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With New CRM Release, Microsoft To Shake Up Distribution Model

Microsoft Business Solutions partners are about to learn they're not in Fargo anymore.

Starting in December, that group, which had been the only subset of Microsoft partners authorized to sell the higher-end Microsoft CRM Professional Edition, will have to compete with tens of thousands of Microsoft-certified partners for that pleasure. With the release of Microsoft CRM 1.2, the vendor will also make CRM available through all of its standard volume license agreements and through broad distribution.

That means all 30,000 Microsoft certified partners can peddle CRM if they so desire. And that customers can source it however they like. There are currently 6,000 authorized MBS partners worldwide. The fear among some authorized MBS partners is that they will do the evangelizing and road work, only to lose the sale to lower-priced providers.

Microsoft executives acknowledge the concern, but maintain that what partners may miss in up front product-sales margins will be more than made up with post-sales implementation and support dollars.

"Regardless of where the customer chooses to buy, there will be significant partner opportunity in the form of fees from Microsoft if they do both pre-sales and post-sales services," Don Nelson, general manager of Managed Partners for Microsoft told CRN on Wednesday.

Under a new channel program, dubbed CRM Software Advisor, Microsoft will pay certified partners involved both in pre-sales recommendation of the product and post-sales implementation. The vendor's spin is that customers need to be able to purchase product the way they want. Nelson would not comment on margin points on either the old or new model, although partners said that selling margins will now be based on discounted software price and they expect them to fall accordingly.

Since the release of Microsoft CRM 1.0 last January, all Microsoft partners could sell the standard edition of the product. But the professional version, which added more workflow and other richer capabilities, was only available through MBS partners, with their roots in Great Plains accounting and ERP solutions.

The concern among some MBS partners is that what Microsoft is doing--putting a business solutions product through the volume channel--is just the beginning of a shift of all high-value ERP applications into that channel as well.

Those high-value-add and relatively high-margin solution sales have been the bread and butter for those VARs. The authorized partner model has been to buy in, get authorized and then sell product, a process that required significant upfront investment compared to the more laissez-faire Microsoft certified channel.

Microsoft also insists that partners will share pieces of what will become a much bigger overall pie. "Now, the hundreds of thousands of customers who are in the existing volume license plans can get CRM," Nelson noted. And, while he says per-seat price will fall in volume deals, total value of the deal will rise, including post-sales support and implementation.

Some observers point out that now that Microsoft CRM will be available through the Enterprise Agreement licenses offered to huge corporations, the company is subtly repositioning the product as "corporate CRM," a notion that Nelson discounted. Microsoft has long claimed that it is targeting small businesses with the product. That helped the company smooth the feathers of large ISV partners like SAP, PeopleSoft and Siebel Systems, which sell CRM into large accounts. Most observers have long felt Microsoft has longer-term plans to move into the enterprise space.

Nelson also noted that because many volume deals stretch out over several years, some of the post-sales margin will take longer to get to them. "Open Value" plans, for example, typically are three-year contracts so that payment may be paid out incrementally over the life of the contract.

Terry Petrzelka, president of Tectura, a Tempe, Ariz.-based MBS partner said that might not be such a bad thing. "Some of the people who got big [one-time margin] payouts during the boom years might have been better off if those had been stretched out over time," he noted.

He and other partners said the move is causing some angst. "The reality is there will be more Microsoft partners selling this product and in that situation you get food fights...but with volume prices set, there will be less wild discounting," he said.

Another partner was less optimistic. "They've turned this into a commodity-they want us to grow our services [business] and not be as reliant on software sales, but software sales is how we fund our services [up front], he said. He now expects his margins on sales to diminish significantly and the wait for deferred post-sales margins will squeeze his business.

Partners in both MBS and classic Microsoft camps have long noted the cultural differences between the Great Plains-based "Fargonauts" and the more volume-oriented Microsoft "classic" channel partners. Microsoft bought Fargo, N.D.-based Great Plains Software two years ago for $1.1 billion. That evolved into Microsoft Business Solutions, headed by former Great Plains CEO Doug Burgum. Last year, MBS added still more ERP and business applications to its portfolio with Microsoft's $1.3 billion buyout of Navision.

That cultural strife between MBS and classic partisans often crops up, even as Microsoft seeks to meld the two channels, and bring the best of both models to the fore.

In October it will host its first blended partner conference instead of what had been an annual Fusion event for Microsoft classic partners and Stampede confab for MBS partners.

The numbers tell a lot of the story. There are only about 6,000 MBS partners vs. 30,000 Microsoft certified partners worldwide. MBS partners typically boast long-running and deep relationships with their customers and deep knowledge of their customers' businesses and needs. Microsoft built its broader channel on faster, volume sales of windows and Office and more recently its server software. Since buying Great Plains Software two years ago and then Navision last year Microsoft management has struggled with how to bring the best of both widely diverging channel strengths to bear while also melding some programs and incentives. (For more on Microsoft's double-headed channel.)

Although Microsoft CRM was developed at Microsoft's Redmond, Wash., headquarters, it has been under the MBS umbrella since its infancy and many MBS partners fully expected to be the preferred partners for that product. That will no longer be the case. "The Fargo-nauts have been Redmond-ized," Petrzelka told CRN.

However, he characterized this as a natural process. "Things will change and I believe that these changes will create opportunities for those who look at them the right way."

Mike Eldridge, consultant with Business Technology Associates, an Austin Microsoft certified partner, said despite the volume delivery method, CRM will not automatically become an easy sale.

"CRM is not something where you just run an .exe," he said. "You need to do planning and make an effort. The problem I see is that to get a Microsoft certification, you only need to have two people pass the test...it's opening up sales to a lot more people."

The secret then is to get the word out a given partner's post-sales implementation and support capabilities and their resulting worth to customers.

All of these changes will go into effect with the planned fourth quarter launch of Microsoft CRM 1.2, which will add globalization features including support for nine languages. Microsoft also hopes to add integration to its Solomon and Navision applications to this release, but support for Microsoft's Axapta ERP offering will likely not make it in time, said Holly Holt, group product manager for CRM. The current version ships with only with Great Plains integration. Multi-currency and VAT support will also be added in subsequent releases, Microsoft said.

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