In-Depth

Making the Most of BPOS

Chicago-based PointBridge sprinted out of the gate with the Microsoft Business Productivity Online Suite -- to the tune of $640,000 in revenues in one year. Co-founder Todd Golden tells RCP how PointBridge did it.

• By Stephen Swoyer
• October 01, 2009

Any partner who doubts there's serious money to be made reselling the Microsoft Business Productivity Online Suite (BPOS) needs to take PointBridge's experience into account.

A Chicago-based systems integrator that's been one of Microsoft's most heavily recognized partners over the last few years, PointBridge generated about $640,000 in BPOS-subscription revenues through June 2009. Not a bad job selling a service that made its official debut during the most brutal recession since World War II.

The achievement helped net the Gold Certified Partner the 2009 Microsoft Online Services Partner of the Year, a new award category at the Microsoft Worldwide Partner Conference this July.

Microsoft announced BPOS and its partner model in July 2008 and made it available in the United States and a few other markets in November 2008. One of Microsoft's earliest efforts at Software plus Services (S+S), BPOS includes Exchange Online, SharePoint Online, LiveMeeting and Office Communications Online. All these services are hosted by Microsoft and provided to customers for $15 per user per month. A stripped-down version for deskless workers comes at $3 per user per month.

To entice partners to sell the offering to the target audience of small to midsize businesses (SMBs), Microsoft offers 12 percent of the subscription fee to partners in the first year of a contract and 6 percent per year thereafter. Technicalities of the payment system make it effectively 18 percent in the first year and 6 percent of subscription fees per year after that as long as the partner stays on as the partner of record. In essence, this works out to mean a standard BPOS user is worth $180 a year, of which $32.40 goes back to the partner in the first year and $10.80 in subsequent years.

Many partners initially scoffed at what they saw as small margins in return for cannibalizing their existing business. Not many in Microsoft's 360,000-member partner community have signed on; as of July, only 5,000 had signed up to be online partners. Microsoft executives acknowledge many of those partners don't have any sales outside of internal deployments.

Microsoft won't say how many BPOS seats have been sold. Instead, it has taken to publicly mixing up the numbers with a related program called BPOS Dedicated, which is used as an interchangeable term with some of the names of other Microsoft Online Services products. BPOS Dedicated covers larger, 5,000-plus-seat engagements to high-profile enterprise customers like Energizer Holdings Inc. At that scale, customers have their own dedicated servers in Microsoft's data centers, unlike standard BPOS customers who share server resources with other BPOS customers.

To give a sense of the challenges Microsoft faces in generating momentum behind the non-dedicated version of BPOS, Microsoft created an Accelerated Initiative for partners that seem to be putting some wood behind their BPOS arrows. All it takes to qualify is eight sales of 25 seats or more: sell a relatively paltry 200 seats and you're a serious BPOS player in Microsoft's eyes.

Unpacking PointBridge's Revenues
Then there's PointBridge, which has about 5,200 BPOS seats deployed across eight engagements. Todd Golden, who co-founded PointBridge in 2004, looked at Microsoft's BPOS margins from a different perspective: The margins weren't too low -- they were something in place of nothing.

"If you look at the gross margins associated with BPOS-based projects versus pure on-premises [deployments], it's actually much better," Golden says. "For a systems integrator like ourselves, which historically hasn't got any of the revenue or margin associated with software sales, the partner-of-record fees really enhance both our top-line revenue and our bottom-line income."

BPOS was the first product that gave PointBridge an annuity-based revenue stream. "We looked at it and said, 'The services revenue will be smaller for different projects ... but the margins -- the profits -- will be higher, thanks to those [partner-of-record] fees.' I'd rather deliver 20 percent fewer services dollars and [enjoy] 40 percent higher margins," Golden says.

PointBridge, brought in ahead of the BPOS release by Microsoft, started working with its first beta customer on BPOS in April 2008. Of the $640,000 in BPOS revenues through Microsoft's fiscal year 2009, nearly $100,000 is coming back to the Chicago company in the form of partner-of-record fees, Golden confirms.

Those fees came in all types of customer engagements, including customization projects, e-mail migrations and integration services.

But the fees have only been the beginning of PointBridge's BPOS-related revenues. A Microsoft executive told Redmond Channel Partner for a September-issue article that partners can realize revenues that are five to six times greater than their partner-of-record fees through add-on services. Golden says the PointBridge experience has been roughly consistent with that guidance.

"I use '3x' as our internal standard for planning and modeling. I do that because the majority of the projects that we're seeing right now involve Exchange, with some Live Meeting and Office Communications Online, and the multiple there is lower. When you start working with SharePoint Online, the multiple could be 20 times. It averages out over time. When SharePoint 2010 launches, and you can do more customization, that number will increase dramatically," Golden says.

All together, PointBridge raked in about $400,000 in revenues through BPOS in its first year. Not a bad start for a company with overall 2008 revenues of $9.8 million.

Inside the Sales
Golden downplays the challenge of marketing first-generation BPOS during a year of economic turmoil and suggests that, had PointBridge approached it simply as an issue of marketing BPOS, it almost certainly would have recorded lackluster results.

If PointBridge has enjoyed success, it's been because it has positioned BPOS in the broader context of Microsoft's Unified Communication and Collaboration (UCC) portfolio. The upshot, he explains, is that UCC is a big tent -- encompassing Exchange, Office Communication Server (OCS), SharePoint, LiveMeeting and other entries -- and no single deployment model is going to be ideal for every customer.

From PointBridge's perspective, Golden says, one key was to be alert for areas where BPOS services could complement on- premises UCC deployments in both new and existing accounts.

BPOS also allowed PointBridge to reconnect with former prospects that simply weren't willing or able to pull the trigger on an on-premises UCC deployment, chiefly because of cost concerns.

"Our approach was to look at [marketing BPOS] as just another opportunity. For example, for several of the deals [we were able to close], we went back to customers who had turned us down because the initial cap-ex for the [on-premises] project was too high for them to justify -- whether it was an economic decision or one where they just didn't want to spend the money for the additional cost of buying servers. So we were able to go back ... and close deals that had a smaller dollar amount, but we didn't have to worry about any of the cap-ex on our own side," he says. "So [BPOS] really fueled some pipeline that we thought was gone."

Because PointBridge marketed UCC contextually -- pushing on-premises, hosted or mixed UCC products where it made the most sense to do so -- it managed to minimize a lot of the limitations of the first-version BPOS service.

"There's a reality in the BPOS world that for midmarket [customers] there's not one-to-one feature parity between the Microsoft Online Services and the on-premises software. The learning curve [to determine which features were missing] wasn't huge. We certainly had to make sure that we were providing appropriate guidance to our customers as to when an on-premises solution was more suitable than a cloud solution," he says. In one case, PointBridge moved a customer onto the cloud and then shifted the deployment back onto local servers at the customer's site a few months later to capture new features available only on-premises. "We were able to move them between the cloud and on-premises pretty easily. That actually showed a pretty good value proposition for the Microsoft S+S model," Golden says.

Unlike some partners that try to differentiate by targeting specific verticals, or by developing generic "accelerators" or industry-specific applications for different verticals, PointBridge markets horizontally. It's a strategy that complements his company's UCC-centric focus, Golden says.

"We haven't gone vertical with the productivity suite in large part because the suite consists of tools that have horizontal applications. Exchange is Exchange whether you're a financial-services organization or you're a manufacturer," he points out. On the other hand, the way Microsoft packages BPOS gives PointBridge and other partners flexibility to market it to different verticals. Golden says there are specific verticals -- such as health care -- in which combined on-premises and BPOS engagements are desirable. In this respect, Microsoft's flexible BPOS licensing terms permit PointBridge to cost-effectively market combined on- and off-premises deployments, too.

"Don't get me wrong -- you can build solutions that have a vertical bent. [For example], if you're a hospital and you have a large number of nurses or physicians who don't have dedicated desktops, but they, for the most part, use kiosks to interact with the technology. The deskless worker, which is part of the BPOS product line, has a dramatically lower cost point than does the full suite," he says. "Features like [deskless worker] allow you to customize and build a subscription model at a much lower cost for the customer and give them the feature set that they need. They're able to customize it at a much more granular level. That's not necessarily building a custom solution for business; rather, it's customizing their purchasing model to meet their business needs."

Another benefit of a hosted, or Software as a Service, solution is that it permits PointBridge to market to a very different audience. In this case, it's business users. The reality, Golden says, is that it's easy to pitch BPOS to either business users or IT, chiefly because of BPOS's similarity to Microsoft's on-premises UCC offerings. "That's the benefit of an online solution -- particularly of an online solution like BPOS, which is basically the same as you get with [the] on-premises [software]. You can talk to either," he says. While Golden is careful to stress that PointBridge doesn't try to bypass IT, he does concede that the BPOS offering resonates with business users -- so much so that in some cases business units have adopted it without involving IT.

"With an online solution, if you're purely talking about a subscription for a service, you can work directly with the business from the beginning to the end of the solution," he says. It turns out that this reality is another reason why some IT departments should embrace an offering like BPOS. After all, a user who feels he's inadequately serviced by IT is a user who's likely to service himself. That's an issue that PointBridge highlights in its BPOS marketing efforts. Golden finds that it resonates -- sometimes to an uncomfortable degree -- with IT audiences. "We've actually seen some challenges that some of our on-premises customers face. As the IT department works with the architecture and the implementation, that takes time. [Meanwhile], some business users get frustrated waiting, so they go to these free, online, collaborative, non-secure spots to store their documents. Those kinds of situations are forcing IT to move much more quickly."

High Hopes for FY 2010 and Beyond
Golden is seeing good demand this year, as well. Based on PointBridge's pipeline and a huge project the company just booked, he's anticipating between $500,000 and $1 million in partner-of-record fees during Microsoft's fiscal 2010. Combined with potential add-on services revenue, Golden is planning for $2 million to $4 million in total revenues to PointBridge from BPOS-related work in the year that wraps up in June 2010.

Over time, Golden anticipates that Microsoft S+S-based offerings will drive a larger portion of his company's revenues. "The products that are being released are being architected to support feature parity with a multi-tenant deployment. With the 2010 wave [of BPOS] that's coming, that feature gap [between on- and off-premises offerings] will shrink accordingly," he says.

"I think that we'll see growth in the BPOS-related revenue that outstrips the company's overall growth," Golden says of the next year. "My expectation is that, as a percentage of our revenue, the BPOS revenue will grow to be two or even three times that of our on-premises services."