Will Greater Influence Lead to Greater Affluence?

Microsoft's Partner Influence Program is a step in the right direction, especially when partners could be selling Linux instead.

Congratulations, Microsoft. You're finally recognizing a major sore point for partners: They go out and promote your software but don't share in the income that results, while you sometimes appear to have trouble figuring out what the heck you're going to do with all that extra cash.

The Partner Influence Program, announced in March 2007, is a small but symbolically critical start toward resolving that problem. Microsoft will start recording the ID numbers of partners that bring in deals for volume license software sold through most of its 18 large account resellers (LARs) in the United States.

But before anyone gets too excited about the new program, it's important to note that Microsoft is explicitly saying that it's not actually planning to use this data to share the dough with the partners that influence those software sales -- at least not for now. Redmond plans to come up with some other rewards. Partner account managers and others will use the data to provide other benefits, some of which could be financial, such as marketing funds.

Microsoft's reasons for not sharing the wealth have never been very convincing. The main argument has always been that software is only a small part of the IT pie; services -- which partners provide -- represent a bigger slice. But it ain't quite that simple.

Looking at Microsoft's margins on software -- in the neighborhood of 90 percent for the Windows OS, for example -- and at more typical margins (maybe 20 percent) for partner-delivered services, we're not talking apples and oranges. Add in the fact that Microsoft is going to make its money even if it doesn't do much with the product -- the virtue of holding a monopoly -- while a partner needs to hustle to make that 20 percent.

For some reason, Microsoft doesn't deal with the main reason that companies give partners decent margins on products they sell on the vendor's behalf: the fact that partners who get a share of the action are likely to work harder to sell software. As it stands, at a given price for an IT project, partners have an incentive to sell as little Microsoft software as they have to and make the services component as large as possible.

Among other things, all this makes Linux look good. If the client has $2,000 for a file-and-print server, then $1,000 for hardware and $1,000 for deployment and configuration of Linux and Samba looks a lot better than $1,000 for hardware, $700 for Windows Server, and $300 for deployment and configuration. The partner company can actually make more money from "free" software than it can from commercial software. Alternatively, the partner can lower the price (say to $1,500), to beat the competition. Interestingly, in the scenario I've outlined, the partner in question could lower the price and still make more money than the partner with the Microsoft solution.

However, I don't want to dump on the new program, because it's critical to making progress in recognizing partner influence, and the constraints on the partner folks are substantial.

The main problem is that partners don't have the money. The product groups do. Some product groups have elected to provide commissions or rebates to partners for sales -- the Dynamics group does so, as does Exchange for the Antigen services. Partners also get rebates when they talk Open License customers into the Open Value program -- which is interesting because you can buy a wide range of other products through Open Value.

There's a delicate internal dance happening here. The last quarter of Microsoft's fiscal year (which ends June 30) isn't the time to launch an expensive initiative, particularly if you need to talk the product groups into funding it. But I wouldn't be surprised if, not that far down the road, product groups recognize what partners do for them -- thanks in large part to the data collected by the influence program -- and start loosening the purse strings as a result.

About the Author

Paul DeGroot is principle consultant with Pica Communications, which provides consulting services for customers with complex Microsoft licensing issues.