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Who's On Board?
Microsoft will give 12 percent of the first year's subscription value and 6 percent of the ongoing service fees to partners that sell its Online portfolio of hosted services, which includes Exchange, SharePoint, Office Communications Server, and Office LiveMeeting.
Slated for launch sometime later this year, Exchange Online will be priced at $10 per user/month, SharePoint Online per user/month will be $7.25, Office Communications Server Online will be $2.50 per user/month, and LiveMeeting will be $4.50 per user/month. Microsoft will offer these services in one-year automatically renewing agreements.
Microsoft's partners who've been hosting their own Exchange and SharePoint services for years are one group for which the benefits of recurring revenue are quite clear. They're also familiar with the notion of wrapping additional value-added services around their offerings, such as support for multiple mobile device technologies, for example.
There are many chances for service providers to identify the gaps that Microsoft isn't filling, said Michael van Dijken, lead marketing manager for Microsoft's hosting business, in an interview at WPC. "This is a new area for Microsoft and our partners," said van Dijken. "Clearly, there have been concerns over Microsoft being perceived as competitor, but service providers realize that the market is changing, and they're quickly trying to identify opportunities."
Microsoft is essentially creating a hosted services equivalent of the existing Microsoft stack and partner opportunity ecosystem by virtue of encouraging partners to offer their own hosted services on top of its own, said Andrew Brust, chief of new technology at twentysix New York, a New York-based IT consultancy.
"Microsoft is saying partners can make money first and foremost by adding value to its base offering, and by helping them sell the platform, they'll reward you again," Brust said. "That's a great approach if it works, because it's the model the partner system is based on now."
Hosting providers are sitting in the proverbial catbird's seat, as they stand to gain more revenue as a result of Microsoft's refusal to allow VARs, at least at this stage of the game, to offer partner-branded, or white-label services. And VARs that are already seeing healthy revenue streams from white-label partnerships with hosting providers say they're making far too much money to consider giving up control to Microsoft.
For now at least, Microsoft said solution providers and customers can still opt for on-premise versions of the software or hosted software from Microsoft hosting partners. And many solution providers say they will do just that.
"We already make more money than Microsoft is offering us, and we don't have to share ownership," said Marc Harrison, president of Silicon East Inc., a Manalapan, N.J.-based solution provider. "It's very clear that in no way will the profit that comes from reselling hosted services come anywhere close to what we have been making maintaining these services for clients on an on-site server."
It's highly possible that some VARs could choose to avoid Microsoft hosted services in favor of services they can white label from hosting partners, said Matt Makowicz, principal at Ambition Consulting LLC, a Somerset, N.J.-based solution provider. "If I'm not going to be able to brand my own services to customers, they'd better be backing me up, and Microsoft hasn't done a great job of showing partners where they fit in," he said.
White-label services would be especially attractive for VARs in the SMB segment, where VARs have longstanding relationships as trusted advisors to their customers, said Michael Cocanower, president of Phoenix-based solution provider ITSynergy. "Customers would appreciate an offering that we privately label as one component of our overall offering to them," said Cocanower.
Such a scenario would be unfortunate, however, because Microsoft needs the strength of its entire partner ecosystem in order to attain its goals with Software Plus Services, according to Chris Teets, general manager at M3 Technology Group, a Charlotte, N.C.-based solution provider. "It is very, very important for Microsoft to have the whole partner community accept this. And in my opinion, they're putting a lot of good steps in places to make sure that happens," he said.
One of these steps was to develop a system that would enable partners to be recognized for their contribution to the sales, even when they're not handling the actual sale. Microsoft will share ownership of the customer with the channel partner of record, who will administer and manage the services on behalf of the customer. Customers will buy services and sign agreements with Microsoft for the services, but they'll also sign agreements with their partners.
Matt Scherocman, vice president of consulting services at PCMS IT Advisor, a Cincinnati-based solution provider and Gold partner, said that this is Microsoft's way of ensuring that partners still get credit for the sale when they're not actually controlling the sale. "The one reason people aren't as upset is that you go on as partner of record and you still own the customer relationship. That's huge," Scherocman said.
Another example is Microsoft's decision to handle billing, paperwork and revenue collection from sales of services, which the company says resulted from feedback from VARs and integrators who said these tasks are prohibitively time consuming. Microsoft said removing that cost will allow channel partners to focus more on value-added services.
Some partners relish the idea of offloading time consuming reporting, billing and credit collection work to Microsoft. "This takes away the noise at the commodity services level," said Rick Oppedisano, vice president of marketing at M3 Technology Group.
Offloading management and maintenance should allow partners to focus on extending the technology to meet customers' business needs, said Todd Golden, co-founder and director of alliances at PointBridge, a Chicago-based solution provider and Microsoft Gold partner.
Next: Business Models Threatened
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