No Margin = Good?

The software business is beginning to sound a lot like the hardware business.

For the past decade or so, software-focused solution providers have watched from the sidelines as hardware and networking solution providers got the squeeze on product margins and reinvented their businesses. But the big squeeze on margins is on its way in the software channel now with the growing importance of software-as-a-service.

	LARRY HOOPER
Can be reached via e-mail at lrhooper@everythingchannel.com.

As Microsoft revealed the highly anticipated details of its SaaS plan last week, dyed-in-the-wool Microsoft partners shuddered. At Microsoft's Worldwide Partner Conference in Houston, company executives said that Microsoft will pay partners 12 percent of a SaaS engagement the first year and 6 percent in subsequent years. You might think those are fair numbers. Microsoft certainly does.

But a lot of Microsoft channel partners aren't too thrilled. The SaaS program sets the same margins for every partner, and the plan raises issues about customer control and account ownership that has many worried, as license renewals and a good deal of the customer contact moves to Microsoft.

Another issue of concern in Microsoft's plan popped up in CEO Steve Ballmer's keynote at the partner conference. Of course, we all expected Ballmer to say that partners need to hop on board the SaaS train. We get it. Microsoft is doing this and throwing partners a bone.

But the interesting part came after that, when Ballmer said the SaaS transition will take time to grab hold in the enterprise. No one is doubting that SaaS will catch on in the small-business market and even the midmarket. But Ballmer fully expects that customers of all sizes will eventually jump on board.

So as we all look toward a day when we can count on virtually no margins from products, where does that leave solution providers? In my mind, it leaves them in charge.

Imagine a channel of solution providers making their margins off the services they provide to their customers, with no financial attachment to product vendors at all. When it comes time to choose a product for a customer, exactly who do you think is going to have an ace up the sleeve?

You know I am betting on the solution provider.

Are you on board with Microsoft's SaaS train?
E-mail me at lrhooper@everythingchannel.com.