INTRODUCTION

Cloud solution providers (CSPs) are integral to Microsoft’s cloud ecosystem, delivering a variety of services, from licensing and infrastructure to managed services and security. Positioned at the intersection of cloud transformation and cybersecurity, CSPs play a larger role in helping organizations protect against an evolving threat landscape. Capitalizing on this growing opportunity is not without challenges, though. Customer expectations are shifting toward integrated, outcome-based solutions. CSPs face increasing pressure to differentiate in a crowded market, navigate complex customer environments, and deliver scalable security outcomes — often with limited internal resources. CSPs face a strategic inflection point: how to evolve their security offerings to drive differentiation, profitability, and long-term value creation.

CSPs increasingly recognize that long-term success hinges on more than technical delivery — it requires strategic alignment, trust, and adaptability. As one interviewee from a CSP partner organization told Forrester, “Customers are looking for more than just licensing — they want a partner who understands their business, can guide them through complexity, and deliver outcomes.” This aligns with Forrester research, which urges organizations to “turn the lens around” and engage partners in outcome-driven collaboration¹. Leading CSPs are responding by redefining their role, investing in co-innovation, and building blended teams that integrate security, compliance, and AI readiness. Microsoft’s integrated security platform, combined with targeted partner programs and solution incentives, helps CSPs streamline service delivery, expand managed offerings, and meet evolving customer expectations with greater efficiency.

Microsoft commissioned Forrester Consulting to interview five CSPs and conduct a deep-dive analysis of the CSP partners’ security opportunities. The focus of this spotlight is to provide guidance to CSPs on how Microsoft’s messaging resonates with customers; how partners are leveraging incentive programs; and the revenue opportunities and typical land-and-expand scenarios seen with small, medium, and corporate (SMC) organizations.

This analysis is an addition to the Total Economic Impact™ (TEI) study titled, “The Partner Opportunity For Microsoft Security,” which explores the partner opportunity model for enterprises based on what leading partners achieved in FY 2025 and, to a lesser extent, what they expect to achieve in FY 2026².

KEY FORCES RESHAPING THE CSP PARTNER LANDSCAPE

Through in-depth conversations with representatives from CSP partners, Forrester Consulting identified four major forces currently shaping the CSP ecosystem. These dynamics — AI acceleration, macroeconomic shifts, a growing focus on the SMC segment, and evolving Microsoft partner programs — are creating both new pressures and new opportunities. While each partner’s experience is unique, common themes emerged across geographies and business models, including:

• The rise of AI. AI is transforming customer expectations and partner capabilities. CSPs are finding themselves more relevant than ever, but also under pressure to scale expertise and services. As one partner put it, “Everybody wants to do AI, but the adaptation is still at a learning stage—and that’s where security is at its highest risk.” Smaller CSPs face particular challenges in upskilling due to limited resources and the convergence of AI with security, compliance, and infrastructure. Yet AI also offers a path to scale: “We’re using AI to streamline operations and reduce costs, which helps us serve more customers and go after larger accounts,” said another. The opportunity is clear—but so is the urgency to evolve.

• Macroeconomic shifts. Economic and political uncertainty is reshaping customer buying behavior. CSPs reported increased demand for cost optimization and vendor consolidation, with Microsoft often emerging as the preferred platform. “Customers are consolidating onto Microsoft because they see it as best-of-breed,” one partner noted, “but some solutions still need to be better adapted for SMB.” Regional regulations and geopolitical tensions are also driving customers to seek local providers—an area where many CSPs have a natural advantage. However, rising AI investments are diverting budget from other IT areas, including security upgrades. “We’re seeing AI spend cannibalize E3 to E5 migrations,” one partner warned.

• A focus on SMC. The SMC segment is increasingly seen as a growth engine—but it requires tailored solutions and new service models. “The SMB market is where the opportunities are,” one partner explained, “Many of them don’t even have a tech team—they’re dependent on us.” Security skill shortages are especially acute in this segment, creating demand for managed services like data labeling, compliance, and endpoint protection. Adapting offerings for simplicity, affordability, and automation will be key to unlocking this market.

• Microsoft programs. Microsoft’s evolving partner programs are expanding opportunities for CSPs, particularly by enabling access to a broader range of customer segments. Partners view this shift as a positive step toward deeper engagement and greater service differentiation. As one partner noted, “The shift from LSP to CSP is huge. We’re excited about the opportunity—but we need more predictability and support to make it sustainable.” While Microsoft’s incentive programs—such as MAICPP and CSP Security Accelerate—remain essential for initiating customer projects and offsetting service delivery costs, some partners expressed interest in more consistent and longer-term funding models to support strategic planning and growth.

MICROSOFT MESSAGING RESONATES WITH PARTNER AND CUSTOMER PRIORITIES

Microsoft’s security messaging is broadly aligned with the evolving needs of both CSPs and their customers. Interviewees from partners consistently cited strong resonance with Microsoft’s emphasis on platform consolidation, Zero Trust, and AI readiness. These themes reflect real-world customer priorities — particularly in the SMB and mid-market segments where simplicity, integration, and cost-effectiveness are critical decision drivers.

Interviewees noted that Microsoft’s unified security platform provided a compelling value proposition, especially for customers seeking to reduce tool sprawl and improve operational efficiency. The messaging not only helped their CSPs position Microsoft solutions more effectively but also enabled them to act as strategic advisors in increasingly complex IT environments.

While some partners continue to operate in multivendor environments due to legacy investments or niche requirements, interviewees from partner organizations stated Microsoft’s growing credibility in security, combined with its alignment to Azure and Microsoft 365, positioned it as a strategic choice for organizations seeking to consolidate tools and reduce complexity.

INCENTIVES AND EXPANSION MOTIONS FUEL PARTNER GROWTH

Interviewees noted Microsoft’s partner programs, such as MAICPP, CSP Security Accelerate, and MCI, played a pivotal role in enabling CSP profitability and growth. These programs are evolving from transactional incentives into strategic enablers, helping partners fund early-stage engagements, deliver workshops, and scale managed services. Interviewees from CSPs emphasized that these incentives were especially critical considering shrinking margins on licensing and rising service delivery costs.

In parallel, CSPs are executing structured “land and expand” strategies to deepen customer relationships. Common entry points include identity and access management (e.g., MFA, conditional access), followed by endpoint protection, data governance (Purview), and managed detection and response (MDR). One interviewee from a CSP partner in EMEA said: “We use MCI to fund workshops that open the door to longer-term managed services. Without that funding, many of these conversations wouldn’t happen.” For AI readiness, partners often begin with assessments and workshops, progressing into data classification, compliance, and, eventually, Security Copilot enablement.

REVENUE OPPORTUNITIES FOR THE SMC SEGMENT

The SMC market represents a meaningful and growing revenue opportunity for Microsoft CSPs. While the scope of work in SMC accounts may be narrower than in enterprise engagements due to fewer E5 deployments and more prescriptive advisory needs, interviewees from partners reported higher attach rates for managed services and a greater demand for bundled, outcome-driven offerings. This dynamic is particularly evident in areas like Microsoft 365 Security, cloud security, compliance, and identity management where CSPs are layering advisory services with modular managed offerings.

Based on current partner practices and solution attach patterns, the expected per-user, per-month (PUPM) revenue opportunity in the SMC segment is estimated at $30.40, representing approximately 58% of the enterprise opportunity ($52.75). For SMB customers specifically, the opportunity is closer to 40% of enterprise, reflecting a leaner solution mix but higher service dependency. When scaled across typical SMC customer scenarios, this translates into a substantial and recurring revenue stream — particularly for partners that can deliver managed detection and response (MDR), compliance monitoring, and Zero Trust advisory services at scale.

EVOLVING MARKET DYNAMICS AND THE FUTURE OF CSPS

CSPs are navigating a shifting landscape shaped by AI acceleration, regulatory pressure, and changing customer expectations. Interviewees from partners reported growing demand for managed services, particularly in identity protection, compliance, and Zero Trust frameworks. AI-driven threats — such as phishing powered by generative AI — are prompting increased investment in security modernization, while regional regulations are creating new compliance opportunities, especially in EMEA.

The SMB and lower-SMC segments are emerging as high-potential markets, though they require tailored approaches. Microsoft Defender for Cloud and foundational CSPM tools are gaining traction, particularly when bundled with infrastructure services. However, adoption of more advanced tools like Microsoft Sentinel and Security Copilot remains limited due to cost and complexity. One interviewee from a CSP based in APAC expressed enthusiasm for Security Copilot’s potential future impact: “Security Copilot is exciting, but it’s not quite ready for SMBs. A lighter version could open up a whole new market for us.” Partners are responding with modular offerings and quick-start services to lower the barrier to entry.

Looking ahead, CSPs anticipate a continued shift from license reselling to value-added services. Many are investing in automation, AI readiness, and packaged offerings to scale their impact. Microsoft’s funding programs remain essential to supporting these investments, though partners consistently call for more predictable and longer-term models to enable sustainable growth.