Microsoft…Is 12% Enough?

July 22, 2008 at 6:14 pm Leave a comment

By Diane Krakora
Microsoft is attempting the well-worn strategy of trying to change the game by changing the name. Instead of adopting the growing industry norm of calling applications that are built and deployed in the cloud as “Software-as-a-Service” (SaaS), Microsoft is trying to change the category and increase their significance by calling their offering Software + Service.

Defining the category is always a great strategy, however Software + Services is a misnomer for what they’re actually doing. Software + Service is what solution providers have been selling for years – vendors’ software plus their own services. What Microsoft is trying to offer is Microsoft online software as a subscription – software applications hosted by Microsoft – and sold by partners. Whether you call this “on demand” (as Oracle does), “online”, or “Software + Service”, its still the same thing – software purchased on a monthly subscription and used through the Internet. This is in contrast to the traditional on-premise CRM and ERP packaged products and resellers services for implementation, configuration and management.

Microsoft is wisely fighting specifically against the entire branding and positioning scheme of Elop explicitly poked at the overall premise by stating “There’s no such thing as ‘no software’… Software is what actually holds the whole solution together”. The key message was that Microsoft is focused on providing customers with the power of choice on how they procure, deploy and support software. As we’ve heard so many times before with SaaS messages – the customers’ businesses are changing and Microsofts’ business is transforming to deliver on the productivity, competitive and cost management challenges the customers are facing. And the partners’ businesses must change as well.

So, what is Microsoft doing to help the partners’ change their business? As part of their deliberately dependent relationship with solution providers, Microsoft has declared they are going to market with the partners with the Software + Service offering (unlike their main competitor). In his key note, Elop announced the Software + Service partner compensation model. Partners will receive 12% of the first years’ revenue and 6% on-going revenue for selling Microsoft online services and helping the customer through the ordering process. Any partner can sign up for and participate in this Software + Service opportunity – it just takes an application, some training and an assessment test. Elop stressed that 12% is above industry average for this type of transaction and there is a multitude of differentiated service opportunities for partners around the Software + Service offering. According to Elop, partners are supposed to make up the profitability difference through business process consulting around collaboration and messaging, integrating the customers’ active directory with the online subscription and helping customers move off Lotus Notes. Ya, there are tons of companies on Lotus Notes for the 500,000 partners globally to “exchange” out.

In over 100 partner discussions I had during the three days, most of the partners thought 12% of the first years’ revenues wasn’t enough to get them excited and proactively moving to the Software + Service model. Most of the partners said they will still push standard on-premise software and will only fall back to Software + Service if they’re going to lose the customer completely. Thus, they’d rather have the 12% than nothing, but they’re transitioning to Software + Service unwillingly. One partner wrapped it up nicely by saying “it’s better than a poke in the eye with a sharp stick”.


Entry filed under: Live from Events. Tags: , , .

Where is the Love, Microsoft? Evolution not Revolution – Microsoft’s Partnering Strategy

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