Microsoft Sees Better Economic Prospects Ahead

At least one tech company is seeing some good economic signs this year. Microsoft says its business started perking up late last year, and it hopes that its good fortunes will soon spread to its partners.

"Generally, we're optimistic. The rebound started for us in December, and generally we see a lag of six to nine months before our partners [will see the same uptick]," said Ian Rogoff, vice president of Microsoft's Worldwide Partner Group and host of Fusion 2001, the annual Microsoft partner confab, here.

Microsoft is banking on the promised roll out of Windows XP, scheduled for October 25, to further boost shipments of new PCs and spark a burst of new Web-enabled applications and services. Several executives here called Windows XP a much bigger launch than Windows 95, heretofore the standard bearer of "boffo" Microsoft product launches.

Not everyone shares Rogoff's optimism, at least when it comes to timing. At an informal partner roundtable arranged by Microsoft, none of the five partners assembled felt that their businesses would pick up significantly until at least next year. That is not to say that customers aren't eager to update their computers, but that business customers are afraid of spending on virtually anything until they see the economy as a whole rebounding, the solution providers said.

Most of the partners said they continue to see projects--sometimes even projects already planned and budgeted for-- delayed indefinitely. "We're hearing a lot 'Project on hold, project on hold, project on hold,'" said John Hiraoka, senior vice president of marketing and business development for Epicor Software Corp., a mid-market ISV based in Irvine, Calif.

Tony Leonti, director of business development for CosmoCom, Inc., a Melville, N.Y., developer of IP-based call centers, said that a variety of factors are discouraging new technology spending. "It's the economy, people feel burned [about technology they've already bought], it's all come to a head," he said.

There is also the old fear of first-release products, some Microsoft partners said.

Randy Schilling, CEO of Quilogy, a St. Charles, Mo. ISV and CTEC saw some bright spots. "Healthcare and HIPAA is strong and government is hot. Federal state, and local governments are spending," he noted. HIPAA, or the Health Insurance Portability and Accountability Act, passed late last year by Congress, mandates that electronic patient data remain secure and private.

Charles Stevens, vice president of Microsoft's Enterprise and Partners Group, agreed that government spending on technology is impressive. All these government bodies are building portals to service their constituencies. "The government always has money," Stevens said.

"There are some solution categories--supply chain, corporate portals--some of these markets are growing 30-, 40-, 50-percent, so IT is spending less on infrastructure, but they want more out of it%85 more solutions on top of it," Stevens said.

So instead of IT money drying up, he sees more of a shift in spending away from infrastructure to services and solutions. He agrees that there are more shorter-term projects, "but there's tons of activity going on. Look at SQL Server and Exchange, that business is growing 30, 40 percent," Stevens said.

The challenge for companies that don't have Microsoft's name recognition or resources is to prove their value--and the value of the new offerings--to would-be customers, partners said. "There is a perception among many customers that they're paying money again for the same thing they've already bought. We need to provide them with more reasons [to buy], Leonti said.

But one big change is that the technology deals that are getting the green light tend to be smaller, "piecemeal" or incremental, the partners said. "There is a rollout of a lot of small deals vs. one big deal," Schilling said.

The partners said they see opportunities building custom vertical applications atop Office XP and SharePoint. And Microsoft is turning up the heat on partners to get re-certified on the new generation of products.

The 5,000 or so partners gathered here have been exhorted repeatedly to "deploy and certify" on the Windows 2000 and Windows .NET servers, familiarize themselves with Visual Studio.NET (a bundle of tools for developing so-called .NET services), and build solutions atop Office XP and Windows XP.

There will be two certification tracks going forward--one for developers and one for systems administrators, according to Microsoft.

But the economic hangover persists and might even have some surprise benefits to companies that survived the shakeout. For one thing, it's easier to hire talent now than 9 or 12 months ago, the partners all agreed. And people remain their highest priorities.

"Our biggest problem is getting the right people, the right skill sets," said Bill Murray, vice president of Analysts International Sequoia Services Group, an Auburn Hills, Mich. professional services company.

Hiring people and "then getting them to wear six hats" is critical, agreed CosmoCom's Leonti.

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