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In-Depth

Unveiling the Influencer

A new Microsoft program aims to pull those partners that influence sales of Microsoft software out of the shadow of the Large Account Resellers who close all the deals.

A few years ago, executives at SoftwareONE Inc. had an idea for growing their New Berlin, Wis.-based business and Microsoft's at the same time. But to work, the idea would require Microsoft to make some exceptions to its partner program.

The problem that executives at SoftwareONE -- like most Value Added Resellers (VARs) who sell into enterprise accounts -- faced when asking for favors from Microsoft was this: Because they had to funnel their enterprise licensing deals through Large Account Resellers (LARs), neither they nor Microsoft knew exactly how much Microsoft revenue SoftwareONE influenced. The system itself prevented Microsoft from knowing whether SoftwareONE itself was a significant enough player to merit special treatment.

Over the years, Microsoft has never really addressed that influence issue despite recurring calls from channel partners for the company to do something about it. Many partners selling into midmarket and enterprise accounts still have no way to demonstrate to their Microsoft partner account managers (PAMs) and Microsoft product groups that their efforts are driving significant business to Redmond. But that's about to change. Right now, Microsoft is rolling out a new initiative called the U.S. Partner Revenue Influence Program, designed specifically to recognize such contributions. The program is partially modeled after the workaround that SoftwareONE came up with five years ago.

The LAR Structure
Among the most surprising things that Microsoft channel newcomers learn is that most partners don't actually sell Microsoft software to their customers (see "A Shallow Dive into Microsoft's Channel"). For smaller customers, partners typically refer the customer to retail stores such as Best Buy, OEMs like Dell or direct market resellers like CDW Corp. With larger customers, solutions providers must rely on a tiny group of uber partners called Large Account Resellers (LARs), who actually handle selling the Microsoft licenses to end-user customers.

Those LARs tend to be experts on Microsoft licensing and can close orders quickly. The arrangement makes sense from Microsoft's perspective because the software giant can more easily train one or two dozen LARs in each geographical area (the United States currently has 18 LARs), and be confident that those companies are thoroughly familiar with Microsoft's complex licensing rules. It's also simpler for Microsoft to collect licensing checks from, say, 18 partners in the United States, rather than from 10,000 individual solutions providers.

While the process works for Microsoft, it can be galling for solutions providers. "They're not recognized even though they're probably the ones in there that are driving that deal to closure. They've caused the transaction, they're just not enacting it," says George LaVenture, president and CEO of Trinity Consulting Inc., a Gold Certified Partner based in Marlborough, Mass.

LaVenture, who also serves on the board of the International Association of Microsoft Certified Partners (IAMCP), says the issue has been simmering among Microsoft partners for quite awhile: "There've been discussions with Microsoft going back at least five or six years."

Robert Deshaies, vice president for the Microsoft U.S. Partner Program, confirms that sustained partner pressure is the source of Microsoft's new program. "This program was driven by them. We came up with a solution to their request. For a number of years, they have felt that they weren't being credited for a lot of the drive and interest and investment in Microsoft products and solutions that they've put together around those products. So this program was really a way to help deliver on something that they've asked for."

A Shallow Dive Into Microsoft's Channel
Thanks to Microsoft's market dominance in desktop operating systems and productivity software, its channel delivery structure is unlike any other company's. Major players include:

Large Account Resellers (LARs)
What they do: These are the companies authorized to sell Microsoft volume licenses, specifically under Select Agreements and Enterprise Agreements.

How they relate to Microsoft solutions provider partners: Some partners enter agreements in which they refer their solution customers to a specific LAR in exchange for a percentage of the LAR's cut in the licensing deal. Often a customer will have its own relationship with a LAR and will simply go to that LAR to obtain any Microsoft licenses that their solutions provider partner recommends.

Whom they sell to: End-user customers in the midmarket-to-enterprise space (generally customers with 100 seats or more)

Examples: Softmart, SoftwareONE Inc., Softchoice Corp., Technology Integration Group (TIG)

Authorized Distributors
What they do: These companies sell to value-added resellers and other Microsoft partners. Their hallmarks are high volume with razor-thin margins. They distribute hundreds or thousands of different vendors' products across the software and hardware spectrums.

How they relate to Microsoft solutions provider partners: Partners buy Microsoft software licenses directly from Authorized Distributors and resell to customers as part of a solution.

Examples: Tech Data Corp., Ingram Micro Inc., Synnex Corp.

Direct Market Resellers
What they do: These companies take Web and telephone orders directly from end users for thousands of IT products, including Microsoft software.

How they relate to Microsoft solutions provider partners: Partners may refer customers to a direct market reseller.

Examples: CDW Corp., Zones Inc.

Original Equipment Manufacturers (OEMs)
What they do: These are the PC and server manufacturers who pre-load Windows, Office and Microsoft server products on to their systems. This channel is the most sizable source of Microsoft revenues and profits.

Whom they sell to: End-user customers, partners, direct market resellers, authorized distributors, systems builders

Examples: Hewlett-Packard, Dell Inc., Lenovo, IBM Corp.

Retailers
What they do: These companies sell boxed Microsoft software and complete PCs and servers loaded with Microsoft software from stores.

How they relate to Microsoft solutions provider partners: Partners may send small customers to retailers to pick up systems or software. Some retail stores are competing with Microsoft partners for small business services, while others are recruiting those partners to build referral businesses.

Whom they sell to: Consumers, small office/home office customers and small to midsize businesses.

Examples: Best Buy, CompUSA

--S.B.

An Outside Job
In SoftwareONE's case, the company originally wanted Microsoft's attention so it could become a LAR itself. Despite a business model that specialized in upselling customers into more sophisticated licensing arrangements with Microsoft and others vendors with the intent of saving customers money over time, the company didn't fit the usual LAR profile. "We had to prove to Microsoft in that first year that we could write the agreements accurately and hit the quotas that we were expected to sell," says Peter Ells, director of strategic alliances at SoftwareONE.

Executives at the two companies worked out an agreement in which Microsoft and SoftwareONE would cooperate to keep track of how much Microsoft revenue influenced by SoftwareONE went through the two LARs that fulfilled SoftwareONE's orders. Ultimately, it was enough for Redmond, and SoftwareONE achieved LAR status. When the company began partnering with VARs to expand its licensing sales business a few years later, SoftwareONE began reporting influence revenue for its VAR partners up to Microsoft.

VARs who embraced the approach found it an eye-opening experience, Ells says. "They didn't know their PAMs [before]. They never probably met their area sales manager. They had just been left to be kind of floating on the ocean on their own."

Building an Influence Program
Mike Haines, a former analyst for the Stamford, Conn.-based IT research firm Gartner Inc., joined Microsoft in 2005, about the time that the company decided it should tackle the influence issue. As general manager for partner strategy on Deshaies' team, Haines says the move to address the situation came down to affirmative answers on some essential questions. "When we looked at what we wanted to tackle at least in the United States, we asked: 'Is it really relevant at Microsoft? Is it doable? Is it affordable? Can we do it in a timeframe and within a budget that makes sense?'"

Under the new program, Microsoft partners who refer customers to LARs for software fulfillment will provide their unique Microsoft Partner Program ID numbers to the participating LAR, who then includes that ID number when reporting the deal to Redmond. Microsoft built a data repository that will include information about the partner, customer, deal amount, products influenced and geographical area involved.

In Haines' view, the main benefit for partners will come when it's time to meet with PAMs or other Microsoft representatives. "When a partner sits down with Microsoft, there's a complete picture of Open License sales plus what they've influenced in enterprise sales," he says. "Now when we do planning, it can be much more tailored to what you do as a partner."

Haines makes it very clear that the program isn't a partner compensation initiative. But he believes having the information will help Microsoft make smarter decisions about investing its marketing dollars with partners. Additionally, the information will be shared with the product groups, which would then gain greater visibility into which partners are really selling their products.

Darren Bibby, a channel analyst with Framingham, Mass.-based IT research company IDC, says an influence program makes a lot of sense. IBM Corp. already has one for its channel, and Bibby and IDC expect many other vendors to follow suit. "The LARs are not the ones making [customers'] minds up. It's the trusted advisors, the 25- to 50-person firm," Bibby says. While the information collected is incredibly valuable to Microsoft and will help some partners show up on Microsoft's radar, Bibby contends that Microsoft will ultimately need to tie concrete benefits to the program to make it worth partners' time.

"Marketing development funds, speaking opportunities, PAMs, being a managed partner or a telemanaged partner -- if all of that had to do with influence points, then I think people would start putting that information in," he says.

LaVenture, of Trinity Consulting, also gives the influence program good marks. "It's not a bad idea. For a service partner, licensing is not a primary part of his business. The LARs do licensing. It can be a great one-stop shopping for a partner that needs to put together a full solution for a client. If someone is an HP partner, and they're going to be purchasing HP hardware, hopefully they could get credit through the LAR," LaVenture says. "The LAR can be like the equal sign in these transactions."

Haines uses a similar balancing image to describe the LAR's role: "We decided to leverage a set of LARs to be the fulcrum of the group that collects the influence partner [information]. Our intention was to make this very simple and not a burden to anyone."

To Pay or Not To Pay
Some observers say that benefits from Microsoft probably shouldn't get too tangible -- after all, money can lead to trouble: "Let's say someone's selling Exchange to Bank of America. Do you think there's one influencer? If you double-count, you double-pay," Bibby says.

SoftwareONE's Ells agrees that financial compensation can lead to more problems than it's worth. "It's not going to be money. They don't want to create a deal-recognition program. If they put too much reward on it, you're going to get those ambulance-chasers trying to get the dollars," Ells says.

That's not to say that LARs won't begin to compete more openly on margin. According to one solutions-provider partner who asked not to be identified, LARs may be able to generate business at first by simply reporting the results back to Microsoft. Eventually, however, LARs will need to offer compelling margins along with the reporting to Microsoft to attract Microsoft partners or lose their rainmaking solutions providers to higher-paying LARs.

Others, like Paul DeGroot of the independent research firm Directions on Microsoft in Kirkland, Wash., believe that Microsoft should use the influence program as a first step in a move toward compensating partners directly for sales that they influence (see his Directions column, "Will Greater Influence Lead to Greater Affluence?").

Next Steps
Microsoft rolled out a pilot of the influence program in November 2006. A handful of LARs got ready quickly and 13 now participate, with a 14th on tap (see "LAR List: Influence Program Participants"). On the partner side, Microsoft first opened the pilot program to its 1,700 to 1,800 U.S. Gold Certified Partners, some of whom were already members of a program with one of the LARs.

"As we got into the New Year, several of the LARs were now ready and had tested the ability to transmit the data to us," Haines says. "I did a snapshot over the course of a 30-day period. We weren't fully operational, but I was already seeing a significant amount of deals reported with an influencer. Even when only two or three LARs were functional, it was millions of dollars worth of business. It was proving to us that what we had was working."

Since then, Microsoft has extended the program to Certified Partners as well, formally launching the program on March 28, just before the start of Microsoft's fourth quarter. For now, the main purpose is to collect the data and return it to Microsoft's partner-facing people, such as PAMs and area managers. "I understand it's a bit of a soft benefit, but it's an important one to the partners nonetheless," Haines says. "When a partner sits down with Microsoft, there's a complete picture of Open License sales plus what they've influenced. We'll have real contributions to talk about. We can now do much better planning."

Immediately, that will translate to PAMs making more informed decisions about which partners get discretionary marketing dollars, program support and other forms of local investment, Haines notes.

As this issue goes to press, Microsoft expects to have automated systems that will allow partners to check online to make sure their LARs are properly reporting the revenues that each partner has influenced.

LAR List: Influence Program Participants

At the launch of the Microsoft Influence Program, 13 of Microsoft's 18 Large Account Resellers (LARs) were participating by reporting an organization's influence numbers back to Microsoft. They are:

  • ASAP Software Inc.
  • CompuCom Systems Inc.
  • GTSI Corp. (government business)
  • HP (through HP Software Licensing & Management Solutions)
  • Insight Enterprises Inc.
  • PC Connection Inc.
  • Software House International (SHI)
  • Softmart
  • SoftwareONE Inc.
  • Software Plus Inc.
  • Softchoice Corp.
  • Technology Integration Group (TIG)
  • Zones Inc.

A 14th LAR was expected to have a program online by summer, according to Microsoft.

--S.B.

The next step will be for Microsoft to lay out concrete benefits in its fiscal year 2008, which begins in July. Neither Haines nor Deshaies would elaborate on what Microsoft will roll out there, although public details are likely to be available at the Worldwide Partner Conference in Denver in mid-July.

Microsoft is also looking for a sensible way to include Influence Revenue in the Microsoft PAM compensation model, Deshaies says. In any case, the Influence Revenue data is valuable information for PAMs, he says. "The PAMs are excited. What this is going to do is it's going to drive another level of transparency to what's really happening in their areas. Because there are so many partners, it really is difficult to understand what all the partners are doing. We will definitely include this into the planning aspects of their business as they're working with the partners."

Outside of the Microsoft U.S. Partner Group, the influence revenue information is supposed to be shared with the Microsoft product marketing groups, such as the Microsoft Office SharePoint Server team and the Exchange team. "Our various product marketing groups are always targeting which partners that they can effectively drive marketing initiatives through," Haines says. "This will provide one more set of data that shows which partners are actually influencing the sales of products. It will give them better insight so they can make sure they're targeting the right people. For marketing people, that's a very exciting proposition."

Although the U.S. program is already out of the pilot stage, the full-blown effort here over the next few months is also serving as a pilot program for Microsoft's worldwide partner program. "From a country standpoint, [the official March 28 launch date] is the big rollout," Deshaies says. "From a company standpoint, we're really piloting this on behalf of the global community. We're working in conjunction with the Microsoft Worldwide Partner Group as far as what this will look like in '08."

Deshaies is also looking to modify the program extensively in the United States as well, based on partner feedback and adoption. "This is not what I would say is a mature, self-running program at this point. We're going to continue to give it a lot of care and feeding and evolve."

An open question is how many partners will ultimately work through their LARs to record their influence with Microsoft. In theory, the program could hold all 10,000 to 12,000 of Microsoft's U.S.-based Gold Certified and Certified Partners. Deshaies says it's too early to tell how many will ultimately participate.

A different approach is looking at what kinds of partners have been most successful with SoftwareONE's existing VARassist program. "The sweet spot is probably the partner that provides full value-add services," Ells says. "It's a small or regional actor, and probably a partner who is more SMB-focused, calling on a customer from 50 to 750 seats."