It's a Microsoft World...Where Do You Fit In?

A mere three years ago, Bart Hammond rolled the dice on what turned out to be the biggest bet of his professional life: He dropped two promising practices that revolved around Sun and Oracle in order to put all his energies in building his business around Microsoft.

By any measure, the bet paid off as CEO Hammond's business, Interlink, soared. In two years' time, the Englewood, Colo.-based company grew to 200 people from 85 people, and more than doubled its revenue to $24 million from $10.5 million. That was good enough to land the company on this year's VARBusiness 500 list of the largest solution providers in North America. (Interlink debuted on our exclusive list at No. 476.)

Funny thing, Interlink: It doesn't sell a single Microsoft software license, yet depends on the company for its livelihood. Nearly all of it. What Interlink, along with a growing number of partners like it, does, is build vertical solutions for customers using a broad array of Microsoft technologies whose licenses are sold separately. Today, for example, Interlink routinely works with Microsoft application-development tools, business-software solutions, office-productivity tools, messaging and collaboration products, and database and content-management products to create tailored software solutions that integrate and extend the base stack of products. Hammond's world has become all-Microsoft, all-the-time. He is so squarely behind the company that even setbacks, such as Blaster security woes or Longhorn product delays, are mere inconveniences with which he simply works around. And they don't stop him from recommending Microsoft at every turn.

"I have a goal in mind to become one of the leaders in the Western part of the United States," he says. "And the more I put into my Microsoft relationship, the closer I get to my dream."

Before you conclude that Hammond has gone off the deep end, consider the following: Hammond is hardly alone in his thinking. More than ever, both solution providers and end-user customers are placing their bets on Microsoft.

Take Tim Huckaby, president of Interknowlogy, a San Diego-based Microsoft partner. Huckaby exemplifies the kind of partner who is taking full advantage of Microsoft's many building blocks, exploiting the .Net platform, SharePoint and other servers to custom-develop "smart client" applications and other cutting-edge solutions for customers, such as Kelly Blue Book, the consumer's car-value Bible. He has been on board with .Net since the very beginning, in fact, committing to the development paradigm when it was unfashionable to buck the prevailing J2EE wisdom of the day. He's not sorry.

"We are in a .Net tsunami," says Huckaby, who serves on Microsoft's partner advisory council and notes a much-welcomed renewal of passion within Microsoft's ranks for both tech innovation and partners of late. "A year and a half ago, we were begging for work. Now we can't manage it as fast as it is growing."

On the customer side, he is seeing change, too. An increasing number of customers are willing--some insisting--to rip and replace legacy IT infrastructures completely (typically considered far too painful and costly) to migrate over to the Microsoft stack.

Of course, that's music to Microsoft's ears. But not only for all the obvious business reasons. The embrace of the Microsoft platform as a whole, rather than its parts, hews exactly to the message the company is trying to get across to partners and customers this year. Rather than pushing shrink-wrapped products in isolation, Microsoft wants partners to take a holistic view of the software stack and exploit it as the foundation to craft vertical applications or other value-added solutions. Microsoft executives have locked into the term "operational frameworks" to help instruct partners how best to develop end-to-end solutions that include the right pieces of the product set, from Windows Server 2003 at the bottom to any of the Microsoft Business Solutions applications at the top.

"Partners need to be able to listen and apply the overarching knowledge of the platform," says Margo Day, vice president of North American channel sales at Microsoft.

Such is the case with Hammond, who is using Microsoft technologies as tools to create a portal-based solution that connects a customer to his employees, partners and suppliers. As Microsoft's general manager of platform strategy, Charles Fitzgerald succinctly puts it: "It's no longer about plumbing."

Marching On

Taken as a whole, the sheer size of the Microsoft platform broadens the opportunity for consulting services and custom-development engagements for partners, many of whom are increasingly buying into the all-Microsoft mantra. In fact, studies reveal that devoted loyalists are growing by a staggering number, even by Microsoft's standards. That's despite the company's late attempt to catch Google in search, its ongoing struggles to meet its own product deadlines involving Longhorn and other wares, its never-ending battle with hackers--anyone not know someone impacted by spyware?--and its ever-growing complexity when it comes to licensing, its product portfolio or even its basic value proposition. Despite these challenges, the number of people, companies and initiatives that depend on Microsoft technology are simply jaw-dropping [see "The Big M," page 30].

Our own research also reveals that nearly three-quarters of solution providers surveyed plan on selling or recommending Microsoft software infrastructure and tools this year--nearly double the amount that plan on selling and recommending open-source software infrastructure and tools.

Meanwhile, separate research from outside companies supports the notion that the world is becoming increasingly tied to Microsoft. AMI Research, for example, notes that 80 percent of small and midsize customers have aspirations of consolidating their purchases onto a single platform--namely Windows--but to date, only 6 percent have. If only 20 percent of those customers make the move they say they want to in the next two years, that could increase Microsoft's revenue by tens of billions of dollars. Today, one-third of Microsoft's current business partner base counts no other vendor in its stable, according to vice president of worldwide channel sales and marketing Allison Watson. That is unusual in an industry that tends toward diversity in its vendor profile.

AMI also reports that 46 percent of midmarket customers are looking to migrate off of their legacy environments, which is a big factor driving the company's strong server and storage sales, according to Day.

Speaking of increases, it's important to note how Microsoft has stacked up in recent years. While others have moved sideways--think IBM, Oracle and Sun--Microsoft has been on the move. In just two years, it has increased its revenue by $8.5 billion. That's within spitting distance of the entire size of Oracle, give or take a Novell, the world's second-largest independent software company. Ten years after its monumental release of Windows 95 and five years after being handed its single largest setback to date--a guilty verdict in the antitrust suit filed against it by the U.S. Department of Justice--Microsoft is bigger, stronger and more ambitious than ever. One could argue that no company in the history of the computer industry, not IBM, not Intel, not even Microsoft when the Federal Trade Commission first started the government's investigation into its business practices, has ever enjoyed so much clout. In the past year, all of its major rivals save for Oracle have become weaker. IBM? Thousands of layoffs in Europe indicate this is not the company it was a year ago. Sun? Still a shadow of its former self, and with less revenue. HP? Troubled. Even the great open-source movement, for all its wonderful promise, no longer threatens Microsoft like it once did. Instead of taking on an industrywide movement, the company now competes more favorably against the commercial embodiment that open source has come to represent, namely, Red Hat and Novell.

Says Microsoft CEO Steve Ballmer in an exclusive VARBusiness interview, "As you point to the commercialization of Linux, which is going on, we are not competing typically vs. 'free.' We are competing much more often with something else that has a positive price. So we are in a more normal competition." (For more, read "Ballmer Bites Back," page 34.)

And Microsoft usually wins, no matter how far behind it starts out. Think Apple on GUI interfaces, Netscape in browsers, Java and J2EE in business-programming languages, Linux in operating systems and, more recently, Google in search. While wildly regarded as far behind, Microsoft has once again mustered its forces and turned its guns on Google, a company that offers it no competition in any of Microsoft's traditional markets and only stiff competition in one slice of computing that doubtfully can sustain more than one serious player.

One industry executive at security stalwart McAfee recently voiced his concerns about Microsoft's power and influence.

"We are not worried about Microsoft tying other products to the operating system, but more worried about tying them to an enterprise agreement," says David Roberts, senior vice president of worldwide channels at McAfee. "Enterprise agreements used to be an Office and Windows contract; now they throw in everything else. SQL Server, etc. And those products start to become free."

Where Do You Fit?

All of the above, begs one, obvious question: In an increasingly Microsoft-centric world, where do individual partners fit in? Not all, for example, can duplicate Hammond's success and emerge as a leading solution provider covering the Western region of the United States. The real challenge for tens of thousands of Microsoft partners going forward--Microsoft counts 41,000 in the United States alone--is not going to be how to compete against the Microsoft channel, but how to survive within it. The company's complex go-to-market strategies are replete with opportunities and challenges for various channel companies, including small VARs, IT consultants, systems integrators, high-volume license resellers and regional strongholds such as Interlink, just to name one. That's especially true because Microsoft is on the cusp of releasing more new products into the market than at any other time since the Windows 95 splash.

By November, new versions of the long-awaited SQL Server 2005 database and Visual Studio 2005 will be released. The Visual Studio development environment will be tightly interrelated with new XML features inside SQL Server 2005, and Microsoft makes no bones about its intention to pursue Oracle developers and ISVs (Novell is another winback target) with the combination-punch. By the end of the year, the company will be rolling out an updated version of Windows Server 2003, dubbed R2, which will be followed closely by the release of Small Business Server 2005, an update to the phenomenally successful SBS 2.0 product. (Mull this statistic if you want to grasp the full business potential around Small Business Server: One-third of small-business customers in North America today with five PCs or less have no server. None.)

Also in the first half of 2006 comes a new version of BizTalk Server, the company's integration engine. Later in 2006 comes Office 12, which has mushroomed way beyond its Word-Excel-PowerPoint roots into a compendium of other applications and servers, such as InfoPath and Live Communication Server. Finally, in late 2006, expect Longhorn to finally rear its head in a client version, with a server OS to follow in 2007.

It's a lot to digest, which is why Microsoft is encouraging-- if not goading--partners to work together. Hone a particular technology skill cold, like Exchange or SharePoint, also get a good handle on how all the other pieces of the platform fit into a broader solution, then find the right partners to fill in those gaps for you.

The partner-to-partner model is paying off in spades for Terry Beck, president of Austin, Texas-based The Harding Group. Beck's roots are as a Novell partner, but in 1999 he added Microsoft to his vendor roster. Whereas he describes the Novell business as "steady," Beck counts Microsoft as the fastest-growing part of his practice, bringing in one-third of its $11 million in revenue last year.

The Harding Group specializes in networking infrastructure, including Exchange, Systems Management Server and Microsoft Operations Manager 2005 deployments. To offer full solutions to customers, Beck says he leverages other types of partners in his engagements: large account resellers to sell software, licensing gurus such as SoftChoice to help customers navigate the Microsoft software-licensing morass, partners that provide expertise around Microsoft's business applications and a training organization. "Microsoft is encouraging this model right now," Beck says. "They literally say that unless you are teaming, you are not a real player."

The opportunities to work in concert with Microsoft seem a natural fit.ISVs are a hot segment for Microsoft and play a crucial role in furthering adoption of the platform by building their applications on .Net. Many of these ISVs need a channel to both sell and implement their applications. Microsoft would like to see those kinds of connections proliferate.

Another good fit for a Microsoft partner: custom application development. Huckaby's Interknowlogy plays here, tapping the Microsoft tools and products to build sophisticated applications on a project basis. Other opportunities involve verticalization, taking an MBS application, such as Great Plains or Navision, and extending the code on top of it to execute a particular industry business process, be it some aspect of dairy farming or sheet-metal manufacturing.

"We need to develop the partner-to-partner model because there is tremendous promise in getting into a customer and having an end-to-end discussion for their business," Day explains, echoing a message that partners are likely to hear loud and clear at Microsoft's annual partner conference in Minneapolis next month--along with the platform talk.

And if you think about it, the platform is precisely why Microsoft continues to roll on, deflecting competitive threats and internal setbacks. Post dot-com boom, many customers are longing for software that's made to work well together. The Microsoft stack--with the glaring exception of the MBS applications and their raft of different code bases--gel naturally. For partners, low-level integration work becomes nearly unnecessary, so the focus can be on high-value services, consulting and other solutions-building. It's a compelling case that is attracting more and more partners to the fold.