In-Depth

The Partners' Partner

Allison Watson, head of the Microsoft Partner Program, tackles issues from licensing and marketing to program changes, while offering her take on how to get the most out of Microsoft -- and grow your business.

As vice president of the Partner Sales and Marketing Group at Microsoft, Allison Watson has responsibility for the Microsoft Partner Program on a global basis. We talked with Watson about some hot-button issues, including licensing revenue, the level of resources Microsoft is delivering to partners, opportunities for growth and the biggest competitive threats (yes, that means Linux). Watson also offers her assessment of how the dramatic Partner Program changes implemented over the last 18 months are playing out and what Microsoft is doing to increase the visibility of the Partner Program—and partners in general.

RCP: Microsoft invested $1.7 billion in the Partner Program in 2005, up from $1.5 billion in 2004. What's your assessment of the impact that money made, in terms of additional resources for partners?

Watson: That investment accrues to multiple audiences in our partner channel, and in many ways, the investments we made this year were in account management resources, and technology sales resources to support account management, and competitive sales resources and marketing resources. We invested in giving partners access to people and processes around the joint selling process, everything from prospecting to having a key offer in the marketplace to move prospects deeper down the pipeline, and then, for turning them from proof of concept into a closed-customer opportunity. Those are the investments we made that are really making a difference for our partners this year and one that we will continue to make in years to come.

How does that manifest itself in the field? Does it mean partners have more Microsoft people they can go to for help?

The resources that we apply do vary based on the level and depth of the partner's commitment to Microsoft, as well as the segment and technology area that the partner is focusing on. However, if you're a Microsoft Certified Partner today, compared to even one year ago, we now have easily available and accessible inbound and outbound coverage for account planning, sales assistance and competitive sales assistance that we did not have before. So at a very basic level, the opportunity for a partner engagement with Microsoft is higher than it's ever been.

The challenge I have in running the program is to educate partners that those resources are available to them, and more importantly, encourage them to use them in a way that will help them grow their business. Where I've gotten the word out, we do have partners starting to take advantage of all of those resources. And I routinely receive feedback about how it's really starting to make a difference in growing their business.

It seems like still a fairly small percentage of Microsoft Partners have a one-to-one relationship with a Microsoft field Partner Account Manager (PAM) or even a tele-PAM. Are there plans to increase the number of PAMs, or the number of partners who get that close attention?

Allison Watson

"The opportunity for a partner engagement with Microsoft is higher than it's ever been."

We are fully committed to tele-coverage and account management for Certified and Gold Partners. So that's 35,000 worldwide partners today. And that's an area where we are sincerely invested in doing a strong job. We have gotten various feedback to date in terms of areas where we are doing well and areas where we are not doing well, and are committed to making sure we turn that around. We hear more often that that's going well for all Certified and Gold Partners.

In terms of generating licensing revenue, what would you say your biggest challenges are? Does licensing still need to get simpler?

Microsoft is having a wonderful year in terms of its top line revenue, and that top line revenue is generated by licensing revenue. Now, if you ask how is that impacting customers or partners, I'd say it is absolutely top of mind for our partners and our customers that we have got to make licensing simpler, more consistent and more understandable. And as such, we're very focused on work in that area and there are several executive teams looking holistically at [making licensing] better and simpler. We don't have anything in particular to announce at this time, but it's something we're very focused on and committed to, and I believe you will see key innovations from us there in the next 12 to 24 months.

Partners in the small and midsize business (SMB) space say they see much of their software license/Software Assurance (SA) revenue eroded as clients purchase from self-serve Web sites or Large Account Resellers (LARs), although the partner provides influence and implementation services. What is Microsoft doing to address that issue?

First of all, our customers have become savvy in the information world and use multiple potential sources for any piece of software technology and often use multiple sourcing for the appropriate services partners to implement it. As such, partners who have operated on traditional VAR margins, both on Microsoft software as well as any industry software or hardware, have come under increasing pressure to rely on margin when they're thinking about their profitability. In fact, I think it's one of the single biggest pressures in the small and mid market and it's driven, again, not from the software or hardware vendors but from the customer pressure. As such, our VARs have to really take a look at the cost of running their businesses and have to understand how their business is operating from a margin perspective and a services perspective, and then they have to start to optimize their business models to recognize the trend and adjust for it. So in many cases, people who have been relying on software margins really have to look at what the potential opportunities are to insist on their services revenue and to also insist that the revenue they spend in closing down a customer deal is covered effectively, because in the past, that might've been covered up in some kind of margin. There are some tools we'll be providing, business planning templates and tools, so that partners can do a good job understanding where their real costs are being driven from in their cost of sales. And they've got to rely on a profitable services business to make that shift. I'd say that's one of the largest areas of pain for our partners.

In terms of what Microsoft is doing about it, we're very focused on a profitable partner eco-system. We are investing in helping more deals go through any partner's pipeline, and taking costs out at any step of the way. We are not necessarily looking at alternative incentive programs. However, we do have influencer incentive programs out there in our license program called Open License Value, and there are partners who have had some success with that program in terms of it providing more of an influencer fee model instead of a traditional margin. But it would be simply an element of a VAR's revenue and, frankly, the work on the aspects of the costs of doing business is a more important part.

What results were you expecting from the Partner Program changes that you haven't yet realized?

In terms of the commitment to the partner community and the commitment of our investments, we're 100 percent on track with our expectations. The only thing that I probably underestimated was the time it would take us to get all the way there. We're moving 250,000 partners to a new way of doing business with Microsoft, and we're moving all of the business groups inside Microsoft to a new way of doing business with partners. We anticipate being right on track at the end of this calendar year with 100 percent of the [Certified and Gold Certified] Partners adopting a specialization and starting to operate in the new model, with our business groups directing investments to those partners against those specializations.

What is Microsoft doing to increase the visibility of the Partner Program, and demonstrate the benefits of working with partners?

We're taking a comprehensive approach from the top of the marketing pyramid all the way down to the sales process. At the top of the marketing approach, I would look at global advertising and how we are driving partners as the call to action. All the print-based advertising and Web-based calls to action, starting in January of this year, drive customers through to partners on our referral engines. As you go further through the funnel on the sales process, we will have joint engagements in subsidiaries around the world with what we call through-partner marketing, so we will both co-invest and co-brand in partner marketing efforts and we will include them more consistently in efforts with us as we go to market.

The second major area is just the brand in and of itself. Getting the Microsoft Certified brand into the minds of our customers such that, as new projects are taken up by customers, they're actually seeking out partners with the branding level that reflects their competency in the marketplace. That's the one I would say at the high end is the value that partners are hoping we bring in terms of advertising the program to the marketplace.

The second area is what we are doing to bring awareness of the program itself to partners. That's another area where we're making several major investments. I'll talk about two in particular. The first is a global, broad-scale advertising campaign about the program itself and the value and opportunities for partnering in the program. That program launched in February in seven markets around the world. Additionally, one of the huge opportunities that Microsoft has in the partnering program is partners building eco-systems with each other. We just recently launched Partner Channel Builder, which is an online tool that is coupled with offline events in local markets around the world that encourage ISVs, systems integrators and VARs to partner together in pursuit of mutual and common business opportunities. The power that the partnering opportunity has in our marketplace is when partners partner together. And you will continue to see us drive up and out that major investment in the next 12 to 24 months.

Allison Watson

"People who have been relying on software margins really have to look at what the potential opportunities are to insist on services revenue. "

What do you see as the top business challenges facing partners, and how is Microsoft addressing them?

I'd say in general it's the evolution of customers and technology in the marketplace, and then the ability to have a profitable business within that marketplace. Customers have become more savvy in the technology marketplace in terms of how they purchase, discuss and express their pains. Partners have to map to that level of expertise, which requires them to continue to invest in business process skills and business development skills that in the past they may not have had to invest in.

Once they invest in skills, then they have to be able to do delivery, often in a heterogeneous environment, both in the traditional sense but also within Microsoft technology; you might have older versions of one platform and newer versions of another platform. So they have to be technically skilled in areas that are broader than in the past because systems all touch each other.

The third area is having security and compliance knowledge, because there's no technology information system you can put in today without it.

You put all that together and it sounds like a lot of incremental cost for a partner to stay in business. Where I see partners innovating is in how they blueprint more and more of what they do, so they can repeat the same service in a more predictable and consistent way. For example, once a partner has learned how to do one, two or three successful portal implementations, then it's incumbent upon them to take what they've learned, and the tools we provide them, and blueprint how they did that. That blueprint should include what it took to get their people ready, the marketing required and then how to implement the actual technology successfully. We have tools throughout our program to assist them in blueprinting their businesses for re-use, faster turns and higher satisfaction.

Where will the biggest partner growth opportunities be over the next couple of years?

That's a hard question because I don't have just one answer. The mid-market area is a huge growth area for the company and the industry. You have an opportunity to look at how customers are communicating cross-company and connecting companies together. Are those accounts taking advantage of our Information Worker technologies with portals, with Live Meeting and communications services and with the opportunity to enable client programming, taking advantage of .NET Web services from the traditional Office client?

Then you might look at the server layer and say, do we have highly secure, highly manageable and highly controlled server infrastructures that allow a company to have confidence in the compliance and operational use of their infrastructure? Each one of those in and of itself is a large opportunity.

In the enterprise space, I would talk to partners about how they are driving a secure, well-managed, well-deployed infrastructure. I've talked with partners who have excelled at putting what they call zero-cost deployment and zero-touch management of client infrastructures into the very largest companies around the world. That's a huge opportunity for partners to take advantage of.

Similarly, the Information Worker area is virtually untouched when you start thinking about extending beyond the core function of Microsoft Office on the desktop. I have more and more partners in the Information Worker competency area talking about portals, what we're doing with Microsoft SharePoint Services and Live Communications, and even the conference meeting services from LiveMeeting that are coming together to enable workers in ways that haven't been enabled for the last five to 10 years.

And we've had great success with Windows Small Business Server. I believe the combination of accounting, business applications and Small Business Server enablement is a very large growth area for a local or small VAR or small business partner. I really see that as a breakthrough area.

What do you see as the biggest competitive threats to Microsoft?

I put them in two buckets: Threats with customers that our partners are going after, and then competitive threats in terms of Microsoft's eco-system as a whole.

First, relative to our customers, there is continued pressure to ensure that customers are getting real value out of their technology investments at the right price. So we will continue to see Linux being proposed as a potentially lower-cost alternative. However, we have pretty good factual evidence, as well as partner and customer evidence, that it's important to look more broadly at the total cost when competing against Linux, and we are starting to see some pretty strong, healthy competition when there is a head-to-head approach against Linux.

Additionally, I'd say in the business application space we have very strong and entrenched competitors on the high end with SAP and Oracle and in the midrange with Sage, Best [Software] and others, and certainly on the low end with Intuit. And I believe they will continue to be formidable competitors for us into the future and ones that we believe we have a strong story around. But nonetheless, there's good choice in the marketplace for customers and therefore there's good competition for Microsoft and its partners.

If I switch over to the partner side and say, 'What's the competitive nature with our partners?' that's an interesting one. First of all, I think we have to deliver continually the best partnering proposition in the industry, to current partners and prospective partners. At the point we stop delivering that, I believe there are vendors who have competing opportunities in every aspect of our business and those vendors would look forward to a share of our channel.

In February, you launched the Competitive Sales Assistance service, or CompHot line (to help arm partners with info on Microsoft products when they're engaged in competitive bids). Can you say how well that is working?

Competitive Sales Assistance is part of an integrated sales support platform such that partners, both at the Registered and Certified level, and in some cases even into the Gold Certified level, have access to the most current, competitive knowledge and pre-sales technical support that they would need to engage and move either more deals through the pipe, or move deals more quickly through the pipeline. We will be in full launch of the program in July. In its soft launch we had over 1,000 usages of that tool. I personally received mail from one of our Gold Certified Partners, Tim Huckaby, CEO of InterKnowlogy. If I recall the quote correctly, he said, 'This is one of the best things to come out of Microsoft in a long time. I was able to get high-quality information to deliver what I needed to the customer to compete effectively, to win. I hope Microsoft continues to invest in things like this.' So, it's early to tell, but those who have used it are giving us good feedback.

What advice do you have for partners that want to climb the ladder, whether from Registered to Certified or Certified to Gold?

One thing I encourage partners to do is really take the time to invest and learn what the Microsoft Partner Program has to offer. At the same time, take a very deep assessment of what their skills and capabilities are today, and where they might have a natural extension to either grow or extend their business. So, step one is to sit down and say what are you really good at? What markets are you really good at selling in? How do you assess your skills from a technical, marketing, sales and delivery set? And be critical with yourself relative to your skill sets. What partnerships do you have, or not have? Do a capability or opportunity map in their local market. Then marry the self-assessment of the company's skills and availability to invest against the opportunities and benefits that are mapped into the Microsoft Partner Program. And where there's an opportunity to do so, sit down with a Microsoft representative, either on the phone or in person at one of our many events or through our account management framework. Have an open and honest discussion about the potential ways to grow the business. Then sit down and make commitments and goals and check in against them. Of the partners that I've worked with directly, and I have the opportunity to do so fairly frequently, the ones that are proving to be highly successful are those that take the time and opportunity [to take those steps].

More Information

What kinds of things are you doing to better suit the requirements of larger partners?

If you look at the Gold and Certified Partner base, our satisfaction results in partnering with Microsoft have steadily increased over the last three years and are currently at an all-time high. Within that satisfaction rating, we assess both how we're doing with our sales and marketing efforts, our technical enablement and readiness efforts, account management, and how we're doing overall with ease of doing business with Microsoft, all of which are important drivers of partner satisfaction and, ultimately, ability to partner for profitability. Across the board, but especially in our largest partners, we've seen dramatic gains across all of those areas with the launch of the new Partner Program.

Is there anything in particular that they point to that's a big help to them?

Our investments in the Partner Program center around driving partner profitability. When we look at driving partner profitability, we look at two ways of doing it. Number one, what are we doing to drive up the number of deals or the top line revenue of our partners? And secondly, what are we doing to take costs out of their business? So when I look at our investments and talk to partners about how the investments are paying off, I will talk to partners who are benefiting in each of those areas.

For example, I was speaking to the CEO of Dimension Data, which is a South African-based large system integrator that does business in about 12 geographies around the world. As a result of engaging with us in the new Partner Program, they've selected three competencies for which they want to be experts in their practices around the world. They then took our Partner Program and looked at tools across all aspects of their business cycle. They looked at our business planning tools, our technical enablement tools, including training at all levels of their organization; they looked at our joint go to market planning tools, including everything from semninars to direct mail to joint account selling with our account team. And they looked at our competitive sales assistance tools, and are looking early on at what we call Channel Buidling, where partners connect with other partners in order to build out the services they offer in any geography. About one year into their effort, they came back to report to me how they're doing. And in each case they're leveraging the assets. The ones that tend to play the highest in terms of profitablity have to do with our joint marketing efforts and our lower cost of training efforts, in terms of delivering value back to our partners.
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