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In-Depth

CEO 3.0: What Microsoft's Partners Want from Satya Nadella

Public statements so far from Satya Nadella provide a strong hint of what the new Microsoft CEO will give partners, what he won't and what's negotiable.

To try to articulate in a few simple statements what Microsoft partners want from newly installed CEO Satya Nadella would be to willfully misrepresent what the Microsoft channel is.

As the third CEO in Microsoft's nearly 40-year history, Nadella inherits an ever-shifting partner community of roughly 600,000 companies worldwide. They are managed services providers; solution providers; systems integrators; value-added resellers; ISVs; custom software developers; mobile app developers; distributors; licensing partners; phone, PC and tablet manufacturers; carriers; server and storage manufacturers; retailers; hosters; born-in-the-cloud resellers; learning partners; system builders; cloud services providers; business software resellers; and others.

Many partners transcend one or more categories and most are constantly expanding into other areas. Even within the categories, priorities are dramatically different depending on whether the partner is a small, midsize or large company; whether that partner's customers are small, medium or large and what vertical sectors those customers inhabit; and where that partner is based. Each group has individual requirements that conflict with the needs of others. In other words, Nadella now oversees the most complex channel in the world.

In the days after Microsoft introduced Nadella as CEO on Feb. 4, Redmond Channel Partner magazine reached out to partners with a detailed, informal survey and heard back from more than three dozen. Because of the diversity of the Microsoft channel, it would probably take a survey with tens of thousands of respondents to be statistically representative. However, the responses hit on a number of vital themes facing the Microsoft channel right now, and it's possible to form some educated guesses as to how likely it is that Nadella will act upon those requests based on public statements he made as he lobbied for the job and on the day he was appointed CEO.

The Formal Introduction
Given Nadella's relative anonymity outside Redmond, Microsoft focused on his biography in introducing the new CEO -- he was born in Hyderabad, India, is 46 years old, has been both married and at Microsoft for 22 years, has three children, previously worked at Sun Microsystems Inc., likes cricket, buys more books than he can read and signs up for more online courses than he can complete.

Industry heavyweights responded warmly with public endorsements for the new executive at Microsoft, which remains a formidable industry player despite its challenges. "I offer personal congratulations to Satya Nadella on his appointment as Microsoft's next CEO. I know him well and I know he will do a great job for Microsoft as he is a seasoned, world-class technology leader," wrote John Chambers, Cisco Systems Inc. chairman and CEO, in a blog post. "I trust him and I know he instills trust in his customers and partners. I look forward to continuing to work with him and Microsoft to better serve our customers together." Public comments from Meg Whitman at Hewlett-Packard Co. and from Michael Dell (Dell Inc.) sounded similar notes.

Microsoft partners also offered a honeymoon. Almost all of the partners RCP contacted called Nadella either a "great" or a "good" choice, said they felt Microsoft was on the right track and called former CEO Steve Ballmer's departure overdue or long overdue. A majority felt Bill Gates' decision to spend more time at Microsoft helping Nadella would be a positive, and half described themselves as "reinvigorated about Microsoft" as a result of the C-level and boardroom changes, which also included Gates being replaced by former Symantec Corp. CEO John Thompson as chairman.

In Nadella's opinion, success in Microsoft's on-premises apps that customers install themselves will depend on, and be intertwined with, its success in the cloud.

However, beneath the optimism, partners' verbatim comments in the RCP survey revealed an undertone of fear, uncertainty and doubt. Nadella takes over a Microsoft with a CEO who was nudged out sooner than expected, a declining share of a plummeting PC market, and a lack of significant traction in the rising markets of smartphones and tablets despite extensive phone and desktop OS reboots.

In nine years of surveying Microsoft partners by RCP, no single survey has previously unearthed as much anger about Microsoft's management of the channel or unease about the company's direction and where the channel fits. In addition to figuring out what to do with the company, Nadella has a lot of channel feathers to unruffle, assuming that's one of his priorities.

Nadella's Likely 'To Do' List
Some of the things partners say they want to see from Microsoft are very likely, given Nadella's public comments.

"Mobile being the key at the current situation, [Microsoft] needs to focus on mobile OS, development and apps," said one silver competency partner (RCP guaranteed all survey respondents anonymity in order to encourage unvarnished opinions). Another silver competency partner based in Arizona said, "Microsoft has highly successful business technologies that are Microsoft's bread and butter, especially with the big-bucks enterprise customers -- things like Office, SQL, Exchange -- that stuff running in those shiny new datacenters Microsoft keeps building. That's very popular with the actual fans and evangelists of Microsoft."

Partners like those two who are looking for Microsoft to double down on its relatively newfound focus on mobile and cloud heard those terms repeatedly from Nadella. "Our job is to ensure that Microsoft thrives in a mobile and cloud-first world," Nadella wrote in his first-day e-mail to employees, which Microsoft shared as part of the Nadella-as-CEO announcement materials.

As an insider, Nadella is very much seen by investors as a "stay-the-course" choice who will continue the approaches that Ballmer, with the backing of Gates and the rest of the board, put in place since revealing the "Devices and Services" strategy in October 2012. Nothing that Nadella said in his e-mail, introductory video or in a customer/partner webcast called that interpretation into question.

"It's not like we're waiting for our entry into a mobile-first, cloud-first world. We're there. We just are going to keep coming to it again and again with every one of our launches and every one of our services," Nadella said during the webcast.

A number of partners wanted Nadella to get Microsoft employees on the same script. "Get them organized and focused on a purpose, strategy and quality metrics," said one. "Breaking down the fiefdoms" is important, another suggested. "Make teams collaborate better, more efficiently," said another member of the channel.

Again, Nadella is very likely to follow through on what those partners want because it's part of a strategy that he's supposed to carry forward -- the One Microsoft structure that Ballmer laid out last year just before his surprise August announcement that he'd retire within 12 months. For example, Nadella already has a replacement lined up for the position he previously held, executive vice president for Cloud and Enterprise. Scott Guthrie got the role in an interim capacity with Nadella's promotion and is likely to keep it.

In one way, though, just the fact that a CEO has been named should restore some order within Microsoft. With Ballmer a lame duck for more than five months, executives lower on the org chart were rumored to be pursuing personal agendas in terms of personnel and initiatives. Meanwhile, partners reported that many of Microsoft's channel-facing employees were, unsurprisingly, frozen by the uncertainty. Why aggressively pursue initiatives or take creative action if you're not sure whether you'll have an insider CEO like Nadella executing on existing policies or an outsider shaking up the company?

Nadella's engineering-heavy background within Microsoft is likely to make one silver competency partner's wish come true for "better engineered software, clearer roadmaps [and] shorter product release cycles, particularly with Web/cloud technologies." Nadella actually went into that in his webcast: "One of the things that we will also want to do is get more specificity and more focus on what it is that we can uniquely do."

A gold competency partner suggested Microsoft needed to "reward true value-add." That's always a good policy and a long-stated Microsoft goal. The question is, what kind of value-add would a Nadella-led Microsoft reward?

One would be the type of partner who can help Microsoft address its "app gap," the gulf between the number and quality of mobile apps available for Windows Phone and Windows 8/RT compared to the arsenals of such apps available to iOS and Android users.

"There are new concepts that didn't exist in the past like an apps store, and one of the things that we want to do is make sure in everything we do we bring new partnerships to bear as we approach these new scenarios," Nadella said in the webcast.

In a November interview with David Kirkpatrick for Forbes, Nadella outlined his "new thesis" about how he sees Microsoft's future, and that thesis provides some clues about what kinds of partners he'll value most highly. Kirkpatrick described the conversation in an article published after Nadella's appointment as CEO:

That thesis could mean a few things strategically for the channel:

  • Microsoft will need resellers and deployment partners for its SaaS applications, such as Office 365, Windows Intune and Dynamics CRM.

  • Microsoft will need partners who can implement Windows Azure-based solutions and integrate those with existing on-premises and non-Windows Azure systems.

  • As time goes on, partners who specialize in on-premises servers will be less important to Microsoft in the United States, but very important to Microsoft in other countries where Microsoft datacenters are further (as in half a continent or more) away from the customer's business and concerns about U.S. National Security Agency data snooping come into play.

  • Partners should look at their skills deploying on-premises software as tactical, rather than strategic -- Microsoft will continue to need that capacity in the future but will be aiming to transition more of that business to the cloud every year.

  • Nadella's gaze will be fixed on what he's described as a $2 trillion cloud opportunity; expect the company to orient its channel incentives toward partners who can help Microsoft exploit that.

Several partners want to see Microsoft innovate. "Deliver innovative products and build a content business for the consumer that exceeds Apple or Amazon," said one unregistered partner. "Produce great, innovative products that will sell themselves," argued one Action Pack subscriber, who added the caveat that "Microsoft shouldn't produce products based on Apple or Google envy." A lot of partners also expressed another innovation-related point -- they want to see Microsoft get its Windows 8/Windows RT/Windows Phone story and integration right, and soon.

Those looking for innovation from Microsoft may have heard what they wanted from Nadella, but he couched the statement in a way that could be interpreted as ominous for the channel.

"Our industry does not respect tradition -- it only respects innovation," Nadella wrote in his e-mail. It was a statement that Microsoft's PR team felt was important enough to display as a featured quote and reprint in large, bold type in the middle of his bio.

The part about not respecting tradition is an ambiguous note for Microsoft partners, who are constantly told that they bring in 95 percent of Microsoft's revenues and are an important part of Microsoft's history.

Fuhgeddaboutit
Some things that some Microsoft partners hope to see are pretty clearly non-starters.

"Get back to the core. Stop the 'Devices and Services' nonsense," argued one Action Pack subscriber. Others want to see Microsoft drop its plans to acquire Nokia and get into the phone manufacturing business.

On Nokia, Nadella gave no sign of reconsidering. "While the deal is not yet complete, we will welcome to our family Nokia devices and services and the new mobile capabilities they bring us," Nadella wrote in his e-mail. Repeatedly he referenced the 130,000 employees that Microsoft will have once Nokia employees are integrated.

On a personnel level, one gold competency partner wanted Microsoft to move on from COO Kevin Turner, among other things. "Get rid of Turner, revamp the sales force, correct the functional model to stop at the general manager level and empower corporate vice presidents," the partner suggested. Turner personifies for many plugged-in partners and some former Microsoft employees a perceived trend of cost cutting throughout the channel. While Microsoft boasts of increasing channel investments nearly every year, partners report steady declines in resources, such as co-marketing funds, support hours and partner communities. All elements of the field, including channel executives, report to Turner.

While working with other Microsoft executives, such as Turner, who were potentially in line for the CEO job will be a tightrope for Nadella to walk, there had been speculation that Turner may be on the way out as Microsoft reorganizes at the top. The day Nadella was appointed, Kara Swisher, the well-sourced Re/code reporter who broke a number of stories about the Microsoft CEO search, wrote, "It will be interesting to see what happens to Turner."

Nadella appeared determined to quash any speculation that Turner's future at Microsoft was in doubt. Twice during the customer/partner webcast, Nadella singled out Turner as a valuable asset to Microsoft.

Given Nadella's cloud-focus and Turner's continued cost-cutting presence, some partner requests for the restoration of certain products and programs seem like so much tilting at windmills. Some partners asked for TechNet and Windows Small Business Server to be restored and for the cloud push to be reversed. None of those seem likely.

The Art of the Possible
Setting aside the issues, many of them huge, that seem settled one way or the other, there is another class of concerns that partners could sway Nadella's opinion on in the coming months. That time frame will be important. It's common for new executives to be more open to feedback in their first few months, while they're grappling with the scope of their new jobs, than they ever will be later. Add to that Nadella's promise that his first priority is to employ all his listening skills in meetings with key groups: "The three constituents that I'll spend a lot of time with is customers, partners and investors."

The survey revealed that across several levels, Microsoft's relationship with the channel is damaged. "Repair the partner channel!" one Action Pack subscriber said. A gold competency partner, which means much higher investment in Microsoft technology and a bigger commitment from Microsoft, had almost the same comment: "Repair partner relationships." Another gold competency partner was more blunt: "Stop stabbing us in the back."

What happened to one of the happiest channels in IT? Steadily ratcheting pressure on Licensing Solution Provider margins that are forcing those former Large Account Resellers into conflict with the rest of the channel with little mediation from Microsoft. Poor communication about changes in reimbursement rates that show no appreciation for the length of the sales cycle and, therefore, no respect for partner profitability. A perceived failure to understand the impact smaller partner firms have amidst an overall shift to reward bigger partners through the Microsoft Partner Network (MPN) overhaul and in near-annual changes in the Dynamics channel.

Several partners hope Nadella will restore balance in Microsoft's engagement with partners of different sizes. "Openly recognize that all partners are important. The small and the large partners all have something to offer," said one Action Pack subscriber. A gold competency partner similarly suggested, "Move away from the 'super' partner model. Put $10 billion into small, highly skilled partners/ISVs."

One silver competency partner believes Nadella may be especially open to a reevaluation of Microsoft's current big-partner approach. "At a technology conference in Paris last month, he spent time with local startups [and he was quoted as saying,] 'The tech cycle is such that the small guys make it big and the big guys die.'"

Beyond specifics, some partners want a little inspiration and a feeling of being on the team. "Nothing special," said one Action Pack subscriber, "Just establish a clear goal and direction a la JFK about sending a man to the moon by the end of the decade."

A silver competency partner requested something even more basic that could go a long way toward rebuilding trust in the complex Microsoft channel. "Be straight up with all channels, LARs, resellers, ISVs and so on," he said. "Tell the truth, no matter how much we won't like it."

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