Ready, Set, Go At Velocity 2006 Conference

"It's 'go' time for our partners," said Allison Watson, newly promoted corporate vice president of Microsoft's Worldwide Partner Group. "We've got to get the channel ready for 'People Ready' business." Microsoft spent $2 billion in fiscal-year 2006 and will invest more than $2 billion in fiscal-year 2007 to drive partner sales, a spokesman said.

Watson said the number of Microsoft Gold and Certified partners has increased 20 percent to more than 27,000 worldwide and more than 9,000 in the United States following the launch of its new partner program. In the past year alone, Microsoft has picked up 600 additional partners from the camps of Oracle, IBM and Novell and other application vendors. Watson also said there are 360,000 Microsoft partners worldwide including registered partners and roughly one-third, or 138,000, are U.S.-based.

Partners seem not only ready, but eager to get down to business. Early on, many cited problems with the new partner program and point system—including difficulties with the partner profile registration system—but most of the kinks have been ironed out, they say. Though some say it remains too easy to earn Gold status, most agree the program, which rewards partners with points for earning competencies in one or several of 13 available specializations and reporting customer wins, is already helping them make more money. The number of Gold partners has doubled to 8,000 since the program went into effect, Watson said.

Paul Fridman, president of Minneapolis-based Magenic Technologies, a 250-employee, $29 million Microsoft-centric custom application development partner, said the new partner program has weeded out the bad partners from the good and raised the value-add of the overall channel. Fridman said May and June have been the Magenic's best ever in terms of both top-line and bottom-line performance. "To maintain Gold certification today, you have to make a bigger investment," he said. "But certainly our profitability is trending in a way I'm happy about," he said.

Next-Gen Blueprint
At the conference, Microsoft will encourage partners to build and sell solutions based on Vista, its first major Windows client upgrade in five years, and its expanded family of Office suites and servers. Perhaps more significantly, Microsoft will use the planned launch of those new Windows and Office client/server platforms as a way to usher in a Software-as-a-Service platform and channel strategy.

This week, for example, the company is planning to launch two programs designed to give partners blueprints for building next- generation business models based on its emerging SaaS and search platforms: Office Live Solutions Developer Initiative and JumpStart for Search. The programs represent Microsoft's channel counter-offensive to Google, which took several pages from Microsoft's playbook and recently unveiled plans to develop Office-like business application services and launched its first partner program.

The SaaS imperative is so great for Microsoft that Bill Gates recently handed over the chief software architect keys to Ray Ozzie. To combat Google, Microsoft is also retooling its other most valuable asset—its channel army—to extend the company's supremacy in the client/server era to the software services era.

To date, Microsoft has identified 14 unique key performance indicators to help partners measure their profitability and intends to prove its case that its Live Services and search platforms will help—rather than hurt—partner profitability.

The Office Live Solutions Developer Initiative will provide partners with resources and specifications for building solutions on top of Office Live. As part of that effort, Microsoft will hand out a developer's preview at the conference. The program is now in pilot testing with four partners—nPower, Qualitec, Dinerware and Autonomy Systems—and the final specifications are expected to be published in August, Microsoft said.

JumpStart for Search will enable partners to earn a new competency in Microsoft's search platforms. The program is coupled with an extranet that will help partners deliver on their customers' professional search needs based on SharePoint, Windows Desktop Search and Windows Live Search. JumpStart for Search is a good move, said Lisa Bianco, director of strategic partnerships at Atlanta-based Definition 6. Bianco said she and many partners are looking seriously at joining Google's partner program. She insists that, despite fears in the SMB space about VARs being disintermediated by SaaS, they will have plenty of opportunities to customize Search services and Live Services and provide managed services. Juicy Incentives
Following a five-year wait for Windows Vista and a disappointing Office XP upgrade cycle, Microsoft must get Vista and Office 2007 in front of corporate eyeballs. To that end, Microsoft will roll out juicier incentives to drive Office 2007 sales, including a new option to preload the less-expensive Home and Student editions of Office 2007, or preinstall a 60-day trial of Office Pro that can be activated by customers later.

Partners say it has become easier to sell customers on Microsoft's maturing server software stack and that the integration of search and workflow technologies in Vista, Outlook 2007 and SharePoint 2006 will enable them to offer advanced business process services. The launch of Windows Small Business Server 2003 R2 and System Center Essentials beta this summer, both of which will be highlighted at the conference, will also offer lucrative service opportunities, Microsoft said, noting it has slashed the price of SBS 2003 R2 Premium by 13 percent to $1,299.

PCMS IT Advisor, Cincinnati, for one, has enjoyed a 40 percent increase in revenue from its Open Value licensing business and a 30 percent revenue increase in its services business over the past year, said Matt Scherocman, director. Profitability is improving as a result of earning two competencies—the iWorker and Licensing specializations—which have translated into winning more lucrative deals. "If you look at the new stuff, the Office servers, workflow, accounting, unified communications, we can automate those processes for customers and add Exchange on top," he said.

Ted Dinsmore, president of Conchango, New York, said a heavy volume of SQL Server 2005 deals since the product's release last fall helped his firm increase revenue by 150 percent over the previous year and he is already piloting customer implementations of SharePoint 2006, InfoPath 2007 and Exchange 2007. "The market has turned and the IT services business is good," Dinsmore said. "Everyone's mind is on the fourth quarter [of calendar 2007]."

Inevitable Profits?
And partners say bigger profits are inevitable. CRM may be Microsoft's next $1 billion business but SQL Server 2005 is a $2 billion business today, they say. The maturing and "People Ready" features of SQL—as well as SharePoint 2006 and BizTalk 2006—are making it easier for them to win bids against Oracle, IBM and Tibco.

On SQL Server deals, partners said they can expect better than $2 in services for every $1 of software purchased. It gets even better for SharePoint, where partners said they can expect to see $3 or $4 in services for every $1 in licenses spent. The ratio for BizTalk is only 1:1, they say, but the size of the deals make up for that: At $1 million, a typical BizTalk deal can generate $500,000 worth of services.

Though the early signs look promising for improved partner profitability, some say the results stem from improving economic conditions and IT spending and not Microsoft's new partner program. They say the true impact of Microsoft's next-generation software and services stack has yet to be realized.

"I do not see any validation in the market that clients base any value on the Gold brand, and you can be on life support and become a Certified partner, so I don't know what that gets you," said one Microsoft Gold partner in the Northeast who declined to be named.

Another Microsoft Certified partner said he can get at most $125 per hour from a Microsoft services deal, compared with $150 to $200 per hour for Unix services deals and roughly $200 per hour for Cisco service deals. "I am not seeing a profit improvement because everyone sells Microsoft software," said Stephen Pirolli, principal of Ask Technologies, Bala Cynwyd, Pa. "We sell a lot of Microsoft software and services, but we haven't seen an increase or decrease in services revenues."

BARBARA DARROW, STACY COWLEY and HEATHER CLANCY contributed to this story.