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Parsing Microsoft's Services Strategy

New packaged services spell opportunity for partners, but is the same true of Microsoft's managed services strategy?

• By Rich Freeman
• September 01, 2005

To begin, Microsoft has announced its intention to roll out standardized service offerings dubbed "services SKUs." According to Peter Rakoczy, general manager of Microsoft Consulting Services, services SKUs "leverage the best practices of Microsoft's internal IT group and also our customers and partners" to help customers deploy, manage and run Microsoft technologies more effectively. For example, an Exchange High Availability SKU under development will "predictably move [customers] to a target level of availability, because we know from working with customers and internally at Microsoft what it has required in order to operate the platform at a certain level."

The first SKUs will arrive in the fourth quarter of 2005, with more coming in 2006. "Ultimately over a three-year period, we think we'll probably have 50 to 75 SKUs," Rakoczy predicted, adding that while enterprise customers are the initial target, Microsoft will consider adding mid-market SKUs too.

The company's own services organization will deliver SKUs at first, but once they're "hardened and provide reliable value," partners will have access to them as well. "Microsoft Services completely understands the importance of the partner ecosystem," said Rakoczy. "Everything we're doing is designed to create increased opportunities in the marketplace."

More controversial than services SKUs has been Microsoft's experimental foray into managed services. In an arrangement with battery-maker Energizer Holdings that Rakoczy characterized as an "incubation," Microsoft's IT department is now managing Energizer's 6,000 desktops, along with its Exchange and SharePoint implementations. Though additional SKUs may emerge from the Energizer deal, said Rakoczy, the main objective is to gain a hands-on "understanding of what's required to reduce the customer's pain and the cost associated with managing our desktops," knowledge the company can use to improve future product releases.

"Microsoft Services completely understands the importance of the partner ecosystem." Peter Rakoczy, General Manager, Microsoft Consulting Services

Still, given other recent signs of Microsoft's emerging interest in hosted services, including its acquisition of managed e-mail services provider FrontBridge Technologies and its deal with Tata Consultancy Services to open an IT outsourcing facility in Beijing, the Energizer agreement has been raising eyebrows. Microsoft CEO Steve Ballmer only stirred curiosity further at the Worldwide Partner Conference in July when he told attendees that Microsoft has to "get smarter" about managed services, which are destined to become standardized in the next decade, and that it's too soon to say what role partners will play in delivering them. Could partners soon find themselves competing for outsourcing business with Microsoft?

"That's the one question that I get from partners all the time when Microsoft makes a move like this," said analyst Julie Giera, a vice president at Forrester Research. "The answer is absolutely not." Microsoft, she noted, "is a big company with a lot of cash. If it decided it wanted to be in services in a big way, it could certainly do that. But it's not at all part of Microsoft's strategy."

Just the same, Giera advises partners to be "vocal and involved" as Microsoft refines its services strategy. "You've got a symbiotic relationship here, where both parties can succeed, but only if both parties participate," she said. For his part, Rakoczy said Microsoft has been actively soliciting partner input on services SKUs at advisory council meetings and other forums. Partners, he notes, can also approach their local MCS team about getting engaged.

For now at least, Greg Gatzke, a principal at Microsoft Gold Certified Partner ZAG Technical Services of San Jose, Calif., is content to remain on the sidelines as Microsoft's approach to services evolves. "I'm not excited or concerned about it. It's interesting. I don't see it as a threat at all," he said. "Microsoft is doing everything right at this point. They absolutely back the channel."