Microsoft Consulting in Your Corner
While boosting Microsoft's consulting investments, SVP Rick Devenuti is
engaged in an unprecedented campaign to reassure skittish partners that
they will keep their dominant role in enterprise services.
For nearly two decades, Microsoft CEO Steve Ballmer has faced the same
question in meetings with enterprise services partners: Will this be the
year that Microsoft starts taking a bigger cut of the consulting services
This year, those questions have been even more urgent as Microsoft visibly
ramps up its consulting operations, formally known as Microsoft Consulting
Services (MCS). Rather than offering the same old assurances, Rick Devenuti,
Microsoft's senior vice president for Microsoft Services & IT, and
his team are providing unprecedented detail on what Microsoft hopes to
achieve with its increased investments in consulting services. Those details
are encouraging for partners at a strategic level, although, of course,
local implementation will always vary in a company of 70,000 employees.
The efforts to bulk up Microsoft consulting are substantial. Microsoft
is adding employees, programs and packaged services, and talking about
all of it a lot.
"We're going to grow the revenue of the [consulting] business about
20 percent," Devenuti says. He won't disclose what that means in
terms of new employees, acknowledging only that "there is some relationship
to headcount." According to a Microsoft slide deck for partners,
MCS account for about $1 billion in revenues now, and about 1.5 percent
of the total consulting services market.
Microsoft's reasons for girding its consulting force are simple. "We've
got a tremendous wave of products coming," Devenuti says. "Our
customers want to be sure that the products are going to be successful.
Customers want confidence, especially with this new product wave, that
Microsoft has skin in the game." That wave of products includes Windows
Vista, Microsoft Office 2007 and Exchange Server 2007, followed rapidly
by another wave that includes Windows "Longhorn" Server.
The result of all that activity over the next year? "I believe that
there will be some rumbling in the market," predicts Mike Vacanti,
vice president of sales for the U.S. North Central Region of Fujitsu Consulting
Inc., a Gold Certified Partner.
Akthar Ahmed, vice president for strategic business development with
Tata Consultancy Services, a Certified Partner with headquarters in Mumbai,
Maharashtra, India, sees a definite need for some clarity from Microsoft.
"Historically, when you look at the Microsoft partner network, there
has been some confusion about whether MCS is competition. I think it's
important for Microsoft to grow MCS. I don't view that as competition.
But I think it's also important for [Microsoft] to clarify to help with
Steve Graham, an analyst with IDC, the Framingham, Mass.-based research
firm, says Microsoft should try to communicate better: "It's not
that Microsoft's done a bad job. It's a fact that, around services with
the partner community, you just need to over-communicate."
Microsoft's efforts to spread the word about its plans already verge
on over-communication. The campaign included a series of spring and early
summer partner briefings about MCS' fiscal year 2007 plans, an analyst
tour for Devenuti, one-on-one and group meetings with partners and Devenuti's
extensive keynote at the recent Worldwide Partner Conference (WWPC) in
Boston -- all intended to clearly describe Microsoft's services engagement
framework, business strategy, financial goals and decision-making process.
According to Gartner Inc. analysts, revenues in the
worldwide IT services market will grow by about 15 percent
by 2009. The Microsoft platform currently accounts for
half of those revenues and should still account for
about half in 2009. But Microsoft hopes the partner-fueled,
Microsoft-platform portion will amount to more than
half by 2009.
Source: Microsoft, Gartner
Microsoft positions itself primarily as a catalyst. While a billion-dollar
consulting business is huge compared most of those run by partners, it's
a relatively small piece of the overall market -- and a small piece
of the available consulting services business even on the Microsoft platform.
According to numbers from Gartner Inc., the Stamford, Conn.-based analyst
firm , the overall services business in 2006 is $295 billion, with about
half of that built atop the Microsoft infrastructure of Windows, .NET,
SQL Server, Exchange and other products.
Devenuti says Microsoft has no plans to take a bigger piece of the Microsoft
platform's portion away from partners. While the company wants to grow
its own services revenues, he says, there's plenty of room for doing that
without affecting partners, thanks to the 15 percent growth in the overall
market that Gartner predicts by 2009. And Microsoft intends to try to
use its services resources to drive the Microsoft platform share of worldwide
service business well past the current halfway mark, creating much bigger
opportunities for its enterprise-focused partners as well.
Theater of Operations
To do that, Microsoft is categorizing all its services engagements
in four main buckets: relationship services, new technology engagements,
lighthouse engagements and customer demand/customer satisfaction. (A fifth,
called SKUs, or packaged services, is currently short on revenue but long
on potential. See "Knocked a-SKU".) Those categories describe
Microsoft's "Theater of Operations," as the company calls it,
and provide a framework for understanding and predicting Microsoft's interest
in doing a consulting deal.
Microsoft is providing a new framework to help partners
understand the strategic direction behind Microsoft's
services efforts and decisions.
% of Current MCS Revenues
services (Premier Support + Enterprise Strategy
Microsoft defined the buckets a year ago and has been collecting data
on them ever since.
"In our financial system this year for the first time, fiscal year
'06, we've defined every engagement as needing to fit into one of these
four buckets," Devenuti said during his WWPC keynote. That accounting
allowed Microsoft to give partners specific numbers to attach to its engagements
and its goals. "This is pretty major because it now provides at least
the beginnings of a scorecard where Microsoft can start to establish some
specific goals and report back to partners" on MCS' progress, says
Microsoft makes the largest chunk of its consulting money -- 49 percent
-- from relationship services, a category that includes Premier Support
and the new Enterprise Strategy Consulting contracts that involve placing
a Microsoft consultant full-time in customer accounts. New technology
engagements account for 14 percent of Microsoft consulting revenues, while
lighthouse engagements bring in 12 percent. Customer demand/customer satisfaction
involves cases in which a customer won't do a deal unless Microsoft has
consultants on site. That category currently brings in 24 percent of MCS
Broadly, Devenuti's goal is to increase the new technology engagements
and so-called lighthouse engagements, both of which often result in reference
customers that help Microsoft draw entire industries onto a new release
of a product or a combination solution built on the Microsoft software
stack. At the same time, Microsoft hopes to transition more customers
who want Microsoft consultants to hold their hands during implementations
into the waiting arms of partners.
"This is as transparent as I can be about where we do work and what
we do, and every time we get together we'll show that," Devenuti
said in providing the percentages at his WWPC keynote in July. "In
fiscal year '07, which started a few weeks ago, our people are measured
by this, we measure it monthly in our rhythm of the business discussions,
and we govern it monthly by subsidiary to make sure people are working
on the right kind of engagement."
Relationship services is set to grow substantially. "We're
really building up our relationship services," Devenuti says.
IDC analyst Darren Bibby says few partners object to Microsoft earning
money through relationship services-there's simply not a lot of demand
to have third parties compete with Microsoft to support Microsoft products.
The bulk of relationship services revenues come from Premier Support rather
than the limited number of Enterprise Strategy Consultants placed in major
During his keynote, Devenuti portrayed relationship services as a springboard
for new partner business. "I want to be clear: We want every enterprise
customer in the major and corporate account space to have a direct support
relationship with Microsoft. We have found where customers have a relationship
service agreement with Microsoft ... those customers have a 17-point higher
satisfaction [rate] with Microsoft, they buy more products, they implement
the product more quickly, and it gives us and our partners much more opportunity
to bring value to those customers."
Fujitsu's Vacanti says the Enterprise Strategy Consultants (ESCs) don't
pose much of a competitive risk, even for a large company like Fujitsu.
"We generally aren't assigning a person to a client to look at all
of [the client's] needs holistically. We're putting teams in place to
implement a particular solution or to create a new process or write a
new program for them to enact their business," Vacanti says.
Microsoft's ESCs are good additions to those teams "because they
have stronger knowledge of the architecture and can probably get a good
grip on the long-term direction," Vacanti says. They play a coaching
role rather than creating competitive angst. "Our largest dollars
come post-adoption, when we're building out applications on the platform.
If they invest in driving more of that on the front-end, there's a wider
end of the tunnel down the road."
New technology engagements, demonstrating the value of new products
such as Windows Vista, Office SharePoint Server or unified communications
solutions, are an obvious Microsoft interest that would spill over into
additional partner business. What Microsoft refers to as lighthouse engagements
require more explanation. Devenuti defines those engagements as "opportunities
[that] have high customer risk and great visibility to move the market,
to teach the market that the Microsoft platform really can be used in
a mission-critical way, at a scale or in an environment that people haven't
thought about [in connection with] Microsoft. These are engagements that
have to be greater than 1,500 hours, and they have to have clear visibility
in the marketplace to make sure we have the opportunity to move the market."
Customer Demand = Potential Partner Conflict
It's in the customer demand/customer satisfaction category where
Microsoft has the most potential for conflict with its partners. With
the release of the percentages, Microsoft is now on the record with a
commitment to reduce the number of deals that it joins only because the
customer wants the reassurance of somebody from Microsoft to blame.
Even when Microsoft is involved in consulting engagements, less than
20 percent of its consulting revenues come from projects on which it is
working alone rather than alongside partner consultants, according to
Microsoft makes most of its consulting money alongside
partners. Microsoft consulting services revenue by partner-engagement
Devenuti acknowledged that even with a goal of reducing such engagements,
customer relationships may have to be placed ahead of partner concerns.
"We don't do every deal a customer asks us to do, but I do want to
be clear-priming is part of the model where it drives new accelerated
adoption, where we have the opportunity to truly move the market, or where
the customer just won't do the deal unless Microsoft risk is part of the
model," Devenuti said in his speech.
That kind of involvement from Microsoft is often necessary, says Ahmed,
of Tata Consultancy Services. "It's not competition because when
we go sell a large deal [$5-$100 million], if it's a Microsoft project,
often the customer wants to see some Microsoft skin in the game,"
Devenuti acknowledges that not everyone in Microsoft's consulting operations
is fully familiar with Microsoft's new theater of operations strategy.
"But I'm absolutely certain that our engagement managers, our salespeople
and our service leads not only understand this [concept], but they understand
how their compensation is impacted by this," he vowed during his
IDC's Bibby put it in more concrete terms. "There's still sales quotas,
I'm sure," he says. "If they have to break the rules a little
bit, and they might have to upset one partner, I'm not sure they're not
going to do that again. But I do like this model. This is going to be
Part of the reason concerns crop up is that Microsoft partners have it
pretty good, adds IDC's Bibby. "Compared to a lot of other companies
who've got professional services, Microsoft isn't bad. You're looking
at a problem, but it's not as big a problem as other vendors have,"
Along with the effort to be more accountable to partners, Microsoft
is seeking more partner feedback. At the WWPC, Devenuti announced the
formation of a Partner Advisory Council, which will begin meeting in the
"I don't think we've done a good enough job getting our message out
to partners and talking to partners directly," he says, adding that
the Worldwide Partner Group and Enterprise and Partner Group, each have
a partner council. "I didn't [originally] see the value in adding
to what they were doing."
"Partners have been really clear with me, that when they understand
what we do, they're happy," Devenuti says. "Partners have told
me over and over again, 'We know how to work with you when you tell us
[what we need to know]'"
Devenuti, formerly Microsoft's chief information officer, summed up the
opportunity for partners in his keynote while showing a slide of all forthcoming
"Now, three years ago when I was CIO, if I saw a slide like this,
I'd think about the requirements, what business requirements do these
products fit, how do I think about building solutions that make my users
happier," he said. "Today, when I look at this slide, I see
something different, I see opportunity, lots and lots of service opportunity.
... None of these products works out of the box; these are deep solutions
that are going to require great service professionals working with our
customers to make sure these realities, these benefits come through."