Ballmer: Microsoft's Services Role Unchanged

Many partners still maintain privately that they see Microsoft services as a threat—or a potential threat—to their own services business. And with the dearth of new shipping products—Vista and Office 2007 remain future releases—services are a more important part of their own models than ever.

Compounding their unease is Microsoft's belated move into software-as-a-service (SaaS) offerings such as the just-announced CRM Live hosted offering, which will be sold direct.

A few aired their concerns publicly with company brass at the show. One solution provider at a lunch on Tuesday asked Steve Ballmer and worldwide channel chief Allison Watson how his enterprise sales force should deal with the fact that Microsoft's own sales team "is now being managed to sell MCS services into that market. How will we work together?"

The executives called this more perception than reality.

Said Ballmer: "This is probably the 15th or 16th year I've been answering that question—and it's a valid question."

He maintained that the company's strategy has not shifted in that time. "Every nuance, every little change we make is followed, and sometimes the tactics screw up the strategy. Four or five years ago, we frankly hired too many people [in services] and ended up competing. Our goal is to have enough enterprise service capacity to put skin in the game with customers who demand it.

"We are not profitable in enterprise services if we multiply it by a factor of 20, it doesn't make money for our shareholders but it makes our partners a lot of money," Ballmer said. "We don't have the aspiration to build—let me call it what it is—an IBM-style global services business. We will expand, but at the end of the day, if we're not expanding the software revenue, we're not doing what we should be doing."

Ballmer also announced the formation of a partner advisory board to sort out the business model for its new Live offerings.

One mid-Atlantic partner later said there is less contention with the services group now than in 2002 or 2003, but it still exists.

"The biggest complaint now isn't that they're horning their way into [deals], it's that they eat up too much project budget per consultative hour—their rates are astronomical, and unwarranted," he said.

Rick Devenuti, senior vice president for Microsoft Services and IT, seems beleaguered by these complaints but maintains that partners, like customers, can profit from Microsoft services. In fact, Microsoft is ponying up $30 million this fiscal year to train and prep technical specialists for its partner community.

At his keynote, Devenuti said that customers feel they need help implementing technology into solutions. Customers say "putting these technologies together in a way that delivers value to end users is more difficult today than it's ever been," he said.

Partners would be wise to take advantage of Microsoft programs but not overly rely on the vendor, said one solution provider.

"You've got to make your own luck," said Howard Diamond, CEO of ePartners, a Microsoft Gold and MBS partner based in Dallas.

STACY COWLEY contributed to this story.

This story was adjusted late Friday to add context to Rick Devenuti's keynote remarks.