Microsoft Channel Exec Makes Quantum Leap

As the vice president of Microsoft's U.S. Partner Group, Margo Day is the point person for managing the Redmond, Wash., software company's relationships with solution providers. In that role, Day says she has become very attuned to partner profitability issues. In an interview with Editor In Chief Michael Vizard, Day outlines Microsoft's Quantum Leap pilot, which aims to help make solution providers more profitable, and the company's efforts to make its points-based channel program less onerous for solution providers.

CRN: Partner profitability has always been one of the most contentious issues in the Microsoft channel. In your opinion, is this because there are too many partners competing for a limited amount of business, or are there some other root causes?

DAY: I think of partner profitability in different ways. I don't think we're overdistributed. To lead with Office as a productivity tool, a partner can get commoditized. Instead, if they talk about how Office fits into a collaboration solution, then we don't have enough capacity. We're focused on building that out. We're also focusing on helping them drive top-line revenue. More than 40 percent of our U.S. subsidiary marketing budget this year is going to be spent with and through partners. We'll reach about 900,000 small businesses this year with the seminar events that we do, and we'll have partners present with us.

Then we are piloting a program called Quantum Leap, where we go deep with partners to change their mix from products to services. What we find is that with a lot of VARs, reselling makes up 70 percent of their mix. What they are not doing is building out their services muscle in the high-order services areas that have 30 percent to 40 percent margins. We'll go in and consult with the partner on what the delivery side of the business looks like. What kind of people do they have? What are their billable rates? What are their utilizations? Then we'll lay out for them what kind of people they need, what kind of rates they can expect and what kind of utilization rates they should be going for. We've got eight companies in the pilot program right now. Now we want to take those models and see if we can scale them out. We really want to help the VAR channel move into this higher-order part of the business.

CRN: Over the last two years, Microsoft has had mixed success in trying to implement a new points-based system around specific competencies in the channel. How is this program going?

DAY: One thing we did last fall was grandfather a lot of VARs into the program. They didn't have to necessarily go through all the rigor to qualify for a competency in the program. We had some challenges, which is one of the reasons we did that. We think with version 2.0, with modified competencies and specializations around information workers and small business, those competencies are much more relevant. Now this model with points, competency and status--coupled with new infrastructure to streamline the overall process--will make this program very real for partners. And then I'll be able to do a better job in the U.S. of aligning my marketing and communication to those partners. The process used to be rather cumbersome, and it would take partners way too many hours. We were wasting their time. A lot of partners went through it, and we really appreciate it. So we're grandfathering them in the new version in the fall time frame. I think we've got this infrastructure issue nailed.

CRN: Microsoft is working on a number of initiatives, including an opportunity map, a solutions map, a channel builders effort, a solutions profiler and a solutions finder tool. And now there's a reorganization of the Microsoft sales force, code-named Tailwind, along vertical lines. What's the goal of all of this?

DAY: In the U.S., we think we can double our growth rate because of the changes we're making with Tailwind. It's a vertical industry approach. We've had industry units for the last five or six years, but they were a separate organization from our other enterprise business organizations. We weren't building good industry expertise across the thousands of people that talk to customers. Now we've taken the U.S. enterprise sales organization and made it industry-aligned. People are organized around account teams. But the heads of the account teams are spending a lot of their time trying to navigate our partner resources. We were not predictable enough for the customer. Now we have account team leaders, and our partner managers are organized by industry expertise so they can better orchestrate our resources. That should double our growth rates in the enterprise in the coming fiscal year. We're trying to drive an end-to-end, connected sales process. The partner managers essentially play a sales manager role, and now we have also put in area marketing managers to work with the partners. On top of that, we have partner development managers for the first time this year. They work with smaller, growing partners.

CRN: Does that mean Microsoft will eventually build a deal registration program?

DAY: Some partners want us to, especially ones that are tight with Cisco and IBM. I don't think it works in our world. I don't have any plans for deal registration systems.

CRN: Microsoft has always been adept at painting pictures of the future of computing, and Longhorn, Project Green Wave and CRM 3.0 are no exceptions. But what can partners focus on selling in the next six months?

DAY: There are the collaboration scenarios, especially around SharePoint and business intelligence. Those two go hand in hand. Partners who are succeeding here are working on customers' workflow and business processes, so they are making a lot of money. Another area is migrations. There are still a lot of migrations from Novell. In the U.S., there are still about 780,000 Novell servers out there, down from about 1.3 million a year ago. And those customers have to make a choice because Novell is forcing the conversation with its Linux offering. There's also a lot of Unix migration to the Intel platform. Another place partners are making money is upgrading things like Exchange 5.5 or Windows 2000 servers, and in the small-business space our Small Business Server is just booming. We did some research that shows that 40 percent of the businesses in the U.S. that have five PCs or more don't have a server. There are 1.2 million of those customers out there. And then SQL Server 2005 is the other area that is going to ramp unbelievably. It will be gargantuan. It has been five years since we had a major upgrade.

CRN: With Microsoft's recent changes to its licensing program--in which customers can essentially get Office 12 and Longhorn free under a three-year deal--should solution providers be leading with an economic rather than a technical sell?

DAY: We're starting to see this effect with SQL Server 2005, which is launching in November. When a customer buys under the annuity model, they can get SQL Server 2005 whenever they are ready as part of the program. But leading with licenses is the old way of selling. They should be leading with the solutions and what the technology is all about, and then discuss with the customer from a financial perspective what their options are. CRN: It seems Microsoft has a particular focus on increasing attach rates for Microsoft Operations Manager (MOM) and Systems Management Server (SMS) on Windows Server 2003 sites. Why is that important today?

DAY: It drives partner profitability. It give them significant top-line revenue and consulting opportunities around it. When partners don't sell this, they are leaving money on the table.

CRN: What are Microsoft goals in terms of delivering managed services, especially when you consider that some partners will see that as competition from Microsoft?

DAY: I think it will work out great. I don't think partners should be scared at all. We have a couple of customers that we're working with from a managed services point of view that are super-large. We're trying to understand what it will take to manage 150,000 desktops, so we add that product management stuff to our product development. A lot of VARs are more focused on the small-business space, and whatever intellectual property we come up with will be shared with the partners.

CRN: Why does it feel like Microsoft is finally rediscovering its small-business solution provider roots again?

DAY: We have a product lineup now that is very relevant for small business. It caters better to the small VAR. Rather than have a partner try to take Exchange to a small-business customer, we now have Small Business Server. It goes back to selling solutions.

CRN: What makes Microsoft a better partner for solution providers than other companies?

DAY: I'm very serious about partner profitability. Our platform approach allows partners to build out services muscle that won't commoditize over time vs. just moving into an adjacent market that will eventually commoditize. So the peaks and valleys that we've had over the last 15 years will begin to go away. I think we have an opportunity to help VARs build out their services business in ways they have never done. We're trying to build out the right capacity for the opportunity that we have. Some research says 80 percent of the midmarket wants to standardize on the Microsoft platform. As we dug into our sales systems, we found that we actually have less than 10 percent of those systems. There is so much upside for the Microsoft platform in the U.S. market that it's scary and exciting. If I can build out partners that are profitable around driving the right solutions, and we have the right partner capacity, we'll pump through marketing dollars, sales engagement models and ways for partners to partner with one another.

CRN: It sounds like you need to retrain your existing partners and then recruit new partners that are more aligned with Unix vendors such as IBM, Sun Microsystems and Hewlett-Packard. Is that right?

DAY: We need partners that have lived for years in the midrange space. Their customers are coming to the x86 architecture. But they have dealt with those customers for so long, they are the trusted technology adviser. Customers are going to look to them to help them with the migration. I want to make sure they understand what the Microsoft platform is all about. And I believe that when they do, they will say to their customers that their best bet is Microsoft.