In-Depth

Microsoft Consulting in Your Corner

While boosting Microsoft's consulting investments, SVP Rick Devenuti is engaged in an unprecedented campaign to reassure skittish partners that they will keep their dominant role in enterprise services.

For nearly two decades, Microsoft CEO Steve Ballmer has faced the same question in meetings with enterprise services partners: Will this be the year that Microsoft starts taking a bigger cut of the consulting services revenue pie?

This year, those questions have been even more urgent as Microsoft visibly ramps up its consulting operations, formally known as Microsoft Consulting Services (MCS). Rather than offering the same old assurances, Rick Devenuti, Microsoft's senior vice president for Microsoft Services & IT, and his team are providing unprecedented detail on what Microsoft hopes to achieve with its increased investments in consulting services. Those details are encouraging for partners at a strategic level, although, of course, local implementation will always vary in a company of 70,000 employees.

The efforts to bulk up Microsoft consulting are substantial. Microsoft is adding employees, programs and packaged services, and talking about all of it a lot.

"We're going to grow the revenue of the [consulting] business about 20 percent," Devenuti says. He won't disclose what that means in terms of new employees, acknowledging only that "there is some relationship to headcount." According to a Microsoft slide deck for partners, MCS account for about $1 billion in revenues now, and about 1.5 percent of the total consulting services market.

Microsoft's reasons for girding its consulting force are simple. "We've got a tremendous wave of products coming," Devenuti says. "Our customers want to be sure that the products are going to be successful. Customers want confidence, especially with this new product wave, that Microsoft has skin in the game." That wave of products includes Windows Vista, Microsoft Office 2007 and Exchange Server 2007, followed rapidly by another wave that includes Windows "Longhorn" Server.

The result of all that activity over the next year? "I believe that there will be some rumbling in the market," predicts Mike Vacanti, vice president of sales for the U.S. North Central Region of Fujitsu Consulting Inc., a Gold Certified Partner.

Akthar Ahmed, vice president for strategic business development with Tata Consultancy Services, a Certified Partner with headquarters in Mumbai, Maharashtra, India, sees a definite need for some clarity from Microsoft.

"Historically, when you look at the Microsoft partner network, there has been some confusion about whether MCS is competition. I think it's important for Microsoft to grow MCS. I don't view that as competition. But I think it's also important for [Microsoft] to clarify to help with confusion."

Steve Graham, an analyst with IDC, the Framingham, Mass.-based research firm, says Microsoft should try to communicate better: "It's not that Microsoft's done a bad job. It's a fact that, around services with the partner community, you just need to over-communicate."

Microsoft's efforts to spread the word about its plans already verge on over-communication. The campaign included a series of spring and early summer partner briefings about MCS' fiscal year 2007 plans, an analyst tour for Devenuti, one-on-one and group meetings with partners and Devenuti's extensive keynote at the recent Worldwide Partner Conference (WWPC) in Boston -- all intended to clearly describe Microsoft's services engagement framework, business strategy, financial goals and decision-making process.

A Bigger Opportunity

According to Gartner Inc. analysts, revenues in the worldwide IT services market will grow by about 15 percent by 2009. The Microsoft platform currently accounts for half of those revenues and should still account for about half in 2009. But Microsoft hopes the partner-fueled, Microsoft-platform portion will amount to more than half by 2009.

Worldwide IT Services Market

Source: Microsoft, Gartner

Microsoft positions itself primarily as a catalyst. While a billion-dollar consulting business is huge compared most of those run by partners, it's a relatively small piece of the overall market -- and a small piece of the available consulting services business even on the Microsoft platform. According to numbers from Gartner Inc., the Stamford, Conn.-based analyst firm , the overall services business in 2006 is $295 billion, with about half of that built atop the Microsoft infrastructure of Windows, .NET, SQL Server, Exchange and other products.

Devenuti says Microsoft has no plans to take a bigger piece of the Microsoft platform's portion away from partners. While the company wants to grow its own services revenues, he says, there's plenty of room for doing that without affecting partners, thanks to the 15 percent growth in the overall market that Gartner predicts by 2009. And Microsoft intends to try to use its services resources to drive the Microsoft platform share of worldwide service business well past the current halfway mark, creating much bigger opportunities for its enterprise-focused partners as well.

Theater of Operations
To do that, Microsoft is categorizing all its services engagements in four main buckets: relationship services, new technology engagements, lighthouse engagements and customer demand/customer satisfaction. (A fifth, called SKUs, or packaged services, is currently short on revenue but long on potential. See "Knocked a-SKU".) Those categories describe Microsoft's "Theater of Operations," as the company calls it, and provide a framework for understanding and predicting Microsoft's interest in doing a consulting deal.

Theater of Operations

Microsoft is providing a new framework to help partners understand the strategic direction behind Microsoft's services efforts and decisions.

Service Category

% of Current MCS Revenues

Microsoft's Goal
Relationship services (Premier Support + Enterprise Strategy Consulting) 49 percent
Increase
New Technology Engagements 14 percent
Increase
Lighthouse Engagements 12 percent
Increase
Packaged Services (SKUs) 1 percent
Increase
Customer Demand/Satisfaction 24 percent

Decrease

Source: Microsoft

Microsoft defined the buckets a year ago and has been collecting data on them ever since.

"In our financial system this year for the first time, fiscal year '06, we've defined every engagement as needing to fit into one of these four buckets," Devenuti said during his WWPC keynote. That accounting allowed Microsoft to give partners specific numbers to attach to its engagements and its goals. "This is pretty major because it now provides at least the beginnings of a scorecard where Microsoft can start to establish some specific goals and report back to partners" on MCS' progress, says IDC's Graham.

Microsoft makes the largest chunk of its consulting money -- 49 percent -- from relationship services, a category that includes Premier Support and the new Enterprise Strategy Consulting contracts that involve placing a Microsoft consultant full-time in customer accounts. New technology engagements account for 14 percent of Microsoft consulting revenues, while lighthouse engagements bring in 12 percent. Customer demand/customer satisfaction involves cases in which a customer won't do a deal unless Microsoft has consultants on site. That category currently brings in 24 percent of MCS revenues.

Broadly, Devenuti's goal is to increase the new technology engagements and so-called lighthouse engagements, both of which often result in reference customers that help Microsoft draw entire industries onto a new release of a product or a combination solution built on the Microsoft software stack. At the same time, Microsoft hopes to transition more customers who want Microsoft consultants to hold their hands during implementations into the waiting arms of partners.

"This is as transparent as I can be about where we do work and what we do, and every time we get together we'll show that," Devenuti said in providing the percentages at his WWPC keynote in July. "In fiscal year '07, which started a few weeks ago, our people are measured by this, we measure it monthly in our rhythm of the business discussions, and we govern it monthly by subsidiary to make sure people are working on the right kind of engagement."

Growth Opportunities
Relationship services is set to grow substantially. "We're really building up our relationship services," Devenuti says.

IDC analyst Darren Bibby says few partners object to Microsoft earning money through relationship services-there's simply not a lot of demand to have third parties compete with Microsoft to support Microsoft products. The bulk of relationship services revenues come from Premier Support rather than the limited number of Enterprise Strategy Consultants placed in major accounts.

During his keynote, Devenuti portrayed relationship services as a springboard for new partner business. "I want to be clear: We want every enterprise customer in the major and corporate account space to have a direct support relationship with Microsoft. We have found where customers have a relationship service agreement with Microsoft ... those customers have a 17-point higher satisfaction [rate] with Microsoft, they buy more products, they implement the product more quickly, and it gives us and our partners much more opportunity to bring value to those customers."

Fujitsu's Vacanti says the Enterprise Strategy Consultants (ESCs) don't pose much of a competitive risk, even for a large company like Fujitsu. "We generally aren't assigning a person to a client to look at all of [the client's] needs holistically. We're putting teams in place to implement a particular solution or to create a new process or write a new program for them to enact their business," Vacanti says.

Microsoft's ESCs are good additions to those teams "because they have stronger knowledge of the architecture and can probably get a good grip on the long-term direction," Vacanti says. They play a coaching role rather than creating competitive angst. "Our largest dollars come post-adoption, when we're building out applications on the platform. If they invest in driving more of that on the front-end, there's a wider end of the tunnel down the road."

New technology engagements, demonstrating the value of new products such as Windows Vista, Office SharePoint Server or unified communications solutions, are an obvious Microsoft interest that would spill over into additional partner business. What Microsoft refers to as lighthouse engagements require more explanation. Devenuti defines those engagements as "opportunities [that] have high customer risk and great visibility to move the market, to teach the market that the Microsoft platform really can be used in a mission-critical way, at a scale or in an environment that people haven't thought about [in connection with] Microsoft. These are engagements that have to be greater than 1,500 hours, and they have to have clear visibility in the marketplace to make sure we have the opportunity to move the market."

Customer Demand = Potential Partner Conflict
It's in the customer demand/customer satisfaction category where Microsoft has the most potential for conflict with its partners. With the release of the percentages, Microsoft is now on the record with a commitment to reduce the number of deals that it joins only because the customer wants the reassurance of somebody from Microsoft to blame.

Even when Microsoft is involved in consulting engagements, less than 20 percent of its consulting revenues come from projects on which it is working alone rather than alongside partner consultants, according to company presentations.

Co-Engagement


Microsoft makes most of its consulting money alongside partners. Microsoft consulting services revenue by partner-engagement scenario:

Co-Engagements

Source: Microsoft

Devenuti acknowledged that even with a goal of reducing such engagements, customer relationships may have to be placed ahead of partner concerns.

"We don't do every deal a customer asks us to do, but I do want to be clear-priming is part of the model where it drives new accelerated adoption, where we have the opportunity to truly move the market, or where the customer just won't do the deal unless Microsoft risk is part of the model," Devenuti said in his speech.

That kind of involvement from Microsoft is often necessary, says Ahmed, of Tata Consultancy Services. "It's not competition because when we go sell a large deal [$5-$100 million], if it's a Microsoft project, often the customer wants to see some Microsoft skin in the game," he says.

Devenuti acknowledges that not everyone in Microsoft's consulting operations is fully familiar with Microsoft's new theater of operations strategy. "But I'm absolutely certain that our engagement managers, our salespeople and our service leads not only understand this [concept], but they understand how their compensation is impacted by this," he vowed during his keynote.

IDC's Bibby put it in more concrete terms. "There's still sales quotas, I'm sure," he says. "If they have to break the rules a little bit, and they might have to upset one partner, I'm not sure they're not going to do that again. But I do like this model. This is going to be the scorecard."

Part of the reason concerns crop up is that Microsoft partners have it pretty good, adds IDC's Bibby. "Compared to a lot of other companies who've got professional services, Microsoft isn't bad. You're looking at a problem, but it's not as big a problem as other vendors have," he says.

Reaching Out
Along with the effort to be more accountable to partners, Microsoft is seeking more partner feedback. At the WWPC, Devenuti announced the formation of a Partner Advisory Council, which will begin meeting in the fall.

"I don't think we've done a good enough job getting our message out to partners and talking to partners directly," he says, adding that the Worldwide Partner Group and Enterprise and Partner Group, each have a partner council. "I didn't [originally] see the value in adding to what they were doing."

"Partners have been really clear with me, that when they understand what we do, they're happy," Devenuti says. "Partners have told me over and over again, 'We know how to work with you when you tell us [what we need to know]'"

Devenuti, formerly Microsoft's chief information officer, summed up the opportunity for partners in his keynote while showing a slide of all forthcoming Microsoft products:

"Now, three years ago when I was CIO, if I saw a slide like this, I'd think about the requirements, what business requirements do these products fit, how do I think about building solutions that make my users happier," he said. "Today, when I look at this slide, I see something different, I see opportunity, lots and lots of service opportunity. ... None of these products works out of the box; these are deep solutions that are going to require great service professionals working with our customers to make sure these realities, these benefits come through."

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