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Mike Vizard:One of the things that struck me through all of the presentations was a mention of Microsoft wanting to work more on the profitability of the partners. There were mentions of the blueprints that you’re doing, and mentions of the Web site work and the ability to let people find each other and compare notes and stuff like that, and that’s all great. But can you back up for a minute and just say what is the issue with profitability among the partners as far as Microsoft sees it? Is it that there’re too many partners competing in the same space, is it margins, some combination of things? Is it them giving away services and not getting enough payment for that? What is the thing?

Robert Deshaies:What we’re looking at doing is how can we help partners improve their bottom lines, and it’s not because of any of particular situations that you mentioned that are driving it. Now, could they be contributors? Sure. I mean, I think we’ve all been in the channel for a long period of time and we’ve seen these types of things happen over the past couple of decades. But as we worked with partners what we have done is looked at things, not only from just a sales and marketing planning perspective, but also tried to look at things from a business planning perspective. And we did some early work about a year and a half go, I believe, with IPED, as an example, where we went out and started to work with some of our larger partners figuring they would have some of the most sophisticated business knowledge in running and growing a business smartly so that they could do it in a profitable way and not get into a cash crunch, and then, you know, explore those different things. As we worked with IPED, through this one example, we found that even some of our largest partners have room to learn in their organization that could help them improve on several different metrics and would allow them to look at their business a little bit differently, and it has helped them grow to the next level. I.B.I.S., out of Atlanta, is an example. We worked with them very aggressively. We went in and spent some time with [I.B.I.S. CEO] Andy [Vabulas] around the effort of, you know, what could we learn and then how could we help bring additional knowledge to their organization to help them to go to the next level in a very profitable way. We found ways that we could help contribute. And if you talk to Andy, I think what you would find is it is one of the best things that he ever did for his organization. And over the last two years they’ve experienced the most positive growth they have in a very long, long time.

Vizard:So what are those specific things? A lot of solution providers — and you might describe them as people who took their avocation around technology and made it a vocation —they’re not, you know, hardcore business executives. They’re not running about with MBAs per se. But even so, what does Microsoft bring to that equation that is going to help them on a profitability factor that they’re not going to get somewhere else by going to school or hiring an MBA or whatever?

Deshaies:We try to create things that are very easy to assimilate so they don’t have to go to the extra expense of going to a different school, or hiring on a consultant that costs them more money, which then again drains profitability from their bottom line. What we’re trying to do is incorporate and find the metrics that we find most valuable in helping them run a more efficient business that will hopefully help drop profitability down to the bottom line. It will vary by different partner types based on what they do, and so it’s a learning experience and growing experience together. We started the work last year and we’ve had some great results, but it is an evolution of this that we’ll continue to do, and then we will build these things in to the different tools that they talked about today in the session. Scorecards are an example, where partners can actually benchmark against their peers in the same types of industries, and then from those we can drive discussions on, you know, why is my business perhaps not performing as well as this one. As I look at Company ABC against mine, what are some things that we can do together to help them drive to the next level and perhaps raise that bar a little bit?

Packaging up solutions.

Vizard:So this could be as simple as attaching the right levels of products, the different sales in the same sales cycle versus selling four products one at a time, one on top of each other, to something more complicated where here are the right set of business consulting services to sell with these types of products.

Deshaies:It could be an example like that, kind of packaging up other solutions. A very different view is taking on the accountability within your own organization to grow your business a specific way and having to build in competencies and do a whole serious of investments for your organization to grow, versus perhaps a P-to-P strategy where you could actually work with other partners to help grow your business in a different way where we could have some examples and kind of help the partners along in that decision process. It’s not one thing; there’s no silver bullet. There are several different ways, and we take the experiences of thousands of partners, along with Microsoft, and really pooling that brain trust together to come up and figure out how we can do this the best way. But it comes back to the customers. Customers are looking to have a certain experience in getting solutions for their business. And working through partners, partners can make choices and some of those choices can tend to be less profitable, or they can choose to take a different route, which would be much more profitable for them and hopefully drive the same result with the customer. By us exploring different options for them, like P-to-P programs or by saying, what if you bundle these types of products together in this fashion, and you’re able to reduce your cost of sale because you’re able to get through that sales process faster, which means you’re getting into billing more quickly. So it could be on any number of fronts. It could be on the readiness front where we’re doing training on the pre-side, on whether it’s sales or technical. It could be the way that you’re marketing to customers, and so we look at how effective your marketing is and how much that return on those dollars are coming, and really helping them to build and evolve along those programs. So it’s not just about that bottom line number. It’s really looking at all the things that impact and contribute to that number.

Vizard:There’s a perception in the world that the partners understand that they can play in that model, but I guess what they’re worried about is it changes the nature of their value proposition. And a lot of them are worried about just becoming “agents reselling a service,” versus — and having the profit margins attached to that — versus selling the rich set of services that you get on a on-premises set of software. What do you guys really think is going to happen there in that mix of the blended computing model and what kind of profitability and what kind of revenue model do you think these guys are going to receive in that kind of world?

Deshaies:Profitability is to be determined still because there’ll be a set of services where partners will evolve their business strategy to be focused around driving that services revenue through a off-premises solution, whether it’s hosted or through an agent model as you mentioned, which it could be any of those, plus an on-premises managed services. So as we work with partners, it’s a matter of them blending through their business model and helping them grow, if they choose to, figure out how they can blend their business models profitability over time as customers are driving this. This isn’t a Microsoft thing that’s being driven forward by us. This is driven by customers. Customers are saying we want to have an experience whether it’s on-premises, it’s in the clouds, we want to have the same experience. As part of that, does the profitability equation change for them from their traditional business? It may, and it may not. As you looked at the example with CRM Live, you literally could do every single thing you could do on-premises, you could do in the clouds with CRM Live, which means that they could do the same customization, same custom tailoring, business process engineering for those solutions that they could on-premises, which means same service dollars. What they did is they reduced the cost of having to worry about infrastructure for those particular customers at the same level, and so it removed a competency restraint on a CRM-centered partner. So there’re actually benefits to the partners as well in that particular example. There are other examples on Office Live, and new partners have been able to come into the fold and actually build new businesses around the Office Live opportunity.

Vizard:So it’s a bit of a balance, right? On the one side of the equation, is the cost of my capital investment to deliver a solution dropped so I might increase volume, and then I might add different services down the road that complement that on-premises in-the-cloud type service bridge or gap. Somewhere in there is a rich set of services opportunities that I can provide.

Deshaies:Yeah, I think that is one of the potentials. The other is, say you’re a partner that has really focused on on-premises, you know, advanced infrastructure as an example, and your competency’s really not in mobility and IW, yet you have an opportunity where you’re working with customers. You’ve understood their business for the last 20 years and you want to be extensible and be able to provide them some additional help outside of that advanced infrastructure practice that you have. We really look at things from how do we add mobility into our practice? How do we look at, you know, really creating this Office Live SharePoint thing out there without having to go and get a whole bunch of expertise. We can help by doing a partner-to-partner model, but they can explore a lot of this online without having to become experts because all the foundation is there. And then to go extensible and into the scaleability and specific needs of the customer, then we can drive this whole P-to-P model around it, which will create more opportunity to a broader part of the partner audience.

Partner Account Managers.

Vizard:So how does that actually work? I’ve heard reference today to something that was mentioned as a framework for software plus services that would be delivered to the partners. What is that exactly? Is it a set of code, or is it a set of guidelines for how to set up different businesses, or some combination thereof?

Deshaies:It’s a combination of things that will be forthcoming that we’re not announcing here because it’s in development. We have set up councils of partners of all different makes and types across the globe, not just here in the U.S., working very hard to come out with very partner-friendly models that will allow them to build profitable businesses off of.

Vizard:There was a reference today about how the Partner Account Managers [PAM] model now is not voluntary. It is now mandatory across all the different business units. What drove that and why wasn’t it mandatory in the first place, and how does that unify the historic Microsoft channel management of the partners per se?

Deshaies:I’ll answer from a U.S. perspective. In the United States, we’ve had a PAM engagement model, so there was no change for us. We have PAMs across all different segments of our business, whether it’s in the enterprise, whether it’s in SMSMP, whether it’s in public sector, etc. So we continue to move forward with that PAM model and working with the partners in the same, very similar ways. But we’ve expanded the types of things that we expect our PAMs to do, getting more into driving more value out around the business planning process. Not just focusing on the sales and opportunity kind of planning, and marketing planning, but really expanding out, and then figuring out how to leverage the resources within our organization more smartly to help those partners. The other thing we’ve done is extended our investment, and upped our investment in our TelePAM resources to extend our reach to even a greater number of partners. So this was all part of the U.S. plan that we rolled out a couple of years go that we’re executing on. Outside the U.S., it’s too difficult for me to comment just because different subs have managed their businesses differently and it would be best for you to talk to them directly.

Vizard:I guess I’m asking, though, because aren’t the partners going global more so … along with you? So how you make all these PAMs kind of find each other and work together and really create that Microsoft ecosystem is where the rubber’s going to meet the road, isn’t it?

Deshaies:Yeah, it is. And a good example that I can think of is on the ISV partner front. So we initiated a PAM function a couple of years ago — we are going into year two right now — where it is really with the impact of creating a consistent experience between the different countries around the globe where partners want to do business in other countries and know how to engage consistently like they would in their own country. So here in the U.S. we’ve assigned a couple of head count to work with partners who want to come from, say Europe, that want to do business and grow in the U.S. as ISVs. They then connect in with their ISV PAM in, say London, and London then connects them with the BDMs or PAMs that we have here in the U.S. and they all work through the same ISV program. So they get this consistent feel in the way that they can go to market and approach, and you know, we’re looking to replicate that across lots of different functions in the organization. It’ a great program and we’ve got a lot of very positive feedback.

Vizard:So the PAMs are building their own network, essentially.

Deshaies:We’re trying to make it easier to do business within Microsoft and remove the sub-to-sub, the country subsidiary differences. We’re trying to make it easier for those partners to get into another country, but also allow them to get their business up and running quicker so they can get a quicker return on that investment as well in expanding their business.

Plans for 2008.

Vizard:Now one of the things that partners always say is that Microsoft’s always kind of half pregnant, right? We’ve got, you know, this big thing is always about to come in another few months. Today we heard that Window Server 2008, Sequel Server 2008 and Visual Studio 2008 will all land February [27]. … There’s a lot of people worried, at least in the higher end of the SMB in the corporate accounts, that Vista uptake is not being as strong because there hasn’t been the poll of the server just yet. And so now we’re creating a “big bang effect” for February. Do you worry that partners are kind of going to be checking out a little bit mentally between now and then, or you know, what’s keeping them engaged, because there’s a sense of 2008’s going to be great. But for the next few months, they’re kind of in a holding pattern over the airport.

Deshaies:I wouldn’t say that they’re in a holding pattern, because if you looked at the broader side with a lot more than the big three, so to speak, there were actually some other biggies on there, but those just happened to be the big three because they’re foundational to a lot of other things. The Vista and Office growth opportunity now, from the launch and still carrying straight through, is still garnering a lot of energy. There’re a lot of things going on there. Vista hasn’t slowed down. I mean it’s not a situation where it’s gone from zero to 100 and back down to zero again. The ecosystem continues to drive forward. We’ve got lots of different partners continuing to drive. It’s doing extremely well on the consumer front. If you look at the high end on the enterprise side, what we’ve traditionally had is this Service Pack 1 scenario. I was meeting with some partners today that said, we’ve got the application compatibility situation out there, but they say it’s improved significantly since the launch. So we’ve got thousands of applications now that are able to run on Vista, which was a concern earlier, and so we continue to chip away at those and we’ve got thousands of applications. Service Pack 1 is kind of the next step where the enterprise adoption gets a little more consistent and drives a little more forward. Not really server dependent, because the technologies aren’t there, but from a desktop optimization, contributing and enabling customers as well as our partners to really kind of get that up-front education, and really see what it’s going to do for their organizations, and how it can help them drive more efficiency, and can get more efficacious in their IT departments, whatever the case may be. I think that is the ongoing challenge and opportunity we have, is to not let go of the fact that we had a launch throughout the second half of FY07, but that we really continue our efforts on the education front with our partners, around the opportunity on Vista, on SharePoint, on Office applications. We have almost 2,000 Office applications that have been built by partners for customers out there. And then if you look at the Dynamics releases, whether it’s ERP or CRM, you look at Forefront, which is actually in the market, we don’t have to wait to be released. So we’re going really hard and strong in the security business where I think you’ll see some very strong messaging from us in the marketplace around that, and working with our partners a little bit differently than we did in FY07 to really amp up that practice. You look at the voice over IP opportunity. There are a lot of things for lots of different partners out there that we’ll continue to drive from now through the launches of the big three.

Vizard:Now the Service Pack for Vista. The general expectation is that it’s roughly the same time frame as the product announcements for February 2008, so people are thinking that’ll be around January 2008, so that would all come together at the same time.

Deshaies:I don’t know the exact date right now to be honest. If it does, great. What we’re going to stay really heads-down and focused on is working with the partner channel to ensure that they can create the right customer experience. And so our job doesn’t end just because of product launches. That’s when our job continues to amp up and get stronger.

Vizard:Given all that weight that’s moving in the same space with the Vista Service Pack, Windows Server 2008, Sequel Server, isn’t this about the best time you can possibly think about launching a managed-service kind of player on the Microsoft platforms? Because you’re going to an end customer and you’re kind of saying, “Let’s do the massive infrastructure upgrade of all time here.” And then the customer is going to sit there and go, “I can’t absorb all that.” And then the solution provider can come back and say, “Well, I can make it work for you in this model.” So are you guys going to have a bigger push for helping solution providers get into that managed service mentality?

Deshaies:Well, we did, in the spring or February time frame in San Diego, we announced the, from an industry perspective, Cisco, Microsoft, Ingram, Level 3, really focused around building successful managed practices. And since then, we’ve had over 500 partners actually sign up officially into learning about how to build the practice and really get out there and work with customers around the managed services and around the different products and solutions that you can build across the vendors that have come together as part of this. There’re literally thousands of partners that have gone in to actually research and engage around this learning venture that we’ve come together. We would look to continue to expand this, and we would expand also as kind of a subset of our software plus service’s play, to evolve kind of how we work with partners around how they should be in the profitability initiative, how they can continue to build and grow managed services. And that will be very apparent in the things that we make available to us out of the readiness and so forth of Microsoft.