Channel Watch

Partners: In This Life, You're on Your Own

Microsoft may hope its partners survive the economy, but it's not willing to sacrifice a lot of its own cash to make that happen.

• By Scott Bekker
• September 01, 2009

The Microsoft Financial Analyst Meeting at the end of July provided important context for some puzzling statements out of the Microsoft Worldwide Partner Conference (WPC) earlier that month.

The WPC was not filled with happy talk by any means. COO Kevin Turner spent part of a keynote acknowledging how severely the world changed since the 2008 WPC. But Turner and CEO Steve Ballmer both painted a picture of ongoing, growing investment. Ballmer frequently says we're in an economic "reset" and contends that after de-leveraging, global spending will be lower than it was before. Still, he's optimistic about the forthcoming wave of Microsoft upgrades and feels that the IT industry is well positioned to earn money at making the world more cost-efficient.

Ballmer promised partners that Microsoft's R&D spending would remain flat in Microsoft's July to June fiscal 2010 at $9.5 billion. Turner, meanwhile, said Microsoft would increase the money it spends with partners by $400 million to $3.3 billion during those 12 months.

That channel-spending figure was especially baffling. Microsoft doesn't disclose how that money is spent. Anecdotal reports I get from partners are that the dollars available to them from the field for co-marketing spending are diminishing. Meanwhile, popular programs that offer money to partners are languishing. One example is the well-received Microsoft/HP Frontline Partnership, which offers marketing money for events to partners who belong to both companies' partner programs. As of mid-August, the Frontline site carried a notice apologizing that there was no money available. Microsoft Financing recently made its funding requirements more stringent.

Here's where the financial analyst meeting comes in. Chief Financial Officer Chris Liddell told analysts that Microsoft had been agile in the face of economic headwinds. After increasing operating expenditures 18 percent in Q1 2009 and 11 percent in Q2, such spending dropped 1 percent in Q3 and was down 12 percent in Q4. Liddell assured analysts they should expect Microsoft to keep expenses at the radically lower levels of the fourth quarter throughout 2010, and noted that all the business units and the field understood the need for the cuts and were fully on board.

As for the company's legendary cash hoard, Liddell said stock buybacks are slowing in order to tend to Microsoft's balance sheet. Ballmer also referred to keeping the company's "powder dry" to begin snapping up the company's standard acquisitions, small ISVs that add a feature or two to strategic products.

Microsoft undoubtedly hopes the channel partners that constitute its primary sales force will survive the ongoing economic contractions. The company is helping in valuable ways by doling out business advice, launching broad new programs that dovetail with its own initiatives, developing market-making "air cover" advertising campaigns and negotiating volume discounts for partners on services like telemarketing and list rentals.

What Microsoft apparently will not do for partners is dip into strategic cash reserves to maintain co-marketing funds or financing at the levels partners built into their business models in better times -- when the partners didn't need the resources as much.

To paraphrase the artist formerly known as Prince, "in this year, you're on your own."