Microsoft IT Services Move Raises Questions About Channel Focus

According to a published report, Microsoft's IT unit is providing critical technology services, including software management and help-desk management, for Energizer Holdings, the St. Louis company best known for the Energizer Bunny and the batteries it represents.

The deal, which Microsoft acknowledged but hasn't announced, puts the Redmond, Wash., software company in a service provider role that many see as conflicting with the vendor's traditional systems integrator allies. The fact that Microsoft IT and not Microsoft Services is handling the job may only be a small comfort to partners that do similar work, observers said.

Mike Adams, general manager of Microsoft IT, confirmed the deal and didn't rule out similar engagements in future. He said the goal wasn't to profit from the paid engagement but to apply Microsoft's best practices at a company with a more heterogeneous computing environment than Microsoft's own. Energizer couldn't be reached for comment.

At the customer's request, Microsoft is going in to help Energizer "improve their experience and lower their total cost of ownership," Adams said. Microsoft partners likely would benefit from the company's experience at Energizer, he added.

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Although Microsoft IT has worked with customers before, typically bringing them on site for a day or visiting them to troubleshoot problems, the Energizer engagement represents a step up in activity. Adams characterized it as "a natural extension" of what Microsoft has done in the past.

"This is a slight evolution, not a change in direction for the company," Adams told CRN Thursday night.

Whatever the rationale, such moves could cause consternation among Microsoft's services partners and integrators, who may wonder if the company is angling to bolster its services revenue at their expense.

A West Coast executive for a major integrator said that although the news was interesting, he believes Microsoft's claims that it will leave the bulk of services to partners. Microsoft executives from CEO Steve Ballmer on down often point to IBM's ownership of IBM Global Services as one reason third-party service providers and integrators are better off being aligned with Microsoft.

Last year, Ballmer told CRN that Microsoft's alliance with providers such as Hewlett-Packard Services, Accenture and Capgemini give it a more formidable services force than IBM. But if Microsoft starts to make more aggressive services moves, those relationships could be at risk, observers said.

"Ballmer has said about a million times after being on the board of Accenture that he doesn't want to be in the services business, and I believe him," said the West Coast integrator executive, who requested anonymity. On the other hand, Microsoft has to keep close watch on the outsourcing trend, he added.

"With the consistent rise of outsourcing, Microsoft is more and more at risk," the integrator executive said. "Say I'm Acme Corp. and decide to outsource my operations to IBM. Those operations will move to J2EE and IBM infrastructure. And even if Acme brings that stuff back in-house in five years, it'll be a pure [Big] Blue environment by that time, and the switching costs will be too expensive. Microsoft will be out."

And, there's always the chance that Microsoft could reverse course and plunge into services, he added.

Many observers have speculated that Microsoft, in an attempt to hang on to historical growth rates and profit levels, will move into services more aggressively, perhaps bulking up its services arm organically or buying a large consultancy or integrator. This week, Microsoft executives--including senior vice president Doug Burgum--again denied plans to do so.

Adams said customers can benefit from Microsoft's internal "dogfooding" expertise. Microsoft drives its own beta software hard and cycles trouble reports and suggestions back into the development process.

"Within Microsoft, we support 52,000 end users, 300,000 PCs and about 3 million e-mails a day on average," Adams said. "We have a great deal of experience pushing our software to the limit."

Rick Devenuti, Microsoft's former CIO and now vice president of worldwide services, has been working to reassure partners that Microsoft consultants are friends, not foes. Still, solution providers said it would be ironic if a services threat arose from another part of the company.