Microsoft's Moment Of Truth Is In The Cloud

By Robert C. DeMarzo, CRN
June 30, 2008 12:00 AM ET

Several weeks ago, Microsoft invited us to its corporate campus in Redmond, Wash., to discuss what is undoubtedly one of the biggest changes in its channel in the past decade. The topic of choice was what Microsoft has termed "software plus services," better known as Software-as-a-Service, or SaaS.

	ROBERT C. DEMARZO
Can be reached via e-mail at rdemarzo@everythingchannel.com.

Until now, the company's plan to address the SaaS market has been shrouded in a bit of mystery for a litany of reasons, starting with long-running Microsoft debates centered on what role, if any, the channel should play in the SaaS model and ending with just how Microsoft will transition its vast partner network to this new way of doing business. In between those two points it would have been a treat to be a fly on the wall listening to the debates inside the offices of channel chief Allison Watson or CEO Steve Ballmer. Some insiders believe Microsoft was dangerously close to cutting the channel out of the software-plus-services model altogether, opting for direct relationships with customers who would basically download applications and software from "the cloud." As the story goes, cooler heads prevailed after Microsoft came to its senses and realized the only way to sell to and support the SMB market is through the channel.

So after all the debating, we caught the company's top channel executives along with COO Kevin Turner preparing for the big launch of software plus services that would take place at next week's Worldwide Partner Conference. But after hearing executive after executive discuss this watershed moment for 800,000 partners worldwide, I left the vast Microsoft campus concerned and confused because Microsoft had not yet worked out all the thorny issues. Perhaps by the time Watson takes to the stage in steamy, hot Houston she will have figured out how partner compensation will change, how customers will get billed or how add-ons and new software will be sold in the cloud. Those issues were not answered during our visit.

Partners will certainly want to understand the benefits or pitfalls of either hosting the software themselves or using the hosting services of, say, an Ingram Micro or even Microsoft. How do you deal with a customer base that takes advantage of all three? For the sake of clarity, the low-key Turner answers it this way: "Customers will have some things they manage, some that partners will manage and other things they want Microsoft to manage." I am not sure that helps much. However, Turner sounded reassuring when he said, "We have listened to partners, we have taken their feedback on how they make money."

Turner was no doubt being cagey and purposefully elusive but he knows a great deal rides on convincing—or strong-arming—partners to transition to this new model. If the transition does not go well, it could impact Microsoft's growth. This is no time for Microsoft or its partners to have their heads in the clouds.

Are you buying the software-plus-services pitch?
Robert C. DeMarzo is Senior Vice President and Editorial Director at Everything Channel. E-mail him at rdemarzo@everythingchannel.com.

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