Steve Ballmer and You

In 2004, Ballmer wants to demonstrate innovative platform leadership, create solutions for real-world customer scenarios and improve security for all. He also wants Microsoft to develop a better response to the growing adoption of free software as a substitute for software sold for a price.

With an agenda like that, partners naturally have questions. Lots of them, actually. We invited readers to submit their most pressing concerns, which we took to Ballmer directly. Here, he takes his best shot at answering readers, several of whom share their responses to Ballmer's answers. What follows is a provocative look at a leader and his followers.

Question: Sharing the wealth with partners
What can Microsoft do to address the inequity that exists between what it gets for its solutions sales and what its partners get? Can or will Microsoft share more of the wealth?
--Alan Colmenares, CEO at Litima, an independent business consultancy

Ballmer's Answer: Well, the truth is it's about the profitability, not about the revenue. If you take a look at it on almost any deal where our stuff is involved, our partners get more revenue than we do. But they also have more costs to deliver that service than we do to deliver our service. And you know you could [ask], "If our prices were somewhat lower, would the profitability of our partners be significantly higher?" The answer to that question, I think, is clearly no. Our partners are almost always in the business of bidding against somebody else who is bidding people or labor hours, and they are going to have to bid competitively. Whether the software costs $200 or the software costs $500, it only shows up in their ability to quote the customer the right deal. Can they give the customer the best solution? And if the software helps give the customer the best solution, that's the best thing. In that context then, the only way for us to invest and help partner profitability is by putting more money behind their training, maybe some other kinds of benefit programs, etc. [But] we cannot change the fundamental competitive nature of the business of the VAR. VARs compete with one another, and that's the fundamental issue in profitability. But we can try to supplement that with new benefits, whether that's training or other kinds of benefits [that we're working on]. We think we have some ideas, but I am not trying to promise a revolution. Some nice improvements, perhaps.

Colmenares' Response: By settling for nice improvements in its partnering program, I feel Ballmer could be capping the potential success of his company's SMB initiatives, particularly in business applications. If Microsoft's objective is market leadership, it behooves the company to think "outside the [software] box" and create a revolution in the benefits it offers VARs, particularly those that relate to enhanced profitability. Microsoft has vowed to go beyond a "product-centric" mentality with its business customers and focus on improving performance. Thus, it is designing compelling partnering programs. But these require a comparable commitment to VARs. Microsoft is certainly getting some things right, but VARs may demand more.

Getting a Fair Share
Fiscal 2003 covered some of the toughest months of the IT recession. Yet Microsoft saw sales climb 13 percent to $32.2 billion. Furthermore, Microsoft amassed more in earnings ($9.99 billion) than its rival Oracle did in revenue ($9.48 billion). Such success leaves many wondering whether Microsoft owes partners more than they currently get. After all, Microsoft counts on them for 90 percent of its sales. Litima is one company that works on the periphery of the Microsoft channel. It helps U.S. companies develop channels in Latin America. Because Litima's clients generate 30 percent of their business around Microsoft products, Microsoft is a key vendor for the consultancy. CEO Alan Colmenares, however, is concerned that Microsoft's goals might not line up with those of its allies. He worries that pressure to raise a share price could come at the expense of sharing the wealth. If it does, a backlash could occur, he believes.