Profiting from Microsoft's Profitability
Microsoft's goals are to make partners profitable. How do you intend to make sure it meets that goal?
- By Paul DeGroot
- November 01, 2006
Microsoft knows something about profits, having maintained one of the
most impressive balance sheets in the history of business. After returning
$30 billion to shareholders at one go a couple years ago, its cash reserves
are back up to $34 billion.
So what do Microsoft executives mean when they say one of their goals
for the coming year is to make partners more profitable? Sharing the cash?
Giving partners better margins on sales of Microsoft products?
Actually, how Microsoft will make partners more profitable hasn't been
explained in detail. So far the argument is that, according to research
(conducted for Microsoft by IDC), Microsoft partners are more profitable
than their counterparts who sell competing technologies. However, that
raises the question: If Microsoft partners are already so profitable,
why obsess about their profitability?
One reason is that the company wants partners to give it credit for their
profitability. Another is that partners have choices, and Microsoft wants
partners to know that other choices are not, according to research, as
profitable as the Microsoft choice.
Finally, if you've worked with Microsoft for any length of time, you
know that it is obsessed with metrics. One of the things that makes Microsoft
so hungry, in spite of its enormous profitability, is its passion for
measuring performance. All employees, even people who don't have a sales
role, have numbers to meet, and they'll be on the table come the employee's
But you as a partner should spend less time worrying about motives and
more about how you can profit from Microsoft's profitability campaign.
For many partners, one of the first lessons will be to understand how
important it is to measure from where profits come. A lot of companies
worry about profitability only at the end of the fiscal year. Unfortunately,
if they get bad news from their accountants then, it's generally too late
to do anything about it.
The IDC/Microsoft research can help you do something about that. It identifies
14 performance indicators (such as cash flow from operations, how quickly
the business can deliver on sales, how well it utilizes its service capacity
and the average time it takes to close a sale) that are important for
players in the software industry.
If you have a way to break down your company's overall performance into
specific components like this, you're in a much better position to focus
on the most profitable aspects of your business and to improve or abandon
activities that aren't profitable.
For example, in the course of running your business, do you record the
date of your first contact for every sales lead and the date that the
customer signs the deal? If you don't, you can't track your sales cycle,
and therefore you can't tell if you're getting better or worse at it.
But if you can cut the average time it takes to close a $10,000 deal from
three weeks to two, you can make 50 percent more deals over the course
of a year. Other data, such as the source of the lead, can help you identify
your most effective sales channels and actually quantify their value.
Microsoft backs up the metrics with tools that make it real for partners.
The online Partner Profitability Assessment, for example, lets you plug
in data for your business and see how your numbers compare.
I'd recommend that every partner take the assessment (available on the
partner Web site),
not so much because you need to know where you stand in comparison with
other partners, but because it will help you understand what kind of data
you need to track in order to measure your profitability.
What's in this for Microsoft? Keep in mind another of the company's strengths:
its ability to take the long view (all that cash helps). Most people stick
with a good thing, and if Microsoft is the company that taught you how
to become more profitable, that's certainly a good thing.
Paul DeGroot is principle consultant with Pica Communications, which provides consulting services for customers with complex Microsoft licensing issues.