Microsoft Channel Strategy Gets a Bonus

Those questions are not mutually exclusive; if the software company is better off--and its recently released fiscal-year financials indicate it is--then Microsoft's solution providers should be feeling more satisfied. Now, it is impossible for any vendor to satisfy all of its partners all of the time, but recent VARBusiness research indicates that Microsoft solution providers, indeed, are much more content with the vendor's products, channel program and support initiatives. How much of that is directly related to Watson is certainly debatable, but as the executive in the hot seat, she either gets fried if things go wrong or basks in glory if the trends are positive. Right now, she can do some basking. And as head of worldwide channels for Microsoft, clearly one of the most powerful and influential positions in the entire IT industry, Watson has a chance to raise the bar higher for Microsoft and its 30,000-partner strong channel.

While her one-year anniversary on the job is symbolic, what is more important are the channel initiatives she is readying for Microsoft's fiscal 2004, which began Aug. 1. You will hear more about those in the coming weeks as we near Microsoft's worldwide partner gathering in October. However, based on our previews of what Microsoft has in store, it is going to be a frenetic fall for the company's partners.

Anyone who has met Watson knows she has the energy for the job--I don't know anyone who can run through as many stats in one breath--and she possesses a million-dollar smile that can light up any solution-provider organization the way Magic Johnson's smile once lit up any sports arena. She's also responsible for an initiative that any vendor exec would trade his best closer for: management and employee compensation tied to channel satisfaction. It would be meaningless if just Watson's comp was tied to channel initiatives. But what the analysts and The Wall Street Journal reporters have not yet written about is the monumental change taking place at Microsoft in regard to compensation packages that go beyond the shift from stock-option grants to restricted stock rewards. For the first time in Microsoft's--or any IT vendor's--history, two-thirds of "long-term executive bonuses" for some 200-plus managers (VPs and GMs) will be based on customer/partner satisfaction.

Solution providers should not dismiss this as some discussion of executive pay where the rich get richer. For Watson and every other Microsoft exec to achieve their bonuses--and these people are rabid about their bonuses--they are going to have to become very channel-focused. Product managers that once couldn't tell an integrator from an instigator are suddenly going to become your best friend as the company tries to rack up sales of as much as $34.9 billion, generating some 87 cents in earnings per share by July 2004.

To accomplish her goals, Watson intends to take Microsoft back to its roots of partner centricity. That provides some insight into just how far the company has strayed. Watson is also working closely with Microsoft's top managers, who have a newfound respect for channels after attending the company's budget-planning sessions chaired by Microsoft CEO Steve Ballmer. The story floating around the Microsoft campus goes like this: During those meetings, Ballmer wanted to keep spending flat but increase channel investments. That meant other managers would have to give up some of their budgets to pour into channels. Ballmer greeted each manager with a wink and nod, followed by, "What are you going to give up to help Allison's group?"

That little nudge will translate into a few key areas. First, Microsoft is going on a crusade to recruit new ISVs, especially those in the Linux camp. Second, it is beefing up its presales efforts to help partners with prospecting and identifying new sales opportunities. The other key area of investment will be in the white-box segment, driven by Kevin Wueste. Microsoft claims it is "doubling and tripling" its investment here in terms of personnel and marketing dollars. Wueste's wonderland grew by some 20 percent last year in units and dollars, and just happens to throw off higher margins than other Microsoft units.

I don't want to overplay the positive here because Watson has some sticky issues to resolve, such as price disparity on software between large OEMs and small systems builders, along with a confusing strategy for its CRM products. But Watson has an opportunity to forever change Microsoft. Let me know what you think of Microsoft: rdemarzo@cmp.com.