By Paul DeGroot [bio]
Posted: Aug. 7, 2006

• Sidebar: Customer Campaigns

The following an excerpt of a Research Report published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

The goal of Microsoft's partner management teams is to make working with Microsoft as easy and profitable as possible and to guide partners toward sales that will benefit Microsoft. Aware that many of its partners have an array of choices, including Linux and thin-client solutions, Microsoft puts some "skin in the game" for its partners, providing technical and marketing benefits that, amortized over a large number of partners or applied strategically, benefit partners at relatively low net cost to Microsoft. In assessing these benefits, partners need to understand what Microsoft wants from its partners, and they should be cognizant of some risks as well.

Technical Benefits

One of the secrets to Microsoft's extraordinary success was the company's early realization that it could drive demand for its products by creating a large community of third parties who build hardware and software for the company's OSs and applications. By sharing technical data and other resources with its partners, Microsoft ensures that third-party products are developed easily and quickly and meet their authors' goals.

Depending on their relationship with Microsoft, partners might receive early releases of Microsoft OSs and applications, preferred access to Microsoft technical resources such as SDKs, and Microsoft templates (such as solution accelerators) that outline the software, services, and configurations partners should use to achieve positive results predictably and economically.

All partners have access to Microsoft communities, Microsoft-sponsored Web sites or newsgroups that permit Microsoft partners to communicate with each other, usually unfiltered by Microsoft staff. Such communities encourage partners to share problems and solutions and can sometimes resolve problems faster than official Microsoft channels.

Companies that are official partners often receive technical support benefits as part of their participation in Microsoft partner programs. Partners who take the lead in developing applications that complement new Microsoft products or technologies sometimes receive substantial technical assistance and consulting services from Microsoft as it seeks to establish "lighthouse" customer deployments that will attract attention in the IT industry and serve as positive references for sales efforts.

Marketing Benefits

Many successful technology companies measure their customer base in the tens of thousands; Microsoft measures the customer base for many of its products in the tens or hundreds of millions.

Its customers include both the mass consumer market and the entire range of business and institutional settings. As a result, the company can reach many of its customers with broad-based advertising and promotions that, while expensive, are less costly on a per-customer basis than more targeted advertising. Partners benefit from these campaigns without any direct expenditure on their part.

Other marketing benefits for partners include the following:

• The Windows Marketplace, which features more than 70,000 software and 60,000 hardware items made and sold by Microsoft partners
• Online solution and partner databases that get more than 200,000 hits per month, let customers locate software or expertise, and help partners find other partners to complement their offerings or open new markets
• Access to financing (for hardware, software, and services, including products from other vendors) that partners can extend to their own customers to help close sales
• Direct promotion of specific products that complement Microsoft offerings
• Marketing collateral and campaigns, produced by Microsoft but distributed through partners, that generate leads, identify specific market opportunities, and organize and support partners in addressing them.

The following sections examine the last two benefits—promotion of partner products and partner participation in Microsoft marketing—in more detail.

Working with Partner Products, Services

As an example of how Microsoft works with partner products, the company makes numerous BizTalk and SQL Server adapters (used to integrate Microsoft technologies with non-Microsoft data sources or applications) and accelerators (for speeding deployment of new systems by preconfiguring settings and supplying building blocks for common business logic). These components fit Microsoft products into new markets and reduce costs for customers. But Microsoft lacks the expertise or a compelling business case to develop add-ons for every vertical market that might be able to use them, and it depends on partners to fill the gaps in its offerings. Microsoft has purchased adapters from many partners, such as iWay Software, and promoted specific partner solutions, such as a BizTalk accelerator from Cactus Commerce that synchronizes vendor and retailer product catalogs.

In June 2006, the company announced a sweeping set of communications and messaging releases, promoting not only its own products, such as Exchange 2007 and Office Communications Server 2007, but related hardware and services from Hewlett-Packard and Siemens, mobile devices from Motorola, and voice-over-IP handsets and peripherals from eight other partners.

The company's field sales force also has Partner Account Managers (PAMs) whose job is to look at Microsoft sales opportunities and identify partners who can be brought in to help Microsoft win them. In some cases, partners have complementary software designed for a specific vertical, or that plugs a gap in Microsoft's offerings. Since Microsoft focuses primarily on products rather than services, partners will provide most of the planning, deployment, and maintenance services that customers want. The role of the PAM is to alert partners to opportunities, such as commercial customers or government agencies who are undertaking a major upgrade, and to bring in qualified partners on presales calls or to develop proofs of concept that can help close the sale.

Partners and Microsoft Marketing

In 2007, Microsoft plans to build on the success of its partner programs to get partners more involved in its marketing and sales efforts. For the last several years, the company engaged larger and strategic partners in Go-To-Market campaigns, but little of this trickled down to smaller partners, who constitute about 98% of the company's formal partners.

Microsoft's 2007 fiscal year is also a critical product year, with the release of Vista and Office 2007. Not since 2001 has the company simultaneously released a new version of Office and a new version of the Windows desktop.

As part of its all-out marketing effort in 2007, the company is investing heavily in presales and sales training for partners and will engage them more directly in its broad, public Partner-Ready marketing campaign and in its narrower, customer-oriented Customer Campaigns. (For a description of Customer Campaigns, see the sidebar "Customer Campaigns".)

As this report was prepared, in June 2006, details of these partner investments were sketchy, but they include the following:

• Raising the sales and marketing skills of partners with seminars, learning materials, and other resources to make partners, many of whom have ample technical skills but little experience with marketing and sales, more effective at closing deals that involve Microsoft products and services
• Raising the technical skills of partners with discounts on training or rebates to training centers, to ensure that partners have enough skilled staff on hand to deliver Microsoft solutions to their customers
• Providing partners with sales tools, such as a new Demo Showcase for the People Ready Business, that show off Microsoft solutions for partners who lack the resources to do full proofs-of-concept, and presales tools that can be used to assess a customer's current IT capabilities, identify their most serious weaknesses, and identify specific ways to improve it with Microsoft and partner solutions
• New Infrastructure Optimization Models that help partners identify customer obstacles and translate those problems into a planned solution, accompanied by a return-on-investment calculation.

Risks for Partners

A close partnership with Microsoft can streamline a partner's product development and give the partner early access to new technologies. It can reduce marketing and sales costs while simultaneously exposing the partner's products to customers that the partner was unlikely to identify on its own.

On the other hand, Microsoft's embrace implies additional demands on partners, including the following:

• Direct costs in the form of fees for program participation, and the cost of hiring, training, and certifying staff to meet partner program eligibility requirements
• Dependence on the Microsoft platform—for better (access to Microsoft's broad customer base) or worse (missed opportunities due to delays in product releases or shortcomings of the products or platforms themselves)
• Competitive risks that Microsoft might add features to its OSs or develop new products that compete with partner products.

To their chagrin, some partners—particularly ISVs—have discovered their partner Microsoft suddenly becoming their competitor, with customer relationship management (CRM) software and security software being recent examples.

Benefits for Microsoft

In spite of its central role in creating software, Microsoft's expertise is thin in other domains of knowledge, such as most business sectors, operating a government or school system, or conducting scientific research.

The company's product lines reflect this: most are broadly horizontal—that is, applicable to functions common to most enterprises, such as creating documents or connecting computing resources— rather than vertical solutions that can be deployed immediately for a particular business purpose, such as running a medical clinic or managing a dairy farm.

As a result, Microsoft's success in the market is a combination of its own merits—software that is preinstalled on almost every PC in the world, intuitive interfaces, and low costs—and the ability of partners to translate those attributes into attractive packages or solutions that meet both common and specialized business requirements.

Microsoft benefits directly from this synergy: a large force of partners reduces Microsoft's sales costs, provides valuable intelligence about the marketplace, and can serve a large number of small customers that Microsoft cannot serve efficiently itself.

Network effects—the phenomenon in which the value of a product or service increases as more people use it—play a very significant role in popularizing Microsoft's products. For instance, a Microsoft partner who creates an electronic health-records management solution on the Windows platform can easily find other partners whose software, also running on the Microsoft platform, ensures that records are properly backed up and secure from prying eyes. The more partners Microsoft has, the more likely that a partner will be available to fill a gap in Microsoft's expertise.