Ballmer: Microsoft's SaaS Plan Brings Partner Opportunities

In fact, in an interview with CRN, Ballmer detailed for the first time how partners will play in each market segment going forward.

The sweet spot for Microsoft Gold partners will be in the midmarket where he sees potential for strong SaaS adoption, and the company is working on the business model to support that.

Microsoft doesn't have any details on a SaaS commission structure for partners, but Ballmer stressed that the Redmond, Wash.-based software giant will depend on partners to sign up new customers. "There will have to be a business relationship that facilitates that," he noted.

Ballmer said that each market segment will have a "different time frame" for SaaS adoption.

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In the enterprise, SaaS will hit big initially in a small number of departmental and/or focused applications, Ballmer said, citing as an example. Bigger opportunities remain down the pike. "I don't expect [SaaS] to be a raging phenomenon [in the enterprise] except in specified ways for a number of years yet," he said.

Ballmer, who has faced immense pressure of late and has even gone to Wall Street to reassure analysts, is clearly focused on driving the company into the SaaS era. He and Microsoft are banking once again, as they did with the Internet, that while they may be late to the table, the SaaS feast won't be gone by the time they're ready.

SaaS—as practiced by new-age software companies such as, WebEx and NetSuite—already is a factor and has certainly garnered a huge amount of ink and pixels.

Microsoft got publicly serious about the subject last fall when Chairman and Chief Software Architect Bill Gates and CTO Ray Ozzie discussed ad nauseam their take on simple-to-use free or ad-supported services. Interestingly, nary a mention was made of partners or the role they could play in this scenario. Gates and Ozzie's push is for Windows Live, which is a new take on MSN, and Office Live, which is a planned spate of hosted SharePoint applications for very small businesses and consumers. Ozzie is slated to talk about this push again at Tech Ed this week in Boston.

Ballmer maintains, however, that partners servicing all customer segments eventually will be able earn their own keep in the Microsoft SaaS world. Midsize companies, those with a few IT people and limited resources, are potentially the biggest market for such goodies as antispam and antivirus services, according to Ballmer. Microsoft bought FrontBridge in July 2005 to gain a toehold there, although that market, too, is still developing.

The nearer-term gold rush will come in small companies—those with maybe one or two IT people or none, Ballmer said. That's the sweet spot for Office Live, and there will be a rich market for partner-provided services there to do custom templates and applications that will ride the Office Live infrastructure, he said.

In the small-business market, where registered partners and small-business specialists now hold sway, "I think we'll have good, complementary offerings between Small Business Server [and] an active channel product in Office Live. What we're trying to do is have some things on Office Live and some things hosted on their own premises. [So at] every level—integrator, developer, reseller—there'll be opportunities," Ballmer said.

Microsoft now has four Office Live partners, but Ballmer said that is just the beginning.

"When we get the model down, one of our big attractions should be [that] we'll have a lot of partners doing both vertical apps and customized apps that work with Office Live," Ballmer said. "I see a big opportunity in there for our partner community. We don't have anything to talk about at this stage. I'm sure we'll want partners to sign up new customers, and there will have to be a business relationship that facilitates that." Solution providers agree, for the most part, with Ballmer's analysis of the opportunities.

Alain Dias, COO of Ascentium, a Microsoft partner in Bellevue, Wash., said partners of all types must adapt. "Consulting firms will evolve. Vanilla implementations of software are already a commodity ruled by cost. Consulting firms that rely on implementation services with no business value-add are seeing their margins erode and their competitiveness vanish," he noted.

John Parkinson, a former executive at Cap Gemini and now a Chicago-based consultant, said, "Some large enterprises will jump early—some already have—but the SaaS model isn't mature enough for the core large-business segment yet, and manageability, security and other concerns will slow adoption, as will the lack of an established pricing model."

In the bottom segments, switching to SaaS, as in "software provisioning, outsourcing, make sense but still depend on getting the price right," he added. In short: The technology is there, but is the business model ready?

Terry Petrzelka, CEO of Tectura, a Redwood Shores, Calif.-based Microsoft Business Solutions (MBS) partner, sees the opportunity but also places it on the horizon.

"We're not getting a lot of requests [for SaaS]. We're waiting for the mentality to develop. I think in three, four, five years from now, demand will develop, and ERP applications will be more germane to SaaS, especially as Microsoft merges Office and its ERP lineups," he said. "We're at the beginning of the curve. Most of the technology is there to support it in terms of remote management and monitoring tools, but businesses have to evolve," he said.

Solution providers likewise must evolve. Even many service-oriented partners still rely on "big bang" up-front license sales dollars to pay the bills and will have to adjust to a more incremental monthly revenue stream going forward where people don't re-up a one- or two- or three-year software contract as they do now.

Tom Richer, CEO of DevLogics, a Tarrytown, N.Y.-based Microsoft Gold partner, is raring to go. He estimates that up to one-quarter of DevLogics' current revenue now is derived from SaaS-type activities, and that percentage will only grow.

SaaS "will be like ASPs on steroids," he noted, recalling the application service provider craze that boomed—then busted—in the late 1990s. "It'll be a different type of revenue stream for solution providers. Traditionally, we're paid on a per-project base and on annual contracts—that pays the rent. But I want a mix of revenue streams, get more of the revenue into an annuity model," he said.

Striking that balance will be key for partners. Ben Holtz, CEO of Green Beacon Solutions, an MBS and Onyx partner in Watertown, Mass., said he views SaaS as another business model to be embraced when applicable.

SaaS will suit some customers for some applications, but not others. "What has done in [sales-force automation] worked out very well. And we see opportunities to take existing CRM or ERP customers who don't want to employ a full-time admin, and we start doing that remotely," he said.

Remote management technologies from Citrix and Microsoft make these services feasible and attractive, he said.

One possible bonus of a move to SaaS could be a lessening of the shelfware problem, some say.

"The biggest complaint we hear is that companies don't use the software they already own. Studies tell us that companies use a low percentage of features. Why? Isn't it logical that you should pay for what you use? Software-as-a-service makes sense in this context," Ascentium's Dias said. But he, too, agrees that the financial and delivery models and ties to legacy systems all have to be worked out.

A move to a SaaS subscription model is bound to be disruptive. "We all have to figure out this VAR model. Many partners still require margins off a software sale. Money's money, and it offsets downtimes when you have people on the bench [not working]. As a VAR, you'll have to focus on the 'V' part rather than on the 'R' part," Petrzelka said. "I honestly think if you look at the annuity model, you have to stress the value you add because customers can almost go to Fry's [Electronics] to get whatever software they need."