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Channeling Big Bucks to Partners

Microsoft will take its channel investment to new heights in 2009, nearing the stratospheric level of $3 billion.

Kevin Turner announced the 26 percent increase in Microsoft's channel budget at the 2008 Microsoft Worldwide Partner Conference (WPC) in Houston.

"We're on the same side as our partners, and this year we're going to increase our investment in you by over $600 million year-over-year," said Turner, who as Microsoft chief operating officer oversees the Worldwide Partner Group, the Enterprise and Partner Group and the global field organization, which includes country-level partner organizations.

"We're on the same side as our partners, and this year we're going to increase our investment in you by over $600 million year-over-year."
Kevin Turner, COO, Microsoft

"We're going from $2.3 billion to $2.9 billion in our investment, in our training, in our rebates, in our packaging for you to be able to continue to grow your business and grow the profitability of your business," Turner said in his keynote address at the July event. "But partners are definitely in our DNA."

The release of the figure was part of an effort at the conference to reassure a partner audience that was a bit jumpy after Microsoft unveiled its Software plus Services (S+S) strategy, pricing and margins (see this month's cover story, "S+S: From Possibilities to Specifics"). For those looking for reassurance that Turner wasn't just telling a partner audience what it wanted to hear, he reiterated the love for partners later that same month for a very different audience. Talking to financial analysts, Turner described Microsoft's partners as "the most comprehensive partner ecosystem in the technology industry" and a "tremendous strategic asset" for the company.

Budget of a Small Country
In an interview with RCP editors, Allison Watson, corporate vice president of Microsoft's Worldwide Partner Group, said the $600 million increase in the channel budget is "manifesting itself in marketing tools, programs and, actually, headcount to reach out to more people."

Microsoft didn't provide details about how many employees would be added to Watson's 5,000-person global team or how much Microsoft spent on the channel annually before its 2008 fiscal year, which ended June 30. However, Watson's official Microsoft bio, last updated in July, mentions among her professional accomplishments having influenced a doubling of Microsoft's investment in the channel to more than $2 billion during her four years as head of the Worldwide Partner Group.

Gartner Inc. analyst Tiffani Bova jokes that Microsoft's increased investment is "staggering, it's [the budget of] a small country." Bova, a well-connected channel analyst with professional experience in indirect sales for Gateway Computers, Interland and Affinity Internet, says it's hard to compare channel-focused spending among major vendors, who tend to be protective about their figures.

Breaking Down Microsoft's Channel Investment

A few ways of looking at Microsoft's $2.9 billion investment in the channel:

  • Amount invested per Microsoft partner ($2.9 billion/645,000 partners) = $4,496
  • Amount per MSPP member ($2.9 billion/400,000 partners) = $7,250
  • Incremental spending per new partner ($600 million/50,000 new partners) = $12,000
  • Ratio of channel investment to R&D spending ($2.9 billion/$7 billion) = 1:2.4
  • Channel investment as a percentage of Microsoft's fiscal 2008 revenues ($2.9 billion/$60.4 billion) = 4.8 %

But Bova says that for Microsoft to plow roughly 5 percent of its $60 billion in 2008 revenues back into the channel makes sense, given that Microsoft also claims to reap some 95 percent of its revenues through partners. She also notes that very few other vendors could spend 5 percent of their revenues and match Microsoft's investment.

R&D Comparison
So how will Microsoft's investment in the channel compare to its investment in research and development for the current fiscal year, which runs through next June 30? The channel investment is a little less than half that allotted to R&D, which, according to Turner, will total $7 billion for fiscal 2009.

About the Author

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