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Study: Higher Profits for Microsoft Partner ISVs

Microsoft this month released another of the partner profitability reports it commissioned from IDC -- this time showing that independent software vendors (ISVs) in the Microsoft Partner Program enjoy profitability advantages over other ISVs.

The report is part of a series done for Microsoft where IDC analysts compare partners in a Microsoft Partner Program competency against other Windows-based partners and non-Windows-based competitors. As part of the reports, the IDC researchers develop a set of Key Performance Indicators (KPIs) to track the companies against.

"ISV Competency Partners run businesses that outperform those of the Benchmark ISVs whose primary operating system is something other than Windows in 10 of 11 KPIs. The difference in performance in 7 of these 10 KPIs is large enough to be statistically significant," IDC researchers Matthew Lawton and Stephen Graham wrote.

IDC based the study on surveys of 365 ISVs in the United States and the United Kingdom. The researchers identified three main groups of ISVs: Those that were Gold Certified or Certified partners in the Microsoft Partner Program with a competency in ISV/Software Solutions; those who did not belong to the competency but developed primarily on Windows platforms; and those who did not belong to the competency and developed primarily on non-Windows platforms.

The researchers also found a progression. The Windows ISVs had better business performance than non-Windows ISVs and the ISV Competency Partners had better business performance than other Windows ISVs.

The KPIs that IDC identified were revenue growth, net profit margin, gross profit margin, cash flow from operations, customer growth, deal growth, average deal size, sales cycle, implementation time, change in market share and revenue per employee. The one KPI where the non-Windows ISV group outperformed the ISV Competency group was in average deal size ($343,300 versus $155,300).

Some strong areas for ISV Competency Partners versus non-Windows Benchmark ISVs, according to IDC:

  • Higher revenue growth (25 percent versus 11 percent)
  • Higher reliance on revenue from customers acquired in the last year (47 percent versus 40 percent)
  • Higher gross profit margins (43 percent versus 33 percent).

    Meanwhile, the ISV Competency partners outperformed other Windows-based ISVs in eight of the 11 KPIs, according to IDC.

    "Microsoft partners who have not yet committed to the ISV/Software Solutions Competency are well advised to investigate the advantages it can provide, and companies that are not Microsoft partners may benefit from the Microsoft Partner Program and Competency initiatives," Lawton and Graham wrote.

    The IDC researchers offered several reasons for the higher profitability of ISV/Software Solutions competency partners including more rapid development of a competitive solution, access to inexpensive software tools, low costs to support their software, less costly developers and advanced visibility and technical support for Microsoft products.

  • About the Author

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