Beneath The Surface: Partners Question Microsoft's Channel Commitment

In the 12 months between this partner confab and the last, Microsoft solution providers have nursed a growing sense of anger and frustration at Microsoft's refusal to let them sell the Surface tablet, forcing them either to leave business on the table or build out tablet solutions with devices from other vendors.

Then last week, Microsoft raised the ire of its partner base even more with the surprise launch of the Microsoft Devices Program, ostensibly the Redmond, Wash.-based vendor's foray into IT channel sales of its Surface tablet. In reality, the move came with a painful caveat: Only 10 Microsoft Large Account Resellers have been authorized to sell the tablets -- less than 0.01 percent of the company's North American partner base and an even smaller fraction of the company's 640,000 partners worldwide who are forced still to wait.

Microsoft's decision to exclude all partners but its very largest has some in the channel questioning whether the company cares about or understands the SMB channel at all.

"They're out of touch with partners in the SMB space," said Bob Nitrio, president of Ranvest Associates, Sacramento, Calif. "They were so focused on the consumer market with Surface, and now they're concentrating on the high-end enterprise space. But the SMB market has been left out."

Longtime Microsoft partners incensed by the company's decision to severely limit the Surface channel rollout said the software giant is not only playing favorites, but also missing the point of the channel's value.

Joe Balsarotti, president of Software To Go, St. Peters, Mo., said Microsoft's SMB partner community could create demand for Surface on a wider scale than the 10 authorized LARs.

"Microsoft's LARs touch hundreds of thousands, if not millions, fewer customers than we independent VARs do collectively year after year," Balsarotti said. "Customers purchase what we recommend, not what is on a price sheet as the 'product of the day'. If Microsoft really wanted to try to jump-start Surface, they would have given it to the VAR community before the LARs."

All of this turmoil has led some in the channel to question whether Microsoft actually values its partners anymore.

"This isn't a surprise," said one former top distribution executive, who did not want to be identified. "They used to have the best and brightest in the channel, but they no longer look at the channel as being central to their business strategy."

Some Microsoft partners find the move simply baffling.

"Instead of an army of 10,000 partners, they chose 10," said Jude Daigle, president and owner of Computer Connections, Greensburg, Pa. "It makes no sense."

While Microsoft disclosed partnerships with Ingram Micro, Tech Data and Synnex to supply Surface to partners as part of the program, the distributors can only provide the devices to partners that Microsoft has confirmed as Authorized Surface Resellers -- currently CDW, CompuCom Systems, En Pointe Technologies, Insight Enterprises, PC Connection, PCM, Softchoice, Softmart, SHI International and Zones.

Yet the three distributors already have SKU listings for Surface products on their respective websites, which has caused some confusion for Microsoft partners.

One solution provider, who wished to remain anonymous, saw Surface listed on Tech Data's website and incorrectly assumed the tablet was available for him to order (the listing includes a "Requires Authorization" note). But when he contacted his Microsoft representative at Tech Data, he was informed that only Authorized resellers could order Surface. Furthermore, he was disappointed to learn that Tech Data could not authorize his company to resell Surface and that Microsoft was not currently taking applications, either.

"Locking out the 'small guys' who got them to where they are is an example of Microsoft continuing to stumble and blunder along as they try and figure out how to catch up to Apple and Google," the solution provider said.

During a conference call last week with reporters, Jenni Flinders, vice president of Microsoft's U.S. Partner Group, said the 10 LAR partners were selected following a "rigorous process" for developing the criteria for the Microsoft Devices Program around sales, services and support capabilities. But Microsoft declined to disclose the requirements necessary to become a Surface Authorized Reseller.

CRN has repeatedly sought comments from Microsoft executives on the Surface strategy and the new Microsoft Devices Program, but Microsoft declined to make any available for interviews. The company instead issued a statement to CRN that read in part:

"We have heard the feedback that our commercial customers want to be able to buy Surface through the hardware providers with which they are already working -- this U.S. rollout is Phase One of our effort to make that possible," the statement read. "As with our retail channel, we are taking a measured approach to this and will begin with the U.S. starting today and then expand to other markets in the coming months."

Meanwhile, Microsoft has refused to disclose the number of Surface and Surface Pro units shipped since the devices went on sale in October and February, respectively. But according to market research firm IDC, the numbers aren't good -- Microsoft shipped less than 900,000 units worldwide in the first quarter, a far cry from the 19.5 million iPads Apple shipped during the same period.

Those numbers make Microsoft's latest Surface move even more puzzling for partners. "It's a complete disconnect for Microsoft," Ranvest's Nitrio said. "They're pushing Windows 8 as hard as they can, but they're limiting options for Surface?"

It's a lose-lose situation, too, according to partners. Larry Goldman, CEO of longtime Microsoft partner Micro Tech Systems in Chicago, said Microsoft's decision to keep Surface out of the value channel forces him to carry alternative products -- or possibly lose business altogether.

"When our clients would bring Surface up and we told them how Microsoft was handling Surface sales, they aborted their plans to purchase it," Goldman said, adding that many of those clients have opted for Samsung's Android tablets instead. "We will push forward with as much non-Microsoft product as possible. Will it be easy? No, but it's very easy to see the writing on the wall."

Alan Weinberger, chairman and CEO of the ASCII Group, an association of SMB resellers, said the Microsoft Devices Program announcement was a betrayal to Microsoft's partner base. "As an organization, we stuck by Microsoft through thick and thin, and we supported them during their antitrust case," Weinberger said. "So why are we being discriminated against now? It's unfair."

Worse, Weinberger said he and his constituents feel misled by Microsoft. About six months ago, ASCII had conversations with Microsoft, he said, during which Microsoft said it would expand Surface availability to the channel this year and that it would make the products available through distribution partners. Weinberger said at no point were ASCII officials told the Surface products -- or authorization to sell the tablets -- were going to be restricted to a very select few.

"We were told in no uncertain terms that Surface would be available to the channel," he said. "We're very close to Microsoft, and we had absolutely no idea this was coming."

Microsoft has said it will expand its Surface channel program and authorize more resellers in "the coming months." But the company won't give a specific timetable for the expansion or detail how many or what types of Authorized Surface Resellers it plans to have this year.

Microsoft executives will have an opportunity to answer partners' questions this week in Houston but, if history is any indication, solution providers itching to sell Surface are likely again to leave WPC disappointed.

STEVEN BURKE contributed to this story.

PUBLISHED JULY 8, 2013