Microsoft Unveils Online Services Pricing; VARs Want More

VARs that are already seeing healthy revenue streams from private-label partnerships with third-party hosting providers say they're making far too much money to consider giving up control to Microsoft.

One example is Silicon East, a Manalapan, N.J.-based solution provider, which currently offers Exchange hosting, e-mail spam filtering and SharePoint hosting in conjunction with third-party service providers.

Silicon East President Marc Harrison said Microsoft's services model could alienate many of its channel partners and cause them to seek other vendor partners.

"We already make more money than Microsoft is offering us, and we don't have to share ownership," Harrison said. "We get billed by the hosting company, and we bill the client, and also provide front-line technical support. As a reseller, that's a much better arrangement than to be sharing your customers.

"It's very clear that in no way will the profit that comes from reselling hosted services come anywhere close to what we have been making maintaining these services for clients on an on-site server," Harrison added.

Another Microsoft Gold partner said Microsoft's new services model contradicts its longstanding track record as a channel-friendly company in the IT industry. "What Microsoft is proposing isn't a partnership. It's a simple reseller agreement," said the partner, who asked to remain anonymous. "And I can make more money showing people how to use eBay."

Microsoft's Challenge

Microsoft said its decision to handle billing, paperwork and revenue from the sale of Online services was the result of feedback from VARs and integrators who said these tasks are prohibitively costly and fall outside the scope of their core businesses. Microsoft said removing that cost will allow channel partners to focus more on value-added services.

One partner, at least, concurred. Offloading management and maintenance should allow partners to focus on extending the technology to meet customers' business needs, said Todd Golden, co-founder and director of alliances at PointBridge, a Chicago-based solution provider and Microsoft Gold partner.

Microsoft is essentially creating a hosted services equivalent of the existing Microsoft stack and partner opportunity ecosystem by virtue of encouraging partners to offer their own hosted services on top of its own, said Andrew Brust, chief of new technology at twentysix New York, a New York-based IT consultancy.

"Microsoft is saying partners can make money first and foremost by adding value to its base offering, and by helping them sell the platform, they'll reward you again," said Brust. "That's a great approach if it works because it's the model the partner system is based on now."

While Microsoft's services model will take away from partners' revenue, the channel needs to realize that the new model will create additional opportunities, said Matt Makowicz, principal at Ambition Consulting, a Somerset, N.J., solution provider.

"We can debate how much revenue Microsoft is taking away from partners, but the reality is that services moving to the cloud is inevitable," Makowicz said. "The partners that are going to struggle are ones that don't adapt to change well."