The 80-20 rule doesn’t work out exactly in Microsoft’s ISV channel.

The fabled maxim of vendor channels that states 80 percent of revenue is typically driven by 20 percent of partners is stumped when it gets to Redmond, Wash., where the Microsoft ISV channel squeezes 80 percent of its revenue out of less than 3 percent of its partners. Just more than 1,500 of the 67,000 partners classified as Microsoft ISV partners drive 80 percent of the ISV channel’s revenue, the software maker said.

The situation is unacceptable, and the company is taking steps to improve the performance of the masses with the release of Windows Vista, Office 2007 and Exchange later this year and next, said Naseem Tuffaha, Microsoft’s senior director of ISV sales and marketing.

“A small fraction of the group is driving all the revenue,” Tuffaha said. “There is a great deal more to be made. We need to engage the rest of the ecosystem to act more like those that are most profitable.”

Pointer Program benefits and channel behavior have Microsoft ISVs outperforming peers. Click here to read more.

As part of the roll-up to the approaching releases, Microsoft launched five new ISV partner programs3ISV Innovate-ON to help ISVs deliver new solutions, ISV Telesales Service and International ISV Assistance to increase opportunities, and Partner Business Plans for ISVs and Demo Showcase for People-Ready Business to close more sales.

The company is relying on that channel to boost adoption with business applications built on its operating systems and platforms, Tuffaha said.

There are some 300 ISV applications that already work with Vista and Office, with another 2,700 slated to be ready when Vista is released to consumers in January 2007 and 4,000 more expected within 12 months, Microsoft said.

On a smaller scale, Sage Software is spending $1.1 million to help hire sales consultants at 100 of its 6,000 VARs to engage its midperforming partners, which can have dramatic effects on overall revenue, said Taylor Macdonald, Sage’s executive vice president of sales and channel operations.

“The top of your channel will continue to be successful,” Macdonald said. “But you get to a certain size and you’re only gaining 10 to 12 percent a year. A partner closing two to three deals a year, by doing things a little differently, can begin closing 15 to 20 deals a year.”