Is Microsoft Committed to Channel Partners?
And so it begins… Microsoft has kicked off an aggressive research and public relations campaign to convince editors and bloggers — even the anonymous ones — that the company remains committed to channel partners. The Microsoft PR blitz arrives as some skeptics worry Microsoft’s cloud computing strategy undermines channel partners. So what does The VAR Guy think?
Microsoft won’t abandon the channel. Simply put: Roughly 95 percent of Microsoft’s annual revenues involve channel partner sales. Surely, Microsoft is not going to walk away from that lucrative revenue pipeline. Still, the next two years or so will involve some awkward moments between Microsoft and its channel partners, mostly because of cloud computing.
The Numbers
Let’s start with Microsoft’s latest data points, which involve an IDC white paper filled with such research stats as:
- Members of the worldwide Microsoft partner ecosystem generated local revenues for themselves of $580 billion in 2010, up from $537 billion in 2009, according to IDC research.
- The IDC study estimates that for every dollar of revenue made by Microsoft in 2009, local members of the Microsoft ecosystem generated revenues for themselves of $8.70.
- Partners that invested in more difficult or a greater number of Microsoft competencies enjoyed 68 percent larger deals and 28 percent more revenue per employee, compared with partners that invested less, IDC found.
Note: Microsoft commissioned the IDC study — which means the software company paid IDC to produce the research, a common practice in the high-tech industry.
Opportunities, Challenges and the Cloud
At first glance, the stats above show continued growth for those Microsoft channel partners that continually educate themselves about new technologies and competencies. Offerings like Hyper-V, SharePoint and SQL Server come to mind.
But heck, can we talk about the elephant in the room? It’s called cloud computing.
Admittedly, some VARs have fear, uncertainty and doubt about Microsoft’s cloud partner program. To be sure, some VARs and MSPs are seeking ways to compete with Office 365 — the forthcoming successor to BPOS. Office 365, expected to debut July 1 or sooner, will include Exchange Online, SharePoint Online, Lync Online, Office Web and more. Other partners want to control end-customer cloud billing, a capability Microsoft doesn’t offer.
Long Term: Microsoft Will Get It Right
Microsoft’s cloud strategy isn’t perfect. And that end-customer cloud billing debate won’t end until Channel Chief Jon Roskill potentially bows to partner pressure and makes some changes.
Still, let’s keep things in perspective. Even if you question the IDC research numbers, one startling fact remains: 95 percent of Microsoft’s annual revenue involves channel partners. There’s no way Microsoft is going to walk away from that revenue stream, nor will Microsoft abandon the partners who produce it.
Short term, Microsoft may lose some partner enagements as some VARs seek white label, brandable alternatives to Microsoft’s cloud services. But don’t forget: Some VARs are betting on Microsoft’s cloud services right now. In fact, Microsoft’s top 10 U.S. cloud partners have moved more than 1,000 customers to BPOS. That’s worth noting.
For those who have written off Microsoft remember this: For its quarter ended Dec. 31, 2010, Microsoft announced record Q2 revenue of $19.95 billion and net income of $6.63 billion. Roughly 95 percent of that revenue — a hefty $19 billion — came from the channel.
That’s too big for anyone, including Microsoft, to walk away from. Microsoft remains committed to the channel. There will be some pain points as cloud computing takes hold. But Channel Chief Jon Roskill will find the right formula for success. Or Microsoft’s revenues will be at risk.
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While I agree that they will iron things out in the long run, my company lost one of its substantial long term clients to Microsoft and its BPOS/Office 365 solution. According to this high profile non-proft, Microsoft offered them $1M (yeah, as in million) in licensing and $1M donation for implementation which they couldn’t turn down. It was an offer they couldn’t refuse. When I brought it to the attention of the local Microsoft team, there was no denial of the clients claim. Instead, I was urged to embrace the Office 365 and learn how I could make it work for my firm to make up for the client I lost. Bottom line: I lost a substantial client that I had for years to Microsoft, my business “partner.” So while I am offering Microsoft cloud solutions, they will not be coming directly from Microsoft until I know all the bugs are worked out.
Jim: The VAR Guy can’t comment on your specific experience, but he has heard about special no-cost cloud deals to colleges plus Microsoft paying selected ISVs to port their applications to the Windows Azure cloud. Based on our previous dialog, The VAR Guy trusts the accuracy of your comment. Let’s hope Microsoft seeks to minimize cloud channel conflict going forward… …
And if there are BPOS partners who want to describe successful cloud engagements The VAR Guy is all ears.
-TVG
Again, I am confident that Microsoft will work the bugs out of the system. I’ll sign up for the Office 365 partner program but will just hold off on implementing it (and sell other Microsoft-based cloud soultions) until I am comfortable that these issues are worked out.
Jim: The VAR Guy thanks you for the insights. As Microsoft’s cloud strategy evolves our resident blogger hopes you’ll share more perspectives here.
-TVG
The main question is, who owns the client? Microsoft position now is, give me you customer and I will pay you a low fee. For sure I will not jump in that boat. But it could be, keep your customers and use our services to serve them better. I think that would make any partner company much more interested.
VAR Guy says, “Other partners want to control end-customer cloud billing, a capability Microsoft doesn’t offer.”. I think Cesar is one of those “Others” and they are not a minority. When you ask if Microsoft is still committed to channel partners, I guess it depends on your definition of what a channel partner is exactly. If being a “Partner of Record” is an OK definition then I guess things are just peachy. Am I beating a dead horse here?
Cloud computing is not the only elephant in this room. I suspect Microsoft’s hesitation to solve this core issue is opening up immense opportunities for Microsoft competitors whom have already embraced the technologies that enable VARs to aggregate cloud and customer premise services under the VARs brand and control.
Cesar@5: The VAR Guy appreciates your perspectives and insights.
Mark@6: Yes, Microsoft rivals seem to be everywhere in the cloud market. The VAR Guy is surprised Microsoft hasn’t swallowed its pride by now and solved the cloud partner billing issue… It could wind up becoming a distracting conversation at Microsoft Worldwide Partner Conference in July 2011…
-TVG