Directions

Playing the Deployment Card

Microsoft aims to have partners making more strategic software deployments a priority in the next year.

• By Paul DeGroot
• September 01, 2008

"None of us can be licensing bill collectors," Kevin Turner, Microsoft's COO and also head of its sales organization, told partners at the July event in Houston. "If we don't get after deployment, and if we don't earn the right to be the trusted advisor with the customer, we're going to put our business model in harm's way. That's how serious a topic this is."

The next week, Turner went on to address Microsoft's sales force at the company's annual MGX conference. The first priority he laid out there: deployment of Windows Vista. The second priority was deployment of everything else.

Don't think that Turner's claim about potential business-model harm is an exaggeration. Deployment, particularly of the client OS and of Office, is essential to Microsoft's current business and to its Software plus Services (S+S) initiative. Vista and Office are the "software" half of that formula, and in the last fiscal year, those two products accounted for about 40 percent of Microsoft's total revenue and about 110 percent of its net income. In other words, without Windows and Office churning out 65 percent to 75 percent margins, Microsoft shows a loss.

S+S cleverly avoids cannibalizing Microsoft's all-important desktop franchise by putting only the servers in the cloud. Server software licenses generate only a fraction (about 20 percent) of total server revenue, the balance of which comes from Client Access Licenses (CALs).

Microsoft loses nothing by putting servers online, even if those online servers cannibalize revenue from on-premises servers. But it's unlikely that Microsoft could recover its Windows and Office revenue on a subscription basis. Office in particular is very expensive; free or cheap cloud applications, such as Google Apps, limit the premium that Microsoft can charge. For now, the company has a reasonable argument that document creation and modification work better with more expensive, but local, client-based apps that provide better offline support, more powerful computing and graphics and a more personalized and customizable experience.

What does this mean for partners? Partners already know they can't just act as licensing bill collectors, because margins on Microsoft license sales are minimal. They've always made their money from related services, deployment being a key one. It's hard to say how much of Vista's failure to catch on in the enterprise has affected partners overall, but it's safe to say that it's numbered in billions.

That means less business for security partners who could solve the thornier aspects of Vista's User Account Control or speed up its network performance. It also means less business for ISVs, who normally expect a new business OS to kick off a round of compatibility upgrades.

Partners aren't the cause of Vista's difficulties -- delays and stiff hardware requirements for the product fall squarely on Microsoft's head. But ultimately, Vista is as much a partner problem as it is a Microsoft problem.

One interesting test will be whether Microsoft modifies its current partner-oriented deployment-planning services for Vista and Office desktops and SharePoint.

These services suffer two ills. First, they're locked behind Software Assurance; customers don't get them for "free" unless they pay hefty extra license fees. Second, they don't pay for actual deployment, only for deployment planning. But a lot of billable partner hours are locked up in actual deployment and training.

How serious is Microsoft about the threat to its business model? We'll see when it makes both desirability and painless deployment critical factors in product development -- and when it puts some cash behind partner deployment.