Raikes On Pricing Models, Office 2007 Timing

Microsoft straddles a world of retail and OEM sales; of volume-licensing deals to businesses of all sizes; and of high-margin ERP products sold only by Microsoft Business Solutions (MBS) partners with the right certifications and skill set.

Raikes would not comment specifically on a CRN report early this month that the company is moving to per-user pricing for its Dynamics ERP line. Sources said the company planned to unveil the plan this summer at its Worldwide Partner Conference.

Company insiders have been discussing this move privately for quite some time. The ERP lineup is now sold on a per-module basis, but the company wants to offer a way for customers to weigh its ERP offerings against rival products from Oracle and SAP which offer mid-market ERP on an easy-to-compare per-user price.

While it makes sense in a world where large rivals are moving down-market into cost-conscious smaller businesses, that move could be a mine field for Microsoft.

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Three years ago, the company alienated MBS partners when it put CRM through volume distribution after promising it to Microsoft Business Solutions partners only.

Some partners are still smarting from that decision, which they say cut their CRM margins from above 30 percent to below 20 percent. ERP sales typically carry 40 percent margins.

To show how long the change has resonated, MBS Senior Vice President Doug Burgum was asked by partners Friday night if Microsoft would again reconsider the margin move on CRM, partner sources said. His answer was no, they said.

Microsoft's position then and now is that CRM sales compliment volume deals and that partners will benefit from an expanded market. What they lose in per-deal margin, they will make up for in volume of sales, the company has said.

Raikes, who spoke at the Convergence 2006 conference in Dallas Sunday morning, seems acutely aware of the dilemma on the ERP front.

"When we talk to corporate buyers with volume deals, they want [software] to be easy, easy to buy," Raikes told CRN. But ERP requires significant hand-holding, customization and value-add, and ERP sales typically earn higher margins as a result.

"If you take software that Microsoft sells as part of enterprise agreements [with] server CALs, etc., customers want a predictable price per desktop per year. It's very different from the traditional ERP model. Any time you change one or the other, you really have to think about the best way to do that. There are expectations," Raikes noted.

It is "very important to listen to what customers and partners would like to achieve. Different business models can work," Raikes said.

Tami Reller, corporate vice president of Microsoft Business Solutions (MBS) marketing said that when it comes to ERP, "what we're hearing from customers is they like the model we have today. It works to drive growth and customers get value for both partners and customers."

"We're also thinking about how to make it easier for global customers to have a more seamless experience with us and our partners across geographies. That's completely outside the licensing and contracts world. From a contract perspective, we want to see how to make [sales] more seamless between other Microsoft products and MBS products," she added.

Microsoft has privately assured integrators and other partners that it would minimize any disruption. It had been planning to discuss the move this summer, sources said.

On another hot-button topic, Raikes said that contrary to some reports such as one here, Office 2007 has not slipped.

Last Thursday, the company acknowledged, but did not announce, that consumer availability of the long-awaited Office lineup won't hit retail shelves, or PC hard disks—until January of next year. It had been expected in late 2006.

Customers with volume licenses will still get their code in November, which is on schedule, Raikes told reporters and analysts on Sunday afternoon.

"The Office development schedule is exactly the same now as it was a month ago. The business launch of Office is exactly the same. The largest percentage of the business by far is in volume deals, he said. "The only change is the consumer launch where you coordinate with retailers and OEM."

He did note, however, the company could have communicated this more clearly.

Microsoft executives last Tuesday convened a teleconference to announce that the Windows Vista client would not be available to consumers till January. The implication was that after having already ceded the back-to-school buying window, it was also foregoing the holiday season.

Company critics said Microsoft could have saved itself a lot of trouble by coming clean about their game change when the Vista call was made.