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Microsoft Looks To Partners To Increase MBS Revenue in 2006

Microsoft is telling investors that partners will be key to the success of the Microsoft Business Solutions (MBS) division.

In Microsoft's latest 10-Q filing on Thursday with the Securities & Exchange Commission, the company wrote that a plan "for facilitating our partners to provide customized vertical solutions" is one of three major initiatives for improving the division's revenues in fiscal 2006 compared to fiscal 2005.

MBS includes revenues primarily from Microsoft's ERP, CRM and retail solutions, and also includes the Microsoft Partner Program.

The division showed $181 million in revenue for the quarter that ended Sept. 30, up from $156 in Q1 2004. Operating losses decreased from $31 million to $12 million.

While the division's software revenues rose 18 percent, other factors, including an investment in the partner channel, prevented the division from rising to profitability in the most recent quarter, Microsoft said.

For example, the company directly attributed a 3 percent decline in services revenue to its initiative to encourage partners to provide more of those services. In addition, investments in the Small and Midmarket Solutions & Partners group offset a reduction in headcount expenses that were driven by a drop in stock-based compensation expenses.

On the other hand, revenues derived directly from partners helped the division perform at the level it did this quarter. "Performance from our ERP and CRM solutions and MSPP [Microsoft Partner Program] subscriptions resulted in growth of 21 percent in license and 16 percent in enhancement revenue," Microsoft wrote.

The partner investment is one of three pillars in Microsoft's plans to improve performance for MBS in fiscal 2006. The company is also looking to the launch of the next generation of MBS products, called Microsoft Dynamics, and broader geographical coverage.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.