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In the Eye of the Storm

Nobody knows for sure.

As this issue of RCP goes to press in early October, that's the bottom-line answer to questions about how the global economic meltdown would affect the Microsoft partner ecosystem.

Uncharted Territory
For many analysts and channel observers, the only thing certain about the unfolding crisis is that it involves largely uncharted territory. "I've been in the IT industry for 19 years and I've never seen in anything like this," says Reed Overfelt, chief operating officer of Reston, Va.-based Mural Ventures, a venture capital, consulting and software-development business and Registered Member of the Microsoft Partner Program.

But he and others see clear indications about which partners are likely to bear the brunt of the economic turmoil. "If you're an application-development partner, you're probably having a very, very hard time right now," says Overfelt, who, before joining Mural Ventures in late 2007, was a Microsoft regional general manager for sales to small and midsize businesses.

On the other hand, "infrastructure partners are still having a good year," Overfelt says, citing steady interest in newer releases of Microsoft products such as SQL Server and Exchange Server. "People are focused on infrastructure optimization rather than new projects at this point." That's even the case at Overfelt's own company. "We're a little microcosm of what's going on," Overfelt explains. "We had a big development project to implement [customer relationship management] for our professional-services team, and we pulled the plug on it. It was something that was nice to have, but not critical to the business."

Companies with strong cash flows and predictable or recurring revenues are best positioned to survive the downturn, experts say. "This will really shake out bad business models and bad business practices," explains Tiffani Bova, research vice president for IT channel programs and sales strategies at analyst firm Gartner Inc. "If you're relying on credit to keep yourself afloat, you're going to get stuck. If you've been lax with your customers on payment terms, it's going to catch up with you."

Survival of the Fittest
Not surprisingly, the venture-capital markets have also ground to a halt. "There's money out there, but people are very cautious about spending it," Overfelt says. "Everyone is going to be skittish until this crisis passes."

For now, at least, partners will find customers steering away from "transactional and tactical" IT projects such as upgrading desktop machines or replacing printers, Bova says. But they may be willing, even eager, to spend for initiatives that help them meet critical business goals, especially those likely to have immediate returns on investment.

For example, streamlining an invoice-processing system so that bills go out sooner may speed up incoming payments-and improve cash flow.

Bova also warns partners against completely halting their own spending during the downturn. She acknowledges that such advice may sound counterintuitive, but argues that investing selectively in marketing, advertising and other areas can ultimately provide strong competitive advantage in a survival-of-the-fittest environment. "Don't overspend, but don't completely stop," she clarifies. "When this ends, you want to make sure you're in a position to capitalize on those that didn't survive, that didn't continue to invest. It's an opportunity to gain ground."

However, many may follow Overfelt's strategy of watching and waiting. "Hopefully, things will settle down by spring," he says. "But it's going to be an interesting ride until then."

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