Microsoft Preps Pilot of Master VAR Program for Dynamics Partners

• Read an in-depth feature on the Master VAR pilot program here.

A few months after publicly deflating a trial balloon for a plan to introduce a franchising concept to the Dynamics channel, Microsoft is back with a related idea.

On Sept. 1, Microsoft plans to launch a pilot of a "Master VAR" program for Dynamics partners.

The plan addresses Microsoft's stated goal of giving some of the smaller Dynamics partners who are being crowded out of the market by economic trends, by customer preferences and by Microsoft channel program changes a way to stay in the Dynamics business without having to engage in mergers and acquisitions.

Jeff Edwards, who as director of Microsoft Dynamics Partner Strategy steered Microsoft's evaluations of both the franchising and Master VAR approaches, explained the thinking behind the decision to go with a Master VAR concept rather than franchising to RCP at the Microsoft Worldwide Partner Conference earlier this month in Los Angeles.

"I think the word franchising has connotations around fast food," said Edwards. (We couldn't agree more; the cover illustration for Jeff Schwartz's article about the franchising idea in the April RCP issue showed a McDonald's motif.)

Aside from potentially negative associations, there were other factors that proved more problematic in a franchising model. Edwards said the business filing, tax and legal requirements for setting up a formal franchising system were all fairly daunting.

That aside, Edwards said there was one main element to franchising that Microsoft wanted to keep: "What we did like about it is you did have consistency with national brands."

Enter the Master VAR approach. Under the model, a Master VAR would recruit smaller partners, known as affiliates, who would sell Dynamics ERP and CRM under the Master VAR's brand.

One of the most difficult aspects of the transition to the Microsoft Partner Network structure over the last year for Dynamics partners has been the much higher bar for membership at the gold level, and a similarly high bar for the new silver level, as well. For Dynamics partner companies with fewer than six employees, the requirements are nearly mathematically impossible to meet. Even for slightly larger organizations, the gold and silver hurdles are much more difficult to clear than the Gold Certified Partner status of the past.

Under the Master VAR setup, Edwards said, "We would hold [only] the Master VAR to the MPN gold requirements, like any large partner."

While that requirement would allow smaller partners to continue to sell and deliver Dynamics solutions as a gold-branded partner, it would have to be under the Master VAR's brand and on the Master VAR's terms. "The Master VAR would decide the financial relationship," said Edwards, adding that most agreements would probably involve the affiliates being able to take back their customers if the master-affiliate relationship didn't work out.

In addition to the MPN certification requirements, Microsoft would expect its Master VARs to centralize marketing, search engine optimization, support, billing and other operations.

For small partners considering an alliance with other small partners in other regions, the Master VAR pilot won't support that particular arrangement, Edwards said. "We require a unified brand," he said. "We don't want it to be that lightweight."

To be considered as a Master VAR, a nationally focused Dynamics partner will need to meet several requirements. The company will need to:

• have $1 million in operating capital,
• assume legal liability for the work done under its brand by its affiliates,
• drive the certification, operations, support, marketing and SEO for its national brand, and
• require affiliates to operate under a common brand.

Edwards declined to identify the national partners that Microsoft is in discussions with about participating in the Master VAR pilot this fall, but he did share some characteristics.

"We're going out largely to existing large partners," he said and added that four to five companies are interested. "We only want two or three," he said.

Edwards said Microsoft does have a sweet spot in mind for the Master VAR program: "You'll find it more in the lower midmarket and core midmarket."

The Master VAR pilot starts just a few months before the Jan. 1 launch of a new Dynamics Incentives Program that will increase product margins for partners that are meeting growth targets and decrease margins for partners that miss the targets.

Edwards said the Master VAR program could give both Master VARs and especially their affiliates an opportunity to realize those growth incentives, which can add up to 20 percentage points to Dynamics margins.

If you're a Dynamics VAR who won't be qualifying for a gold competency under the MPN, is an affiliate relationship with a Master VAR appealing to you? Let me know either way at [email protected] or leave a comment below.

Posted by Scott Bekker on July 25, 2011