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Microsoft's Surface Strategy: A Tragedy Of Errors For Channel

Microsoft's actions and statements over the last two weeks regarding its Surface channel strategy are evidence of a company that's losing touch with its partners.

There's no polite way to say this anymore: Microsoft is out of touch, out of line and out of excuses.

Since it was first unveiled last summer, the company's go-to-market strategy for Surface tablets has been a thorn in the side of the channel and a blight on Microsoft's channel reputation. It started with Microsoft's baffling decision to sell Surface and Surface Pro devices through retail only, first through Microsoft Stores and then through select retail partners like Best Buy, Staples and Frye's.

Over the last two weeks, the situation worsened; Microsoft made a mockery of its channel strategy with its new plan to bring Surface to the channel via the Microsoft Devices Program. A mess of contradictory decisions and statements has provided a mountain of evidence that Microsoft has lost its grasp not only on the basics of channel economics but also the value of the solution provider partner.

[Related: 5 Tablet Alternatives For Partners Hungry For Microsoft Surface ]

Here is a summary of that evidence.

1. The Surface Snub

A week before its 2013 Worldwide Partner Conference, the company announced the Microsoft Devices Program and formed distribution pacts with Ingram Micro, Tech Data and Synnex to provide Surface tablets to solution providers -- yet Microsoft authorized just 10 large account reseller (LAR) partners to actually sell the devices.

There were so many things wrong with this decision that it's hard to know where to begin. But, let's start with the distribution partnerships; why use the "Big Three" IT distributors if you're not going to take advantage of their vast customer bases? Why use a mass market distribution play if you're going to have such a narrow go-to-market window?

And then there's the LAR issue; Microsoft partners big and small are smarting over Microsoft's decision to bypass them in favor of big DMR shops like CDW, Insight and PC Connection. And what's more, solution providers interested in selling Surface may have to resort to buying the devices from some of the largest competitors.

2. Murky Expansion Plans

Microsoft also held a media conference call about its new Surface program but couldn't provide any detailed information beyond the talking points contained in the official press release. During that call, Jenni Flinders, vice president of Microsoft's U.S. Partner Group, said Microsoft employed a "rigorous process" to select the 10 partners for Authorized Surface Reseller status and that the company would expand the Microsoft Devices Program in the "coming months."

3. Surface No Show At WPC

A week later, after considerable criticism from Microsoft partners about its latest Surface move, the software giant kicked off its WPC event in Houston, where it offered attendees both the Surface and Surface Pro tablets at steep discounts. But when Microsoft CEO Steve Ballmer took the stage for his opening session keynote, he didn't even mention the devices program or Surface availability for the channel. Instead, Ballmer encouraged partners at the event to explore the tablets and "pick one up."

Following Ballmer's address, Tami Reller, Microsoft's chief marketing officer and chief financial officer for Windows, took the stage and hyped the Surface, calling the tablets a superior option for business users compared to the iPad. Yet, there was still no word about when partners in the audience could sell those business tablets to their commercial customers, or when Microsoft plans to increase the number of Surface reseller authorizations.

NEXT: More Surface Channel Errors For Microsoft


4. A "Phased Approach"

It wasn't until day two of WPC when Microsoft worldwide channel chief Jon Roskill took the stage that solution providers got more information about the company's expansion plan for the Surface strategy. And, it wasn't particularly good news for North American VARs; Roskill announced Microsoft would expand the Surface program to 28 additional countries, including Canada and Mexico, by the end of September.

But in an interview with CRN, Roskill said Microsoft will only authorize between three and 10 partners per country, depending on the size of the market in that country. Roskill also said Microsoft is taking a "phased approach" with the Surface channel rollout and will carefully watch how the program is received over the next few months. But, this approach hardly meshes with Microsoft's all-out blitz for Windows 8 this year; in fact, Microsoft announced last week a new partner incentive program called TouchWins to help drive sales of Windows 8 devices -- including Surface.

5. The Microsoft Store Invitation

The coup de grace, however, may have been on day 3 of the WPC when Microsoft COO Kevin Turner told partners to bring their customers to Microsoft Stores and use the retail outlets as extensions of their own offices.

Microsoft should know better. It should recognize that for solution providers, bringing clients to any retail store is a recipe for disaster. It should know that even for partners with only a mild or passing interest in carrying Surface, the reseller authorization restriction leaves a bad taste in their mouths. Partners never enjoy feeling less valued than larger competitors, and the Microsoft Devices Program spells out that message in painfully blunt terms.

Furthermore, Microsoft should know that part of the channel's value is in creating demand; if the company is worried about a lack of demand for Surface, it should open up the product to more partners, not fewer.

Why is Microsoft fumbling away its channel opportunity for Surface? That's another pain point for VARs -- the software giant hasn't communicated its Surface channel vision very well. But, there was one very telling statement from Roskill that explains a lot about why Microsoft has taken this approach:

"There are clearly other partners out there that want to resell the Surface, and I acknowledge that," Roskill told CRN. "At the same time, we don't want to get into position early on where we get over-distributed."

Think about that for a second. Microsoft says it's concerned about over-distribution of Surface tablets, yet it has no problem asking VARs to bring their customers to the retail stores to buy those same devices.

Would Microsoft suddenly cite over-distribution concerns if hundreds of partners started showing up in Microsoft retail stores? Would the company slap a cap limit on the number of partners that could bring commercial clients to the stores to buy Surface? No, absolutely not. Microsoft would be thrilled if partners helped pack its retail stores with business users. The company is trying to pack its stores any way it can. Microsoft even hired alternative rock bank Weezer to open a new store outside Boston last month.

So this isn't really about the distinction between the commercial and consumer market, as Microsoft might have us believe. Ultimately, this is Microsoft's retail investment and its dream to replicate the success of Apple Stores. The objective is to use Surface to create demand for its retail stores, rather than the other way around. Microsoft can't control the distribution of the numerous OEM systems and devices that run Windows, but it can play favorites with its own hardware to benefit the retail push.

The channel, meanwhile, has taken a backseat. And it would be one thing if the Surface move was an aberration, but too many partners say the Microsoft Devices Program is part of a larger pattern with the company that includes the elimination of Microsoft Small Business Server and the headaches around Office 365 account ownership.

The software giant was once the standard of greatness in the IT industry, but Microsoft's actions of late are unbecoming of such a storied American company. If Microsoft wants to return to its glory days, then it should start listening to the people that helped make it such a success.

PUBLISHED JULY 18, 2013

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