In-Depth

Marching Orders 2011

• January 01, 2011

Every year for the last five years, Redmond Channel Partner magazine has reached out to a panel of Microsoft partner executives, analysts, consultants and partners to bring readers the best advice for prospering in the coming year.

This year, the major theme from all the experts we contacted is easy to identify. Cloud computing is top of mind for nearly every contributor, although each has a unique take that highlights a different and important aspect of that game-changing technology.

Entries also delve into strategies for dealing with the ongoing economic uncertainty, the changes to the Microsoft Partner Network and the challenges for Microsoft partners as Redmond struggles for footing in some of the fastest-growing technology markets. We hope you find these entries useful as you position your business for the new year.

Last year, Microsoft generated $62.5 billion in revenue, 95 percent of which comes through the channel or partner ecosystem. Partners are integral to the future of Microsoft and its customers. We are critical to each other's success.

Community is the foundation of the Microsoft Partner Network (MPN) and part of the work we do every day. Partners often work together and share ideas on best practices. As we move toward the future, we want to amplify this for all partners and continue to strengthen these ties so the partner ecosystem can build momentum.

As part of the MPN, we created social media forums on Facebook, LinkedIn, Twitter and the Microsoft Partner Member Community sites. Partners can join the network at no cost, and once they've joined, they can take part in conversations with other partners and experts at Microsoft about the latest technologies and trends. Partners can use these resources to stay competitive, boost their bottom line, increase connections and find the keys to unlocking greater business success. Some of the biggest opportunities for partners are with on-premises products such as Windows 7, Office 2010, SharePoint 2010, Microsoft Dynamics CRM and Windows Server 2008 R2. Microsoft gives partners far more cross-sell/up-sell opportunities that will deliver value for their customers, strengthen their customer relationships and bring in revenue.

And we're really on the leading edge of the next wave of innovation -- cloud computing. Many customers don't care where their software is running. They're focused on productivity and looking for a solution that's faster and more cost-effective, and that helps them be more responsive. That could mean running their business with on-premises solutions or with cloud services, or sometimes it could mean both.

For that reason, it's critical that partners maintain solid expertise in the current on-premises solutions, while also developing expertise in the cloud. And for partners born on the cloud, developing a connection with partners who can offer that solid on-premises experience will give them an advantage.

Some partners tend to operate their business in the short term. They're more concerned with what they've lined up for the next 60 days. I challenge partners to step back and think about their business, not in the next 60 days, but in the next five to 10 years.

Partners will want to ensure that they're riding the wave of on-premises solutions and start their cloud business in parallel to begin the transition. Cloud services are going to change the way our partners do business, and Microsoft is committed to providing the technical and business support they need to win in the cloud now and stay competitive in the future. [Return to list.]

The Microsoft Partner Network formally launched on Nov. 1. A key part of this transition period is that we've really landed, based on partner and customer feedback, what we feel is a good set of requirements to start differentiating partners to customers and Microsoft.

The biggest marching order would be to have partners start early in thinking about where their business focus is with Microsoft, and how they want to surface that through the Microsoft Partner Network. That decision has implications on how they connect with our field, the types of benefits that they'll get, availability of solution incentives, how we'll surface them in marketplaces and how we'll give them leads and opportunities.

Because of the changes to the network, re-enrolling is a deeper business strategy decision than in the past. I would strongly encourage all partners to think about it as their go-to-market decision with Microsoft and get started early.

I also think it's very important for all of our partners to try as many of our cloud offerings as possible and determine how to integrate them into their core businesses. We've got this great offering in Cloud Essentials that is wrapping all of our cloud offerings that we're bringing to market together in a basically no-cost subscription for partners. Market momentum, particularly in corporate accounts and in our SMB space, is accelerating and we want to ensure customers gain the advantage of what Microsoft is offering and partners provide that benefit to them. [see the next entry by Darren Bibby].

Finally, I recommend that partners stay current on their customers' needs and technology options to meet them. One thing that we're hearing again and again from customers is they appreciate partners who are advising them on the best solution and have the breadth and the depth of understanding of what is going into market from a technology perspective. Microsoft is investing a lot in R&D and putting out fantastic technology, whether it's cloud or on-premise focused, and we want to make sure partners have deeply experimented with our technology to shape the best solution for customers. It's very important that partner understanding and familiarity with our technology is at a level of depth that partners can articulate and land with customers how those technologies can accelerate business value for customers, in addition to helping on the efficiency and cost side. [Return to list.]

Trying to combine the soccer excitement of mid-July with the cloud focus of the Worldwide Partner Conference (WPC), Microsoft encouraged attendees to sing a World Cup-inspired song about the cloud, "O Cloud." While the song didn't exactly catch on (other than annoyingly in all our heads), Microsoft certainly made the point that the cloud will be the single-biggest priority going forward.

Cloud computing and everything around it is going to be the biggest focus in 2011. Consider these facts:

• IDC predicts that cloud computing offerings are going to grow at approximately 26 percent compound annual growth rate (CAGR); about five to six times the rate of IT revenue growth in general.
  
  
• IDC also predicts that 80 percent of new software delivered in 2011 will be offered in cloud services.
  
  
• Microsoft predicted at the WPC that 90 percent of its people would be focused on the cloud in 2011. That definition could be quite encompassing, but the number is still impressive.

This means that no technology provider can ignore the cloud anymore. Microsoft partners are going to have to put a stake in the ground as to what the cloud will mean to their businesses.

IDC has done many in-depth interviews with successful firms delivering cloud solutions this year, Microsoft-focused and otherwise. While creativity and commitment will be required of any firm hoping to succeed in the cloud, here are a few insights from firms leading the charge:

• Solutions Delivery. Smaller consulting teams of one or two or three people will become the norm. Cloud projects are not big enough to sustain large teams with many separate, focused roles as in the past. Consultants on cloud application implementations will have to wear many hats and exhibit more business skills. Partners we interviewed used terms such as process knowledge, soft skills and even bedside manner.
  
  
• Sales Strategy. The cloud "all-stars" that we spoke to all had a major imperative to reduce the cost of sales when discussing the cloud. With a higher quantity of smaller deals, the same old sales approach isn't efficient enough. Partners told us about using more telesales and using cloud technologies like WebEx or Lync to sell cloud solutions. Even video calls with Skype can bring more of a "field" experience to telesales.
  
  
• Marketing Strategy. One of the cheapest but most effective marketing strategies revolved around public relations and thought leadership. Leading cloud partners tend to blog, tweet, post responses to blogs and articles, speak at conferences, host conferences and so on. All of these activities are opportunities to show thought leadership in an area where people are craving guidance. [Return to list.]

End users are smarter and more tech-savvy, and in their own businesses face extreme cost pressures and uncertainty around the business climate and taxes.

While most pipelines are in good shape today, partner management is facing new Microsoft programs, new product introductions, the business challenges of cloud computing, plus the ongoing need to support legacy clients. In addition, they have the same problems their clients face on costs, taxes and business climate. This convergence of multiple pressure points in 2011 is the most challenging environment I have seen in 15 years.

The capacity of the partner community to absorb new technology offerings will continue to be a huge challenge to the vendor community. Certainly, the Microsoft cloud push will prompt partners to reconsider business models, and our recommendation is to test the waters slowly and with a selected approach aimed at selected markets.

What will continue to separate the average partners from those that are increasing profitability and revenue in 2011? It will be a focus on planning, execution and measurement. Those partners that remain opportunistic and reactive to the marketplace will face increasing pressures to sell or go out of business.

Business strategy will be key. The first step is to forecast revenue by net new clients and by existing clients by practice. This exercise will help you create estimated P&L statements by practice and focus the design of your yearly marketing campaign -- it could even lead to altering your compensation planning. Then it's management's responsibility to monitor and measure monthly results and create a graphical trend analysis. Each department -- accounting, sales, marketing and technical delivery -- should have three to five metrics for their dashboards. Quality management teams should review them monthly and ask the following questions: What happened? Why did it happen? What are you doing to fix it? How long will it take to fix?

If you're serious about leading and managing your organization more effectively you can find a great resource that Microsoft has created at msftiwbusinessbuilder.com. [Return to list.]

As president of the International Association of Microsoft Channel Partners (IAMCP), I represent the best-of-breed partners from around the world. Not only do I get feedback from members across the globe, I interact with Microsoft leaders in Redmond, giving me perspective to offer my thoughts for partners as we move into 2011.

If you haven't structured your business for online strategy, you need to start now; and not just by becoming a reseller for the Microsoft Business Productivity Online Suite. I'm seeing significant partner concern that this is a major threat to their infrastructure practices. I'm here to say the cloud is coming, but you still have choices. What partners should be thinking is: How can I take advantage of this new technology? How do I reposition my business to sell more residual services and leverage selling the cloud to target the right customers?

If you service on-site today, potentially you could be thinking about making the shift to managed services. Desktops still need to be managed, but "general" IT resources will be in less demand as more infrastructure moves into the cloud. Think about companies needing to replace full-time resources with fractional IT highly skilled support resources. Large and small companies will purchase the fractional IT expertise they need rather than adding bodies. Position your business to provide experts in key areas- desktop management, LAN/WAN and so on.

Partners have also voiced concerns to me that the new MPN represents a shift in Microsoft's priorities, even a contraction in the channel and defocus in other areas as Microsoft goes to the cloud. The message here is that you are not alone. If the changes concern you, you have a voice with the IAMCP. As 7,000 partners with 80-plus chapters worldwide, we have a strong voice with Microsoft. Both the U.S. and international leadership works closely with Microsoft on the continued development of the new program. We are committed to its success. As such, we are committed to being a sounding board for the community and an advocate to Microsoft with one united voice.

Keep your eyes open; you can't sit still. Look for the opportunities; they are always there. Innovation is what it's about- it's what it's always been about in technology, and it will be the foundation for the next generation of winning companies. [Return to list.]

Last year, partners and customers realized that they needed to cut costs and trim their workforces in order to survive. Thriving in 2011 will no longer be a function of simple retrenchment. Instead, those partners who view 2011 as a year to make investments will undoubtedly be the winners moving forward.

Everything in 2011 is about two intertwined concepts -- investment and productivity. The investments drive productivity and the new productivity expectations drive the technology investments.

The scale of the issue is apparent in an anecdote from former GE CEO Jack Welch, who recently spoke of a company his private equity firm was involved in buying. In 2007, the company had 26,000 employees and $12 billion in revenues. When the company returns to that level of revenues in a few years, it's expected to have 14,000 employees. While Welch's anecdote is an extreme and large-scale example, it illustrates the new demands for efficiency at all levels of business.

Partner firms looking to drive productivity for themselves and their customers must look at several key investments this year. One is workforce training in cloud technologies and in hiring young employees or bringing on interns who can help drive social media efforts that will both move the business forward and move clients' businesses ahead. Another key Microsoft partner investment is in Windows Azure and other cloud computing-based technologies and practice areas.

For partners, the investments include not only technologies to resell, but ways of doing business. There are many who believe resellers will start morphing into ISVs because Windows Azure and other technologies will make it easier to develop and deliver cloud-based applications. Now, more than ever, it is easier to create a product that could potentially be marketable for the masses.

Nearly every technology that partners bring out in 2011 will need to deliver radical productivity improvements to get customers' attention. It will help if you can teach your clients about productivity by showing them your business and how you became more productive. [Return to list.]

Microsoft partners win when they can tap into the resources of a large, innovative company that can address a very broad segment of the IT market. They lose when the market broadens and Microsoft does not.

As Microsoft becomes more selective in the markets it chooses to pursue, partners need to ensure that their services and product portfolios remain diverse. For example, the market for phone and netpad applications is likely to expand rapidly from low-level consumer applications and games to useful reference and business solutions, as businesses tap into the world's most ubiquitous electronic device, the mobile phone. Because partners can't dictate that customers or their employees stick with Microsoft's phone or wait for Microsoft to come up with a competitive netpad and the accompanying application and services infrastructure, they need to be able to incorporate popular devices from other vendors into their customers' Microsoft infrastructure.

Similarly, as Platform/Software/Infrastructure as a Service offerings begin to grow in popularity, partners need to be able to work with what their customers are buying, whether it be from Microsoft, Amazon, Google, Salesforce.com or any other. Microsoft is not the dominant player in this space, as yet at least, and the energy spent trying to convert a customer to the Microsoft version of everything might be better spent helping customers integrate the Microsoft software they already own with non-Microsoft products that customers have selected to broaden or simplify their IT systems.

This means not deserting Microsoft but broadening the partner's expertise and understanding of alternatives so that the partner can have a fruitful conversation with the customer. In many cases, partners may be better able to articulate the advantages of the Microsoft solution -- sorting through often overstated vendor claims to clearly identify the Microsoft advantages -- and in other cases they need to ensure that the conversation with the customer doesn't go off the rails as soon as it drifts away from the Microsoft stack. [Return to list.]

For 2011, ISVs should be thinking hard about Silverlight and the cloud. Announcements made in November on the feature set of the forthcoming Silverlight 5 make it clear that Microsoft is standing by the technology. But more than that, the features being implemented are clearly aimed at making the development environment a platform for building full-fledged Windows applications. And Windows Azure looks to be an increasingly attractive place to enable those applications.

Near-future Silverlight 5 features -- including GPU-accelerated graphics, a printing API and the ability to make low-level Windows API calls -- take the technology well past a rich Internet application or mobile platform. HTML5, although having enthusiastic support from Windows Division personnel, is not an environment with which most ISVs will be able to build the kind of product they need, especially where productivity and time to market are concerned.

ISVs don't just need to think about technologies, though -- they also need to think about industry trends, MPN priorities and how to align these with the technology bets they've placed. In 2011, the Microsoft Windows Azure platform comes front and center as each of these criteria are evaluated.

Let's be honest, the Microsoft Windows Azure investment is huge, and ISVs who can help Microsoft get earlier and larger returns on that investment will see enhanced support and appreciation from the MPN. The more you use the Windows Azure cloud, the more your customers become tenants there, and that makes Microsoft happy. It helps Redmond's revenue and it validates its investment decisions. As partners, that's exactly where ISVs should be.

Luckily, Windows Azure adoption doesn't just help Microsoft; it's a big technical enabler, too. For ISVs developing Web applications, the platform can host a sophisticated Software as a Service environment for their products. New features like administrative access and the virtual machine role allow that to be implemented with much more control and precision. Windows Azure also hosts Silverlight applications nicely and will handle their data and services requirements with increasing ease. Expanded database size limits in SQL Azure, its federation features for databases that exceed those limits, and the forthcoming reporting features make that story better than ever.

ISVs can even sell reference data on the new Windows Azure Marketplace DataMarket for an additional revenue stream, and customers can consume that data in ISV applications, Excel or both. All of which makes the value of Windows Azure over Amazon Web Services and other infrastructure cloud offerings pretty clear, both for customer dollars and for strategic alignment with Redmond. [Return to list.]

What I recommended for 2010, and what I recommend again for 2011 is, first, adopt a specialization strategy, and second, get aggressive about acquisition.

The reasons for this continued insistence are quite clear. First, those clients of ours that cultivated these strategies witnessed double-digit growth in 2010. Those that didn't, well, they didn't. Second, these are the strategies that are profoundly altering the IT services landscape now and in the future.

• Repetition marching order No. 1: Embrace specialization and forego the fear of focus. I still see too many IT services executives fearful about zeroing in on a specific set of defining characteristics for their company. They continue to cling to what I'll call a chameleon strategy. That is, they'll change the profile of their company to fit whatever client -- with whatever problem -- walks through their door, whether they have the expertise to do the job or not. They talk themselves into thinking they can get by with what they have, or they can buy or contract out for the talent they need and hope for the best. This was most evident the past few years when any available dollar was fair game. Suffice it to say, this is not the stuff from which growing, profitable, sought-after companies are built.
  
  
• Repetition marching order No. 2: Get serious about M&A. Growing, profitable, sought-after companies are in high demand. In the third quarter of 2010 alone, deal volume in the IT market was up 42 percent versus the second quarter of the year. This activity continues to support what I wrote in the July issue: "There's ample evidence that confirms that companies with an acquisitive strategy will grow on average 50 percent faster than those without." This is a fluid industry and it's flowing in one direction -- greater consolidation. Don't get left behind. [Return to list.]