t adopt Microsoft's accelerated cloud and AI-centric strategies as quickly as Redmond would like.
"It’s hard for [partners] to dedicate the time, energy, and resources necessary to build an Azure practice,” said Luis Alvarez, CEO of the Alvarez Technology Group. Smaller partners are especially overwhelmed.
Customers: Between Skepticism and Pressure
For many businesses, AI still feels like science fiction. Key real-world problems for Microsoft’s customers remain grounded in traditional IT.Ask yourself: When was the last time your business focused solely on AI-driven decision-making, versus ensuring your file storage integrity, data security, and hybrid work infrastructures?
Key Pain Points for End-Users:
- Data Governance Delays: Governance strategies haven't matured fast enough for many SMBs to shift to AI workloads. That’s why AI tools like Copilot (which promise intuitive decision-making support and automation) haven’t yet had a big customer uptake.
- Tight Budgets: IT budgets are under such tight scrutiny that customers are misallocating AI and cybersecurity costs, often lumping everything into a single fund for IT. As a result, planned upgrades to core systems like Windows Server fail to move forward.
- Overwhelmed IT Shops: Businesses cite challenges prioritizing AI compared to operational basics. For those still dependent on on-prem infrastructure, even discussing AI solutions seems ahead of its time.
AI Money Train Derails Azure's Core Growth
So how exactly is Microsoft's focus on AI affecting Azure revenues? Enter the nitty-gritty numbers.- AI Drives GPU Revenue: Microsoft's infrastructure investments in Generative AI and AI-specific GPUs delivered better-than-expected returns from AI services. However, this came at a cost—many basic Azure services built on traditional CPU workloads (VMs, databases, and standard app hosting) experienced noticeable drops in demand.
- Azure Guidance Lowered: Microsoft’s Azure growth rate for early FY25 has been pegged at 31% to 32% when excluding currency effects. That’s on the low end of Microsoft’s initial projections. Core non-AI Azure workloads delivered more modest 19% growth—another hint that businesses aren’t transitioning their infrastructure as rapidly as expected.
"It’s not enough to deliver flashy AI tools," one prominent analyst noted, adding, "Microsoft needs to reassure its partner community and win back customers prioritizing non-AI workloads."
Microsoft's Next Move: Shakeups in the Partner World
Microsoft is already reshuffling its deck. The company has formed a new organization to oversee small, medium enterprises (SME), and their channel partners. Spearheaded by Ralph Haupter, this group promises to address feedback from Mechanicsburg to Manhattan, ensuring that smaller partners’ voices are actually heard.In essence, this change signals that Microsoft has realized a critical truth: Not all partners—or customers—are ready for the AI revolution. While some segments move quickly, traditional revenue-generating projects still dominate many markets.
But will this change be enough? Or will Microsoft's increasingly AI-obsessed strategy leave SMBs and smaller partners behind?
What It All Means for Windows Forum Users
For us mortals, here’s what to keep in mind:- Lean Into Hybrid Cloud (Not Just AI): Smaller businesses and solution providers may be better served focusing on manageable goals—hybrid cloud adoption, improving security frameworks, or optimizing aging infrastructure—over buzzword chases.
- Advocate for Your Partners: If you’re already inside Microsoft’s ecosystem as a partner, don’t let the AI wave scare you off. Speak up. Be part of shaping better, balanced growth priorities.
- Customers Need Real Help, Not AI Frills: An SMB fighting to adapt its team to hybrid work doesn’t need generative AI assistance—they need simple, cost-effective tools that align with their real business goals.
Final Thoughts: AI Fatigue Is Real
Microsoft, the company behind Windows, Azure, and now AI dreams, sits at a critical inflection point. Its second-quarter earnings revealed impressive AI leaps but also showcased that chasing hype far and wide doesn’t fill the breadbasket for all partners or customers.Whether you're a Windows Forum reader looking for actionable strategies or a business owner considering a move to Azure, remember: Cloud and IT should simplify your life, not complicate it with rushed AI promises. Your move, Microsoft. What’s next on your chessboard?
Source: CRN https://www.crn.com/news/ai/2025/microsoft-partners-weigh-in-on-channel-challenges-after-cfo-comments
