In-Depth

The Sky's The Limit as a Microsoft Supplier

Joining the elite ranks of Microsoft's suppliers can be highly lucrative, but you've got to play by Redmond's rules. Here's how.

• By Doug Barney
• August 01, 2006

As a partner, you are likely used to supporting and often selling Microsoft products. What if you could turn the tables and make a pretty penny selling your goods and services back to Redmond? Think that's a long shot? Think again. Microsoft now spends some $14.5 billion a year, with some $8 billion of that in the United States, and both numbers are steadily growing.

When it comes to snagging this Microsoft business, partners have a distinct advantage. "Some of our biggest vendors are also our biggest partners, such as Accenture, InfoSys, Wipro, Avanade -- the list goes on," says Tim McBride, Microsoft's manager of vendor programs.

In fact, for some Microsoft partners, Microsoft itself rates as a top customer. Certified Security Solutions Inc. (CSS), a Microsoft Gold Certified Partner based in Kirkland, Wash., receives about 35 percent of its annual revenues from Microsoft project and consulting work, says CEO Michael Evans. Add in revenues from indirect cases -- that is, instances where Microsoft introduced CSS to another company that subsequently became a CSS client -- "and it's greater than 50 percent," Evans says.

In many cases, you must be a partner to even have a shot at joining Microsoft's vendor ranks. "If you're selling us a technology kind of solution, you have to be a partner. You wouldn't even get in the door unless you have certified credentials that say you can do the work that we need done," McBride explains.

But not all suppliers need to be official Microsoft partners, which makes for stiff competition. For instance, "if you're providing cafeteria services, we don't require you to be a Certified Partner," McBride says. In those kinds of cases, all suppliers compete on equal footing. McBride uses the example of two companies -- only one a Certified Partner -- competing to provide Microsoft with logistics services.

"In that case, we're evaluating the business based on the criteria and requirements of the job to be done," he says. "It doesn't necessarily help you any to be a Certified Partner. We have to evaluate evenly in all those cases and make sure we're playing fair."

What Microsoft Wants That You May -- or May Not -- Have Microsoft buys the following items in large quantities: Employee services: This includes office equipment and electronic software reference material. Trade shows and events: This includes event-related data services, software coding and patching, systems analysis, database work and wireless networking. Hardware: Microsoft buys more than 100 types of hardware, ranging from notebooks and PCs to audio equipment. Peripherals: This includes storage, memory, network switches and more. IT and computer services: Many of Redmond's IT needs revolve around programming, but the company also seeks database, disaster recovery and data center services. Manufacturing: Microsoft works with makers of items that include everything from plastic shells and batteries to Ferrites and Schottky diodes. Professional services: Microsoft is particularly interested in services from suppliers with vertical expertise in areas such as supply chains, ERP and EDI. More general needs include training, LAN design, EDI and client/server programming. Software: You name the software and Microsoft needs it -- everything from accounting to backup to screen-savers. Telecommunications: Microsoft's telecom needs include voice, WAN gear and services, and call-center technology. -- D.B.

And for pure partner bids, all parties have the same initial shot at the business. "If we're looking for you to write us a white paper on the next version of Exchange, you're going to get access to early code and early release info. It pays to be a partner when you're doing that [kind of] work," McBride explains. "We need to be able to trust you. We need to make sure you're technically qualified and have the training and the certified professionals on staff. What we typically see is that four or five Certified Partners are all vying for the same business and in that case they are all treated equally."

There are a few key supply areas where Microsoft partners have a distinct edge. For one, Microsoft leans heavily on its partners for training. The company also taps partners for marketing, especially on launches where partners develop training or put together white papers supporting a rollout.

And a significant number of Microsoft partners -- including CSS -- act as subcontractors for Microsoft Consulting Services (MCS), which offers a different relationship with a different set of rules than suppliers are ordinarily forced to follow. For instance, if MCS signs an agreement with a customer in a particular area, the organization will subcontract a portion of that work to local Microsoft partners. "Those folks have a different kind of deal with us from the standard [supplier] arrangement," McBride says. For instance, "they wouldn't be subject to our standard payment terms and they get paid differently. They interact with us very differently because their point of interaction is through their MCS partner relationship."

Playing by the Rules
Before becoming Microsoft suppliers, partners must first learn what it takes to work with Microsoft. The software giant has rigorous standards for itself and equally high expectations for its vendors. No question about it: Microsoft does extensive research and sophisticated cost modeling to make sure that it's getting the best deal and the best contract terms possible on everything it buys.

Top-tier suppliers, classified as either "Premier" or "Preferred," are selected by Microsoft procurement managers or category managers. These managers judge suppliers' quality and performance and research how well they can handle the company's future needs in their areas of expertise. The key to becoming a top-level supplier? "Really understand at the local level what Microsoft management is trying to accomplish," advises Evans, of CSS. "Look at how your product and service map to their goals." Once approved, each supplier must undergo an annual review, receiving ratings of one to five for delivery, innovation, organizational health, quality, service, supply-chain management and value. These ratings help guide Microsoft buyers' decisions; the company also uses them to measure costs and decide which suppliers get more business, which get less -- and which get none.

From Partner to Supplier
Want a piece of that $14.5 billion in annual Microsoft spending? Well, go after it like any other Microsoft supplier. Partner pitches are handled in much the same way as any other vendor processing, McBride says: "With corporate procurement, we have category managers. They're the ones that build and create a stable of suppliers for that good or service. Every couple of years, we'll go through a sourcing exercise. We'll look at all the people that we're buying a particular good or service from and go out to market and do an RFP," or request for proposal. At that point, procurement managers turn to SupplierGATEWAY, the vendor extranet. "We'll look at who's in there, who registered interest and the extent that the skills that they list in their profiles match our needs," he says. "We send out [a request for information, RFI] initially and then an RFP and so on -- so it's a standard procurement process."

If you're proposing a new deal or changes to an existing one, you'll need to follow certain rules and procedures. Besides providing all the right names and ID numbers, you must explain the objective of your proposal, the specific benefits your product, service or project will provide, what you'll deliver and when, how much it will all cost, how the reporting will work and what metrics will be tracked.

Those are the nuts and bolts. The heavy-duty machinery is in your product or service. "Have really great services, have really good ideas about where we can advance our products -- those tend to get the most attention," McBride advises. "Come to us with that great idea."

Vendor Program Levels
There are two top levels of suppliers to compete for, Premier and Preferred. Premier suppliers sell at least $5 million in goods to Microsoft every year and, in the company's opinion, would be difficult to replace. Earn the Premier label and you'll find yourself given top positioning in Microsoft's e-procurement system. Of Microsoft's 13,000 U.S. suppliers, about 1,000 belong to the Microsoft Vendor Program (MSVP) for the company's most-preferred suppliers. "You can think of it as an analog to our partner program, but specifically for those who are doing services with us," McBride says. "Premier is the top level for the biggest suppliers. They have a much bigger relationship with us, and we treat them differently." The Preferred level is open to a broader set of vendors.

Even if you can't make it to Microsoft's top-supplier level, you can still do business with the company at the "provisional" level, which McBride sums up this way: "We're doing business with you, but you're not one of our preferred suppliers." The bulk of Microsoft's suppliers fall into this lowest category. "They tend to be companies like an event venue, where we might only do business with them once or twice," McBride explains. "Or there are consultants that we'll hire because they have a specific expertise on one topic; we'll use them once and probably not go back to them again."

And then, there's the crème de la crème -- a select group of super high-end Microsoft partners who supply the company at the Premier level with large amounts of goods and services. "That's a group that has a global relationship with us on the partner side -- they are Gold [Certified] and beyond, in some cases," McBride says. Microsoft manages that group very carefully, he adds: "We have a 360-degree, business-review process that we do that includes the partner [account] managers on the partner side and the vendors on the vendor side."

After the Deal
Once in Microsoft's good graces, you have to play ball to stay there. You must adhere to Microsoft supplier guidelines, use Microsoft supply tools -- such as the online invoicing system called MS Invoice, accept direct deposit and agree to Microsoft payment terms, either 60 days or 10 days less 2 percent.

"We treat Microsoft as a client and client satisfaction is very important," says Evans, of CSS. "Invest the time, especially out in the field with [its] people [who] are actually working with the end client, and do your best to make sure that those projects are successful."

For its part, Microsoft keeps suppliers loyal by offering free or discounted software and training on supporting the Microsoft brand. The company also tends to pay attention to its key suppliers, listening to their problems and heeding their advice on how Microsoft can improve things on its end. Suppliers from Action Events to Zomax Inc., selling everything from employee services to telecommunications, all get a single point of Microsoft contact, which is a pretty big deal when you are doing business with a $40 billion company with nearly 70,000 employees, all of whom have purchasing authority.

Top suppliers also get exposure through SupplierGATEWAY, the vendor extranet, which touts the benefits of being an approved supplier. The biggest advantage is getting the business itself: Non-approved vendors can only sell to Microsoft in rare and special cases where MSVP members can't meet the needs. Once approved, suppliers are on the list that Microsoft employees use to buy goods. They can also use SupplierGATEWAY to help support B2B electronic commerce. (Other Microsoft purchasing tools include MS Market, which all Microsoft employees can use to find the best choices and track purchase orders, and MS Inquire, which lets suppliers check on order status.)

Moving on Up
So what does it take to move up and become a Preferred or Premier supplier? "The real difference is that you've gone through the sourcing exercise where a category manager specifically goes through a relatively rigorous process of RFP/RFI," McBride explains. "Then we broadly agree to a rate card that will be provided to all Microsoft employees who want to hire you and agree to the contract terms that are part of the MSVP agreement -- which is basically our standard work agreement, and one of the requirements of the preferred program. When those things happen, then you move up."

Being an MSVP member is like belonging to a private club with lots of perks and insider deals. "We encourage our suppliers and our MSVP vendors to advertise to our employees that they are MSVP [members]. We also have a vendor fair; we invite only the preferred MSVP suppliers," McBride says. "One of the things we have in our contract for preferred suppliers is that they also use other MSVP vendors for any subcontracting they do on our behalf." But exploiting your Microsoft relationship to sell to others ain't cool, he adds: "We discourage that."

A Two-Time Winner From a partner perspective, Tom Kemp is especially well positioned to share insights about becoming a Microsoft supplier. He's sold software to Microsoft from two different companies, both Microsoft Gold Certified Partners. As a co-founder of NetIQ Corp., a San Jose, Calif.-based provider of system- and security-management solutions, Kemp was part of a team that sold NetIQ AppManager to the Microsoft IT department. In his current job as president and CEO of Centrify Corp., a Windows/Linux integration and security firm in Mountain View, Calif., Kemp managed to sell his DirectControl software into Redmond's massive Windows/Linux/Unix interoperability testing lab. In sharing the approach he used in both cases, Kemp emphasizes that, if you want the Microsoft business, you must start by making sure that you've got a genuinely Windows- and Microsoft-centric product. Besides running on Windows, obviously, make sure it supports the full Microsoft stack, .NET, Active Directory. And if it requires a database, it had better be SQL Server. Requiring Oracle will have you seeing the door so fast your head will spin. Once you're sure you've got the right product, don't just run up to the front door with a briefcase full of demos and a contract. Lay the groundwork first. "You need to raise awareness not just with the product team, but field personnel and customers. You need to create a buzz," Kemp advises. It's also important to get the media and analysts talking. Finding the real buyer can take some sleuthing. "Make sure there's buzz in the field, that you have a dialogue with the product team. Then start playing Columbo with your contacts," he recommends, referring to the famous 1970s TV detective. "Ask around: 'Who would be interested in this type of product, who in IT would buy this?' You shouldn't just sic a sales rep after them. Use your current contacts." You should send your best people when it's time to meet with Microsoft, Kemp says: "Bring your A-team. Send your CTO or vice president of development. Treat [Microsoft] as a marquee account." He notes that, while dealing with Microsoft at Centrify, he served as the main sales rep, while his company's CTO was the main technology rep. The Microsoft relationship can lead to other business -- if you play your cards right. "It's huge to have them as a customer," Kemp notes. "It validates your solution and technology. Microsoft has very high standards." But prospective customers won't know how great your company is unless you can actually tell them about Microsoft. Kemp recommends obtaining an agreement before the deal is closed to do publicity work, such as case studies. Once you're an approved vendor, all the nearly 70,000 Microsoft employees become potential customers. Having Redmond put your company through the wringer may be painful -- but, ultimately, it can improve your product, Kemp concludes: "Microsoft is great about providing feedback. [The company] wants you to be successful." -- D.B.

Don't Worry, Be Happy
Microsoft wants a good deal, but it also wants to keep its suppliers satisfied. After all, happy suppliers tend to be loyal, communicative and cooperative. "[A] primary goal of these measures is to ensure that suppliers to Microsoft have the most positive experience possible. No surprises. No hang-ups. No confusion. Because not only do we appreciate the opportunity to work with your company, we want you to enjoy and benefit from working with Microsoft," reads a note on the vendor section of Microsoft.com. "The Microsoft supply chain management philosophy is simple. We believe in working proactively with the most responsible, strongest and most productive suppliers available to deliver value to our customers, and we expect our suppliers to share our corporate values and operating philosophy."

Those sentiments may reflect Bill Gates' remarkable philanthropic efforts, or they may just reflect the maturing of a 30-year-old company. Either way, they're particularly promising for Microsoft partners looking to become Microsoft suppliers.