For Microsoft's Channel CRM Is The Perfect Storm

It technically resides in the Microsoft Business Solutions (MBS) group with acquisitions Great Plains, Navision and Axapta. But its roots were squarely in Redmond, Wash., with Microsoft, whereas Great Plains grew out of Fargo, N.D., and Axapta/Navision grew out of Denmark. Microsoft bought Great Plains in 2001 for $1.1 billion. Two years later it announced its $1.3 billion buyout of Navision.

With its purchases, Microsoft not only got several venerable lines of accounting/ERP code, but a small army of partners with deep "domain expertise." These resellers, who were sometimes also accountants, tended to work closely with a small number of customers and had longer sales cycles than the typical Microsoft "Classic" partner who implements, say, Windows Server and Office.

Those differences were largely academic until Microsoft CRM came along a few years later. CRM was promised to the MBS channel exclusively, which could source the product directly from Microsoft. And that's the way it was until the summer of 2003, when Microsoft said with the then-upcoming release of Microsoft CRM 1.2 that it would make that product available through broad distribution. That meant that any partner could get, and resell, the product.

That was fine for Microsoft Classic partners accustomed to tighter margins and looking for incremental sales. But it raised a howl from the smaller group of MBS partners who said the move would erode their margins from 40 percent to 20 percent or 30 percent. Several MBS partners said they simply stopped selling CRM to concentrate on more profitable wares. One West Coast VAR put it bluntly: "CRM is not worth selling at 20 percent margins."

For a while, Microsoft execs, including MBS Senior Vice President Doug Burgum, said that they would look into the margin issue.

But the margins are clearly staying where they are. Before leaving the company, Dave Batt, CRM senior product director, told CRN in January that while the company had thought about "throwing money at the problem" it was decided instead to help MBS partners get profitable at the current margin level.

Other MBS partners have gotten over it. "We weren't happy when they did it, but we've recovered to the point where it doesn't affect us anymore," said Ben Holtz, president of Green Beacon, a Watertown, Mass., MBS partner.