Microsoft's Quantum Leap

As vice president of the U.S. Partner Group, Margo Day manages Redmond, Wash.-based Microsoft's relationships with solution providers. In that role, she has become attuned to partner profitability issues. In an interview with Editor In Chief Michael Vizard, she outlines Microsoft's Quantum Leap pilot, which aims to help make solution providers more profitable, and efforts to make Microsoft's points-based channel program less onerous. For the complete QandA, visit crn.com.

CRN: Partner profitability has always been a contentious issue in the Microsoft channel. Is this because there are too many partners competing for a limited amount of business, or are there some other root causes?

DAY: I think of partner profitability in different ways. I don't think we're overdistributed. To lead with Office as a productivity tool, a partner can get commoditized. Instead, if they talk about how Office fits into a collaboration solution, then we don't have enough capacity. We're focused on building that out. We're also focusing on helping [partners] drive top-line revenue. More than 40 percent of our U.S. subsidiary marketing budget this year is going to be spent with and through partners. We'll reach about 900,000 small businesses this year with the seminar events that we do, and we'll have partners present with us.

Then we are piloting a program call Quantum Leap, where we go deep with partners to change their mix from products to services. What we find is that with a lot of VARs, reselling makes up 70 percent of their mix. What they are not doing is building out their services muscle in the high-order services areas that have 30 percent to 40 percent margins. We'll go in and consult with the partner on what the delivery side of the business looks like. What kind of people do they have? What are their billable rates? What are their utilizations? Then we'll lay out for them what kind of people they need, what kind of rates they can expect and what kind of utilization rates should they be going for. We've got eight companies in the pilot program right now. Now we want to take those models and see if we can scale them out.

CRN: Over the past two years, Microsoft has had mixed success in implementing a points-based system around specific competencies in the channel. How is this program going?

DAY: One thing we did last fall was grandfather a lot of VARs into the program. They didn't have to necessarily go through all the rigor to qualify for a competency in the program. We had some challenges, which is one of the reasons we did that. We think with version 2.0, with modified competencies and specializations around information workers and small businesses, those competencies are much more relevant. Now this model with points, competency and statuscoupled with new infrastructure to streamline the overall processwill make this program very real for partners. And then I'll be able to do a better job in the United States of aligning my marketing and communication to those partners. The process used to be rather cumbersome, and it would take partners way too many hours. We were wasting their time. A lot of partners went through it, and we really appreciate it. So we're grandfathering them into the new version in the fall time frame.

CRN: Microsoft has always been adept at painting pictures of the future of computing, and Longhorn, Project Green Wave and CRM 3.0 are no exceptions. What can partners focus on selling in the next six months?

DAY: There are collaboration scenarios, especially around SharePoint and business intelligence. Those two go hand in hand. Partners who are succeeding here are working on customers' workflow and business processes, so they are making a lot of money.

Another area is migrations. There are still a lot of migrations from Novell. In the United States, there are still about 780,000 Novell servers out there, down from about 1.3 million a year ago. And those customers have to make a choice, because Novell is forcing the conversation with its Linux offering. There's also a lot of Unix migration to the Intel platform. Another place partners are making money is upgrading things like Exchange 5.5 or Windows 2000 servers, and in the small-business space, our Small Business Server is just booming. ...

And then SQL Server 2005 is the other area that is going to ramp unbelievably. It will be gargantuan. It has been five years since we had a major upgrade.

CRN: With Microsoft's recent changes to its licensing programin which customers can essentially get Office 12 and Longhorn free under a three-year dealshould solution providers be leading with an economic rather than a technical sell?

DAY: We're starting to see this effect with SQL Server 2005, which is launching in November. When a customer buys under the annuity model, they can get SQL Server 2005 whenever they are ready as part of the program. But leading with licenses is the old way of selling. They should be leading with solutions and what the technology is all about, and then discuss with the customer from a financial perspective what their options are.