Channel Partners Lash Out At Microsoft's Restructuring

Solution providers this week lashed out at Microsoft's sweeping restructuring as just one more sign of the software giant's channel disconnect as it moves to become a devices and services superpower.

Hailed by Microsoft CEO Steve Ballmer in a memo as a "far-reaching realignment" that will enable Microsoft to "innovate with greater speed, efficiency and capability in a fast-changing world," many partners instead see the move as a sign of just how far removed Microsoft has become from partners delivering solutions to small, midsize and large businesses. They characterized Microsoft in the "devices and services" era as a company short on both channel commitment and innovation.

"The way I describe Microsoft in one word is 'disconnected,' " said Majdi "Mike" Daher, CEO of Denali Advanced Integration, Redmond, Wash., No. 114 on CRN's Solution Provider 500 list with $180 million in sales.

"They are disconnected from their partners and even their customers," said Daher. "Ask Microsoft customers: How do they see the partnership with Microsoft? Everything is done in a vacuum at Microsoft. Everything is a knee-jerk reaction. I miss the Microsoft that innovated and created markets and invited us to participate with them rather than reacting and responding to what others are doing like Apple and Google. Most of their products now are a reaction to what someone else has created."

[Related: 5 Tablet Alternatives For Partners Hungry For Microsoft Surface ]

Daher, who sent several members of his team to Microsoft's Worldwide Partner Conference, said he sympathizes with Microsoft employees in the channel sales trenches, who are trying to make a difference for partners. The problem, he said, is they have "no tools and no programs to really engage the partners the way they should. I don't blame them. I blame the people who created the programs."

The Microsoft restructuring announcement came on the last day of the software giant's annual partner conference, an event some partners say further raised their ire.

Fueling the flames at the partner conference was Microsoft COO Kevin Turner's invitation to partners to bring customers to Microsoft retail stores, where Surface tablets are sold direct. This came after the software giant angered partners one week before the conference with the surprise launch of the Microsoft Devices Program, which gave just 10 Microsoft LARs the ability to sell Surface. That amounts to less than 0.01 percent of Microsoft's North American partner base and an even smaller fraction of the company's 640,000 partners worldwide.

Under the restructuring, Turner remains responsible for "worldwide sales, field marketing, services, support and (Microsoft retail) stores as well as IT, licensing and commercial operations," according to Ballmer's memo.

Some partners see Turner's retail roots as part of the problem. Turner, a 19-year Walmart veteran who ended his career there as president of Walmart's Sam's Club before joining Microsoft in 2005, is leading the charge on a Microsoft retail store expansion. He told partners at the conference that Microsoft will grow its retail store footprint by the end of its fiscal year 2014 by 38 percent to 101 stores, up from 73 stores.

NEXT: The Continuing Surface Slight

One top executive at a Microsoft enterprise partner applauded the decision to restructure, however, saying it will drive a more cohesive and unified organization. The executive, who attended the partner conference but did not want to be named, said the changes are being driven by Microsoft's view that it needs to step up its game against Apple, Amazon and Google.

The executive's biggest issue coming out of the conference was the inability to sell Surface. Making matters worse, he said, is Microsoft's insistence that solution providers need to have Surface shipped directly to customers from one of the 10 LARs authorized to sell the product. That puts solution providers in the position of buying products from competitors.

"They are screwing us," he said. "You think my sales reps are going to go to a competitor and order it? The strategy doesn't make sense."

The executive said Microsoft's distribution strategy for Surface is forcing his sales reps to sell tablets from vendors such as Samsung, Apple, Hewlett-Packard and Dell, which are partnering with his company. "In six months, I am not going to want to sell it [Surface] because my sales reps will have moved on," he said.

Partners say the Surface distribution strategy is just one more sign that Microsoft is not listening to its partners. Denali's Daher, for his part, said that came through loud and clear in Microsoft's decision to announce the restructuring on the last day of the partner conference.

"They came into the conference knowing about the restructuring and waited until the end to make the announcement," he said. "That means they had their mind made up and the conference was just going through the motions more than anything else. Why have a conference and have people spend good money to attend when you don't value their input? When I invest my time and my people's time to go to a conference, I expect to get a return on that investment. It is clear to me I made the right decision by not going."

Bob Nitrio, CEO of Ranvest Associates, an Orangevale, Calif.-based small-business Microsoft partner, said he was outraged by Microsoft COO Turner's suggestion that partners bring customers to Microsoft retail stores as an extension of their offices. "I don't think so," he said. "I am not going to bring my clients to your stores so you can sell them something."

After reading the Ballmer restructuring memo, Nitrio said he was incensed. "I went ballistic," he said. "Ballmer uses the word 'partners' three times and 'partnership' once. That shows how disconnected Microsoft is from partners."

Nitrio sees the Microsoft restructuring as yet another sign that Microsoft is moving away from engaging with the vast majority of channel partners. "The Walmart retail strategy is now part of Microsoft's vision," he said. "It makes me feel as if I am insignificant in the Microsoft ecosystem. We have been the unpaid sales force for Microsoft for years and this is the thank you we get: the door hitting us on the way out."

NEXT: Shunning SMB Partners

Microsoft's focus is squarely on consumers and LARs, ignoring the vast majority of partners serving the SMB market, said Ranvest's Nitrio. "I personally feel that by bifurcating their vision to consumer and enterprise and leaving the small/medium-business market to fend for itself, they are abandoning some of the most enthusiastic and passionate evangelists in favor of large-scale sales. They are looking strictly at volume. They want to generate more revenue and more profit by more or less abandoning an entire segment of their partners who don't generate huge profits for Microsoft but collectively make a big impact contributing to Microsoft's success in intangible ways. It makes no sense to me."

Nitrio said he sees the restructuring as part of Microsoft's "transformation from an innovative company to a dictatorial company," shoving its devices, services and software down customers' throats on its own terms rather than "collaboratively and cooperatively" engaging with partners and customers.

"It's a shameful attitude," said Nitrio. "It's a top-down approach where Microsoft demands this is what you are going to do and when you are going to do it. Microsoft must understand this is not the military where you give order and soldiers follow them. We are not dealing with the military here. We are dealing with real businesses. In business you absorb information and you make reasoned decisions."

Denali's Daher remains steadfast in his company's commitment to build and deliver Microsoft solutions despite what he called Microsoft's view that partners such as Denali are "irrelevant.

"We cannot abandon Microsoft because they have a bad and disconnected channel program," he said. "We always find a way [to get the job done]. That is what systems integrators and value-added resellers do. At the end of the day, we serve our customers and having Microsoft technology in our customers' environments is a good thing. We bet on them. They will figure it out. Channel chiefs and sales chiefs come and go. The more mistakes they make, the less rope they have. It seems to me Microsoft's leadership made their rope a little shorter this week with some of the decisions they made."

Carl Mazzanti, CEO of eMazzanti Technologies, a Hoboken, N.J., Microsoft Gold partner that just won a Microsoft regional partner of the year award, said his company is succeeding by partnering with Microsoft in hot markets such as Office 365 and Microsoft Azure. He said his $6 million company's Microsoft sales are up 85 percent year to date with robust profits. The key to succeeding in the technology business, said Mazzanti, is to "accept that whatever you are doing yesterday you can never do again. You have to innovate. It is a question of whether you are going to fight change or embrace it."

As for the Surface distribution issue, Mazzanti said he "realistically" does not look at Microsoft as a hardware manufacturer. eMazzanti itself relies exclusively on HP, which has a top-notch hardware lineup including the ElitePad. "Other manufacturers [like HP] have been doing hardware for a long time," he said. "That is where they were born, so to speak. That is how they live and die and survive. This is not a fight-or-flight item for Microsoft. If Microsoft comes out with a product that makes the rest of the hardware manufacturers catch up with innovation, it is good for everyone."

PUBLISHED JULY 12, 2013