Microsoft's Ballmer Bets Big On Cloud, Mobility; Partners Want In
Steve Ballmer is fired up. The Microsoft CEO has just come offstage after speaking to 16,000 Worldwide Partner Conference attendees at the Air Canada Centre, home of the Toronto Maple Leafs, and he is talking about a new, more competitive Microsoft. It is a Microsoft more in line with Ballmer's hard-checking, hypercompetitive style. It is a Microsoft playing offense, willing to do what it takes to win as it moves to stop Apple--or anyone else, for that matter-- from wresting away its crown as the undisputed world leader in bringing personal computing to the masses.
Ballmer is now backstage at the Air Canada Centre in a private room with CRN, shouting and stretching out the word "any" in a rising crescendo to make a point--loudly and clearly--that Microsoft will not cede any market segment to Apple even if that means stepping on the toes of longtime hardware partners with its own Surface tablet.
"We are not going to let annyyyyyyyyyyyyy piece of this [go uncontested to Apple]," he bellowed in our exclusive interview. "Not the consumer cloud. Not hardware/software innovation. We are not leaving any of that to Apple by itself. Not going to happen! Not on our watch!"
There is something primal about Ballmer's anti-Apple diatribe. Think Microsoft vs. Apple circa 1980 when Ballmer was hired as the first business manager at Microsoft by co-founder and Chairman Bill Gates. Apple may have pioneered the home computing market with the Apple II, but Gates and Ballmer brought PCs to the masses. Yet today, Apple's iPad and iPhone are winning the computing war, and Apple's market capitalization of about $560 billion is more than double that of Microsoft's $240 billion.
In addition, Microsoft just reported its first quarterly loss as a public company after taking a previously announced $6.2 billion write-down for the 2007 acquisition of online advertising company aQuantive. In the fourth quarter ended June 30, Microsoft reported revenue of $18.1 billion, up 4 percent from $17.4 billion in the fourth quarter of fiscal 2011. Its $492 million loss, due to the online advertising charge, compared to earnings of $5.9 billion in the same period one year earlier.
Meanwhile, Apple, Cupertino, Calif., now holds anywhere from 60 percent to 70 percent of the tablet market, according to market researchers, with an installed base of 55 million and more than a half-million apps in its App Store. Microsoft and its hardware OEM partners are barely a blip on the screen. What's more, market researcher Gartner forecasts that 55 percent of the 182.5 million tablet computers it expects to be sold in 2013 will be Apple iPads, while only 8 percent will be running Windows.
A onetime channel antagonist, Apple also is now putting on a full-court channel press, led by former 12-year Microsoft veteran Francois Daumard, who is courting solution providers to sell, integrate and support the iPad. Microsoft, in contrast, has angered more than a few partners by refusing to let them sell the Surface tablet, slated to ship in October. After the Surface launch last month a number of solution providers told CRN they viewed that decision as a case of Microsoft doing an end-run around the channel.
Under criticism by some for the inroads Apple has made, Ballmer acknowledged that Microsoft and its partners have ceded some of the "boundary between hardware and software innovation" to Apple, which he refers to as "the other guys, the guys I don't like."
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The Surface tablet, targeted squarely at taking down Apple, clearly has him pumped up. Yet it's more than Surface, he said. The "stepped-up competitive energy and vigor" that you see from him and Microsoft is a direct result of --a "reimagining," as Microsoft calls it, of the computing experience, from smartphones and tablets to public and private cloud.
With Windows 8, Ballmer said, Microsoft is at one of those epochal moments in its history.
"The founding of Microsoft, the launch of the PC, Windows 95 and Windows 8 are the four big moments in Microsoft's history," he said. "I can say that. And if you asked me to pick, I can honestly tell you a reasonable case could be made for all of them. The founding was really the dawn of software as a business. The PC really kicked off the mainstreaming of information technology. Windows 95 is really what brought computing to the masses. And Windows 8 is really what takes us into a whole new world of mobile solutions and the cloud."
Ballmer sees Windows 8 changing the character of the company. It is Windows 8 that has brought Microsoft to break from its past and build its own hardware products--putting into question the Wintel model that was once the foundation of the $70 billion company. Ballmer called Windows 8 the "next step" with both customers and the competition.
"Gloves are off. Let's go, baby," he exclaimed. "Bring it!"
The stakes are high. Some partners say Windows 8 and Surface are make-or-break bets. They also say how big a role Microsoft will play in their business--and in businesses of all kinds--will depend on those bets and on just what kind of application traction the company gets with its new Metro graphical user interface on tablets and smartphones.
As for Ballmer, who some solution providers say has been more focused on products than on partners in recent years, how Microsoft executes his vision to take the company into the next generation of cloud, tablets and smartphones could well determine his fate as CEO.
Ballmer's big wager on making Microsoft a cloud superpower is backed up by the biggest product refresh in the Redmond, Wash., company's history. In the space of 12 months, Microsoft is swapping out nearly every single product in its portfolio with a new release. The biggest bang will come from Windows 8 (to be available Oct. 26), but among the other releases are Systems Center 2012, SQL Server 2012, Windows Server 2012, Office 2013, SharePoint 15, Surface, Visual Studio 2012, Windows Phone 8, SkyDrive, Yammer, Azure Infrastructure-as-a-Service, Dynamics, Windows Intune and even Kinect.
All of it will be tied together with Metro, which is designed to allow consumers or professionals to move seamlessly from home to office, office to home, from public to private or hybrid cloud. And it comes with what by any account is a huge set of financial incentives aimed at tilting the cloud computing landscape in its favor. Microsoft is upping the incentives it will pay to partners by $200 million to $4.2 billion for its 2013 fiscal year, which began July 1. The numbers for the company with the world's largest partner footprint (Microsoft's partner ecosystem generates $609 billion in annual revenue, according to research firm IDC) are impressive: Altogether, Microsoft's cloud and solution incentive spend will be up 40 percent for its current fiscal year.
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The incentives are driving serious growth at solution providers that have made significant investments in emerging Microsoft technologies along with new technical certifications and competencies.
Navantis, for example, has thrived as a Microsoft partner for 15 years, starting as a three-person company. Now a $40 million, nearly 400-person company, Navantis has doubled in size in the past two years by focusing solely on Microsoft products and services from application life-cycle management to SharePoint to Microsoft Dynamics CRM and Office 365.
John Kvasnic, co-founder and CEO of Navantis, based in Toronto, sees the Microsoft opportunity quotient growing at an exponential pace. He expects Navantis to double again over the next two and a half years, given the onslaught of new Microsoft technology.
"It is Windows 8, the ability to manage it all, public cloud, private cloud, the ability to collaborate with SharePoint, Lync, slate[s]," he said. "It's about anywhere, anytime, anyplace on your phone, on your tablet, on your computer, on your TV set. It is seamless. There are lots of pieces, but it all connects and all works together. I don't think any other firm has everything covered [like Microsoft does]."
Kvasnic also cites the close working relationship with Microsoft from partner reps all the way to the top of the company. Navantis recently received a big sales assist from Microsoft COO Kevin Turner that was critical in closing a 5,000-seat Office 365 deal with Indigo, the biggest online book retailer in Canada.
"It was definitely as a team," Kvasnic said of the win against Google's direct sales force, which dropped its price in an unsuccessful bid to seal the deal. "We had everybody from Microsoft helping us, from the president of Microsoft Canada to Kevin Turner."
Turner's rallying cry to partners at the Worldwide Partner Conference was "be tenacious, compete, and escalate to me" to drive sales growth. He gives partners his email and telephone number and urges them to get in touch if they need help closing a deal. In his keynote, he told the audience that there are 1.5 billion people on the planet that use Microsoft products, but there are another 5.5 billon "we need to go get with our partners."
It's that kind of ambition driving a new generation of Microsoft partners such as Nimbo, a two-year-old New York solution provider building a synchronization and storage application suite running on Windows Azure aimed at displacing Google Drive and DropBox.
"We've seen unbelievable growth with our Microsoft professional services business," said Nimbo COO Ira Bell. "We're only in our third year and we've seen 200 percent end-over-end growth for the first two years of our business. To put it in perspective, Nimbo hasn't been in a business a single day without at least one job opening."
Bell said the criticisms of Microsoft and Ballmer--taken to task by Forbes as the worst-ever CEO and by Vanity Fair for Microsoft's "Lost Decade"--are unfounded.
"Steve decided to take control of Microsoft's future by saying, 'You know what? We're going to own the hardware experience for Surface rather than letting someone control our destiny.' Further, he is doing something which has never been done in history before, which is to create a single unified experience across all devices with the Windows 8 theme. Some of the things I saw him demonstrate in Toronto were mind-blowing. That guy doesn't read science fiction. He creates it."
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Sheldon Fernandez, a director at Infusion, a $60 million 12-year Microsoft partner based in Toronto, is also a big fan of Ballmer and the technology unveiled under his stewardship. Infusion's goal is to more than double from 400 to 1,000 employees as it tackles the Microsoft opportunity over the next few years.
Fernandez sees the biggest Microsoft differentiators as Windows 8 and the Metro interface. "It's going to be huge," he said.
"Businesses want to leverage new digital [Metro] UI experiences in ways that they never traditionally did before," he said. Combining Windows 8 mobile devices and then connecting them seamlessly to the Microsoft cloud will open unimaginable vistas for customers, he said.
But not everyone is pleased with the new Microsoft, and the company's new "era" has some partners crying foul. They point to Microsoft's decision to refuse to let partners sell Surface and its move earlier this month to discontinue Windows Small Business Server as shots across the bow of partners.
Requiring that partners buy Surface from Microsoft.com or a Microsoft retail store could have a backlash, pushing more partners into the growing Apple camp. A CRN survey of 60-plus solution providers shows Microsoft may have missed out on a big opportunity by going direct. The number of partners rating the Windows 8 tablet opportunity as outstanding or good soared from 34 percent to 64 percent after Microsoft introduced Surface, giving the product a thumbs-up. But that was before partners learned they would not be able to sell it.
Bob Venero, CEO of Future Tech, a Holbrook, N.Y.-based solution provider, said Ballmer telling partners to buy Surface from Microsoft.com is an "insult."
"It is a sad day when Microsoft wants to become Apple," said Venero. "Instead of trying to be Apple, they should stick to what makes them successful, which is their partner community. If you look at the history of what partners have done for Microsoft over the years, it is a smack in the face. We helped to create the vast enterprise that is Microsoft. If we look at the integration work, solution sets, [software] rollouts, licensing management, all of those things that we have done [for] small/medium businesses, midmarket, all the way up into the enterprise and government, that has all been driven through partners. Just because Apple is eating Microsoft's lunch on the tablet doesn't mean their route to market should exclude the partners."
Bob Nitrio, CEO of Ranvest Associates, an Orangevale, Calif.-based solution provider, sees the same kind of disregard for partners serving small-business customers. He said Microsoft's decision to discontinue Small Business Server is a move to strong-arm partners and their customers to move to the cloud.
"A lot of small businesses either because of the nature of their business or regulatory requirements don't want to or can't move certain things to the cloud," he said. "Microsoft doesn't care. They have huge investments in data centers and want to start making money off them."
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John Krikke, vice president at Onward Computer Systems, a Burlington, Ontario-based Microsoft partner, said he understands the business reasons behind the Small Business Server decision. His worries center on how Microsoft gave partners little warning about the change--and what that portends for Microsoft partner relations. "I think the messaging was not handled well," he said. "The communication was poor."
The Microsoft criticism from partners comes with many looking at the Windows 8 desktop product and services onslaught as not providing a big margin kick. A related CRN survey of nearly 100 partners shows that 75 percent rated the Windows 8 desktop product opportunity as low margin or average margin. What's more, 68 percent rated the Windows 8 desktop services opportunity as low or average margin.
Ballmer, for his part, said the margin question is skewed.
"The truth of the matter is we have a lot of great partners and they compete pretty hard with one another, which is really their nature," he said. "I think what we give our partners with Windows 8--and you saw that here at the partner conference--is the ability to help their customers do things that they couldn't do before. Whether the margin is X percent or Y percent, the real opportunity is to sell X or 2X or 3X or 5X, the ability to galvanize the customer base on new scenarios, new opportunities and really drive overall volume."
One of the biggest changes sure to drive big sales volume for cloud-computing-focused partners came at the conference when Microsoft unveiled the Office 365 Open program under which partners can resell the cloud application suite, buying subscription keys from a price list and billing customers directly from a price list--removing what had become a contentious channel issue. Partners say the Office 365 decision is a watershed moment, and they hope Microsoft will follow suit with other products such as Intune and CRM Online. (Officially Microsoft said no decision on extending that policy to other cloud products has been made).
"If InTune and CRM Online go this route, it will be a game-changer, an absolute game-changer," said David Geevaratne, president and co-founder of New Signature, a Washington, D.C.-based solution provider. "A lot of MSPs want to sell a bundle to their customers. A significant population of customers want one monthly bill for all their IT products and services. Partners love this opportunity that Microsoft has given them."
New Signature, a 100 percent Microsoft-focused shop, expects its sales to be up 59 percent this year to $10 million. Geevaratne said he expects even more dramatic growth as a result of the opportunities around Windows 8, noting that desktop PCs, laptops, tablet computers and smartphones will share the same core operating system technology--a claim Apple can't make.
New Signature is just the kind of partner Microsoft is betting on as it ramps up its cloud computing market offensive.
"If we came from a world of software, we are moving now to a world in which software gets embedded in hardware and in cloud services and we are going to continue to be the company that is most channel-friendly, if you will, in embracing that," said Ballmer.
What's more, he said, partners have nothing to worry about with regard to passionate advocacy from both himself and Turner.
"We are all in," said Ballmer. "We are all in as the world gets to be a world of devices and services powered by software. We are all in with the channel."
Rick Whiting contributed to this story.