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Opportunities in the Post-Gates Era

 
 
By Sharon Linsenbach  |  Posted 2008-06-27
 
 
 

In our celebrity obsessed culture, we make superstars of musicians, elevate rich heiresses and B-movie actresses to global fame and create entire communities devoted to showcasing our own crudely produced Web videos.  So it’s little wonder that the departure of a corporate icon such as Bill Gates is met with a mix of fear and wonder.

For the 400,000 resellers whose businesses depend on Microsoft’s partner programs, the past year has been spent watching Gates wean himself from the software giant and wondering what the future holds for the world’s biggest technology partner ecosystem. While few doubt Gates significantly influenced Microsoft’s channel philosophy, the common wisdom is that the sheer bulk and inertia of the reseller program—one that’s evolved around the Windows operating systems, Office productivity suites, Exchange server, and other business products--will keep things rolling in the Microsoft channel with or without the company’s founding father.

Microsoft’s 400,000 worldwide partners drive about 95 percent of Microsoft's revenue, according to Michael Speyer, Senior Analyst, Forrester, so it's in Microsoft's best interests to maintain the status quo. 

"It's really in the DNA of the company, and it's in their best interest to keep the VAR channel stable and keep their resellers supported," he says.  With such an incredible amount of personnel and infrastructure devoted to maintaining those 400,000 partners, Speyer says there's no question the management team will avoid rocking the channel boat. 

"Microsoft has always been and will continue to be very active with their channel whether or not Gates is there," he says, and will continue to be even as Ballmer takes the reins, meaning VARs and their customers shouldn't have to worry much about Gates' departure impacting them.

Derick Bahl, owner of Microsoft partner Quality Systems Solutions, says part of the reason for that is that Gates, though realizing how important the channel was for his company, remained really hands-off, preferring to focus on Microsoft's products themselves rather than their go-to-market strategy.

"He's always viewed himself as the software architect and the chief evangelist.  Certainly he recognized the value of the channel, but I don't think it was a significant area of focus for him," says Bahl.  Rather, the channel grew organically as a result of the incredible need for Microsoft to scale in the wake of the huge successes of Windows.

"Microsoft’s vision has been channel-centric from the beginning," said Robert Deshaies, vice president of Microsoft's U.S. Partner Group. "We recognized early on that we needed the partner channel in order to provide the deep value customers need to realize their full business potential. As we move toward the future, we’re committed to evolving the Microsoft Partner Program to deepen our engagement with partners, continue to help them grow their business profitably, and renew our strong commitment to customer satisfaction." 

 

Industry experts say Microsoft's channel really hit its stride with the Windows 95 and 98 releases.  As demand for the operating systems increased and Microsoft blew competitors out of the water, the company needed to be able to scale much more quickly than it could simply by selling directly to consumers and businesses.  Enter the channel. 

"In Microsoft's heyday, they had their best successes in the enterprise, when everyone was deploying Exchange servers, when people were moving to Windows 95 and 98," says Bahl.

As a result, many VARs also fared exceedingly well during those high times.

"At the beginning, with those big OS releases, Gates, Ballmer and all of the management team were very aware of the role the channel played," says Michael Cherry, analyst for research firm Directions on Microsoft.  He adds that the relationship between Microsoft and its channel organization has always been symbiotic.

"Microsoft really is a company most people don't deal with directly," Cherry says. Consumer products are sold through retail channels and preinstalled on hardware from OEMs, and no matter their size, businesses deal mostly with Windows VARs, he adds.

"Just as two examples, Microsoft's CRM and ERP packages are so complex and daunting, it's difficult to see how any company, large or small, wouldn't want to bring [a VAR] in and get help from someone who has experience with the products, someone who's done this before," Cherry says.

Of course, without the channel, it's fairly certain Microsoft could have sold in other ways, including direct, but perhaps wouldn't have been so profitable, says Cherry.  And as for the channel, well, he says even without Microsoft, there were plenty of other options to keep VARs busy. 

"If not Windows, it's a safe bet to say something else would have come along. There were plenty of other competitors, including Apple and Commodore," he says, as hard as that is to imagine now.  Cherry adds that there were quite successful VAR channels that sprung up around other computer systems, including Novell’s Netware, for example.

 

Because the channel grew organically and democratically at its own pace, with Gates gone, any changes  would have to be made slowly and carefully, insiders say.

"It's not a bad thing that it will stay the same," Bahl says.  "If they were to change anything quickly, it would most likely hurt partners.  You have to remember that if Microsoft, that if HP, IBM could make money without the channel, they certainly would, but they are dependant on us, so they'll leave well enough alone."

That doesn't mean that it's easy being a Microsoft VAR.  Post-Y2K, Bahl says the target for many vendors shifted to the SMB, and Microsoft increasingly looked to the channel partners to help penetrate the market and drive revenue and sales.  But doing that has gotten increasingly difficult, Bahl says.

"Microsoft is our principal partner, and the basis on which we build most of our solutions.  I was of the opinion that 'if Microsoft builds it, 'they' [customers] will come,'" says Bahl.  But that strategy isn't paying the dividends he'd expected.

"I'm starting to question the wisdom of my decision.  With Vista, with Office 2007, with SharePoint and ResponsePoint -- customers certainly aren't beating down my door clamoring to get those solutions," he says. 

That said, Bahl adds that he still believes Microsoft has the best channel program of vendors he works with, and that their support and commitment to the channel are second to none. 

 

Doug Ford, president of Microsoft gold partner The IT Pros, says he still struggles to help Microsoft "get" his business, which brings in about $5.2 million a year.  He says while he enjoys the benefits of MSDN subscriptions and on-demand support, he doesn't have much direct contact with the vendor whose software he sells exclusively, and he doesn't see that changing at all with Gates' departure.

"We sell Microsoft software exclusively; their basic Office software, Exchange, so maybe they think we're just like any other partner," says Ford. "We really want someone to take an interest in us and help us capitalize on the software, the integration opportunities, but no one has really done that."

Compared to his experiences with Network Appliance and even Dell, Ford says his experience with Microsoft's channel program isn't much to write home about. Dell, he says, invited The IT Pros to its inaugural channel summit meeting, where Ford and some of his staff got "hours of facetime" with Michael Dell. 

Compared to that, Microsoft seems downright uninterested.

"We've gone through a bunch of reps by now.   One did call who seemed actively interested in our business and wanting to help us build it, but then the programs and support she pitched to us were all for SMBs with, like, five or six desktops, and that's just not us.  She -- and they -- don't seem to get our business," he says.

Ford says he understands that it is difficult for a large company such as Microsoft to give individualized attention to every partner, and that there's still plenty of value and opportunities with Microsoft's products.

 

Speyer says that while fervor for Microsoft's products such as Vista and Office 2007 has cooled, there are still great revenue opportunities, though VARs will have to work much harder to get it.

"There are ways to grow business and make money with Microsoft, though it may not be just lying out there waiting for the channel to go pick up anymore.  They are going to have to work hard for it, but it is there," Speyer says.

Speyer says the key opportunities lie around Microsoft's Dynamics CRM offerings, business offerings such as ERP and server software, and continued opportunities around hosted Exchange and even Vista.

Cherry advises partners not to count out continued opportunities with servers and the server ecosystem, which VARs already have a great handle on. But partners also need to look in some underserved areas such as the desktop, where sales can be more challenging.

"VARs shouldn't rule out solutions targeted toward helping people reduce the total cost of ownership around desktops -- and I know that sounds like I'm telling them something that's really easy, when in fact it's an incredibly difficult prescription.  It's scary how expensive it is to maintain all these desktops." Cherry says. 

In the wake of Gates' departure, one thing partners can do to ensure their future success is partner not just with Microsoft, but with each other, to ensure they're reaching the widest possible audience.

"I like to call it 'coop-etition,'" Bahl says.  "Partners are realizing that they have to partner with each other and not just with vendors against one another," he says. Microsoft has been instrumental in pushing the concept of partnering to build on each other strengths rather than adding entirely new competency areas within single VARs.

"Microsoft has done a lot toward forging connections between different VARs, which helps us, and it also helps them," Bahl says, "Together we sell and manage many more products."

For now, at least, it seems the titanic Microsoft channel will continue to chug along, whether or not Gates is at the helm.  And while a ship as massive as Microsoft doesn't turn on a dime, the channel will be waiting with bated breath to see what, if any changes are ushered in once the Bill Gates era comes to a close, and, of course, to see what the IT superstar plans to do next.