Partners Seek Alternatives To Microsoft Financing

Microsoft's stringent new financing terms came as a shock to partners, and some say they'll be looking elsewhere for the assistance they need to close deals.

Microsoft is now requiring that Microsoft software and/or services represent 35 percent of the customer's total financed amount, when in the past partners needed only to add a single Windows license to a multivendor deal in order to obtain financing.

Microsoft Financing declined to be interviewed for this article, so its reasons for changing the program remain a mystery. However, Microsoft's recent lackluster financial performance would seem to offer its executives plenty of motivation to cut costs wherever possible.

Small-business solution providers say they're aware that Microsoft Financing's previous policy was exceedingly generous but hope Microsoft will consider a more realistic requirement for their particular market segment.

"It's rare for a typical SMB infrastructure deal to include 35 percent Microsoft products, so the new rules for financing will not fit the profile of the typical SMB deal," said Brad Kowerchuk, president of Bralin Technology Solutions, North Battleford, Saskatchewan.

Michael Cocanower, president of Phoenix-based Microsoft solution provider ITSynergy, says hardware generally makes up the biggest share of the overall deal total, followed by services and software licenses. "We very rarely see a deal where the licensing piece accounts for 35 percent or more of the total deal size," he said.

Jay Tipton, vice president of Fort Wayne, Ind.-based solution provider Technology Specialists, recently put together a deal involving workstations, servers and a firewall, which had a combined list price of $40,000. Tipton would have had to include $14,000 of Microsoft software in order to be eligible for financing, but ended up with $6,500 -- just over 16 percent.

"Microsoft Financing just priced themselves out of 90 percent of our deals," Tipton said. "What else are we supposed to sell to get to 35 percent?"

In the current economic climate, vendor financing plays a crucial role in helping partners to close deals and customers to maintain cash flow. Earlier this year, some vendors began changing terms or pulling out of financing programs altogether as a result of the economic crisis. While signs suggest the worst may be over, the Microsoft Financing situation shows that vendors are still wary about extending credit to the channel.

What's ironic is that Microsoft's move to tighten financing terms comes less than two months after the company launched its Business Ready Flexible Pay program, which offers zero-percent financing to new Dynamics ERP and CRM customers that spend $30,000 or more, payable over a three-year period.

Also ironic is that Microsoft has been pushing partners to sell Open Value licensing, which also spreads payments over a three-year period and represents a form of interest-free financing for customers. Marc Harrison, president of Silicon East, a Microsoft solution provider in Manalapan, N.J., says he's confused by the mixed messages Microsoft is sending with regard to partner financing.

"By insisting that we front-load our deals with Microsoft product, they're essentially killing the Open Value program," Harrison said.

The good news for solution providers is that some vendors and distributors haven't altered their channel financing terms. In January, Hewlett-Packard launched a zero-percent financing promotion through its HP Financial Services subsidiary called "HP Total Financing," which enables partners to buy SMB-focused products through a 12-month purchasing plan or a 36-month leasing plan.

At its partner conference this week, Cisco Systems unveiled what it called a "stimulus package" for the channel, which includes extending channel financing terms through Cisco Capital from 60 days to 90 days for the next six months to give partners more breathing room.

So while Microsoft Financing's move has made some partners nervous, solution providers are confident that it won't spur other industry giants to do the same with their programs.

"The reality of the market today is that demand exists for leasing solutions that give us flexible and competitive offerings to present to customers, said Daniel Duffy, CEO of Valley Network Solutions, a Microsoft Gold partner in Fresno, Calif.

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