The Microsoft Partner Program Turns 5

In an exclusive interview, Allison Watson opens up about the highs, the lows, the challenges and the future of the Microsoft Partner Program.

Five years ago this month, Microsoft unveiled a strategy and vision for a brand-new Microsoft Partner Program (MSPP) at an inaugural Worldwide Partner Conference (WPC) in New Orleans.

The challenges were many: consolidating and combining fragmentary partner programs all over the company, developing a unified structure to combine solutions providers with the Great Plains and Navision partner organizations, stamping some consistency onto the program. Five years -- and nearly $10 billion in channel investment -- later, the Microsoft Partner Program is bigger, stronger and far more complicated than it was back in October 2003.

If there's one person at Microsoft who is most identified with those changes, it's Allison Watson, corporate vice president of the Worldwide Partner Group. A Microsoft veteran, Watson took the helm of the Worldwide Partner Group in August 2002 and is still there -- a remarkable feat of longevity in a position both for Microsoft's historical channel efforts and in a company where shakeups are an annual occurrence.

Editor in Chief Scott Bekker sat down with Watson at the WPC in Houston in July to talk about how far the program has come and how much more there is to do. Following are excerpts from Watson's comments on a variety of program and channel issues:

On Evolving Partner Attitudes:
If you look back against that five-year period, it's actually amazing what we've done.

Our partner program has grown over 100 percent in the five-year period. The real focus has been taking a very partner-centric view. Putting partner solutions first, putting partner priorities first, putting partner possibilities first, has been a focus that made a huge difference, I think, in the business results that our partners are seeing.

I heard from a partner [recently] that back in the old days, when we ran conferences and programs, you were treated as if it was a privilege for you to become a Microsoft partner. Now it feels like it's a privilege that Microsoft gets to have the partners with us. Partners tell me there's been a real sea change.

On a Few of the MSPP's Major Accomplishments:
When I look back five years ago, we had the program name, but we really hadn't thought about the aspects of what it took for a partner to be successful working with Microsoft. So there were foundational elements we built around the partner business cycle. How do we help partners plan their business? How do we help partners enable the people in their business in a rich and deep way? How do we think about mutually creating demand together? How do we think about the aspects you need to do to get more sales? How do we think about service and retention? And finally, how do we think about the ultimate focus on satisfaction?

We built a tool set in each of those areas with that foundation. We built the tool set that's now rolled out in [many] languages across seven different tools. And we've got millions of partners using our tool set on a daily basis. We've also made significant investments. We've got $600 million of incremental investment going into our partner channel this year. That's manifested itself in marketing tools, programs and, actually, head count to reach out to more people.

Reinforcing with proof that Microsoft partners are a credible and important part of our [Software plus Services] strategy was the first hurdle for us to get over. Obviously, the second important thing is how to get partners there.

On the Challenge of Integrating Dynamics and Infrastructure:
When we first brought on Dynamics, one of the most interesting questions partners had was, "What business should I be in, and how should I be in business with Microsoft?" [This was an especially important question for] our ISV partners, many of whom were in the business of custom development in ERP solutions, around the world. It was one of the top solutions for a Microsoft ISV. I think over a five-year period, what's come to be true with those ISVs is, they weren't having to spend their own money on the investment in the core ERP platform, but now have an extensible platform against which to add value into the verticals and lines of business they serve. I think that was an interesting first-year transition from the Microsoft channel partner point of view.

From the Dynamics channel partner point of view, it was a real interesting time, right? Because we had the Dynamics team, the Great Plains team from the United States with Solomon, and then we brought in the Navision and Axapta team and those teams had just merged. So, we really were bringing four large companies together all over the world into a U.S. view. They were set up as ISVs with their own channels and their own networks and their own distribution. I guess that's a natural growing pain, a natural integration pain at the beginning.

On Partner-to-Partner Activity As a Major Source of Growth:
The theme that's really starting to emerge now is around what we can do together. We started the partner-to-partner theme just about three years ago. I'll tell you, that was a powerful kind of change for us. It wasn't just about our relationship with each partner, but our partners' relationships with each other. As Microsoft's grown in terms of what we offer from a technology platform perspective, we've changed. [Now] the customer conversation takes more than one partner, and we encouraged partners to get together. We've seen an explosion in the potential, and, actually, the growth in [the number of] partners that adopt that as a strategy. So that's been one we knew implicitly, but I don't think we've even still hit the growth curve of what partner-to-partner can do for us.

On Lead Generation As a Continuing Focus:
I'm proud that this year we drove 250,000 leads into our partners' hands directly from online connections. Five years ago, partners said Microsoft will never deliver leads. [It's become] pretty powerful in five years. We've got big aspirations to take that further. We'd love to have 100 percent growth every year for quite a few years to come, so big aspirations going forward.

On the Challenge of Balancing How to Differentiate and Rank Partners Going Forward:
Five years ago, we had a channel where there was fairly little differentiation in partners, what they did in the market, and certainly little differentiation in how we worked with them. Then we got into deep specialization five years ago. We've really branched deep in the specializations, and we're getting into areas of specialization that are almost smaller than units of business. Partners have driven us there. The Microsoft business groups have driven us there. Once they saw the power of the channel, they decided, 'Well, I want my own whole channel.' You know, Microsoft has got hundreds of products. So that creates a new challenge. We've got ultra-specialization now. In getting ultra-specialization, it's hard to differentiate who is really the best of the best.

Partners start to say to me, 'I think I'm better than ...' [and] they'll point to someone. [They'll say] 'I think I'm a better-qualified partner to do these kinds of solutions.' They'll say things like, 'I'm more technically deep. I have bigger business investment,' and 'I'm more current on technology,' and they'll say, 'I've got customers backing me up to prove it in numbers.'

Probably the differentiation as we're seeing it today is: How do we keep specializations, which have been a hallmark, but how do we take them to the right level? I think you'll see us heading to five or 10 areas of specialization. We're not all the way there yet. This is the year to get it done. We have 15 competencies plus 28 or so specializations today. Maybe we'll be in 10 or 15 areas of focus in the future.

The second part is how we recognize the best as truly being the best. And how we understand the best as being the best. The best might be a small partner that's a specialist in what they do. It could be a large partner who is a specialist. It could be someone who is a generalist. That's kind of our challenge, and, frankly, it's hard to figure that out.

On How the Partner Channel Could be Bigger and More Engaged:
I think the other big challenge that we're facing today is reach. You always hear us talk about how many partners we have around the world. We're proud of that number, but we've done some sizing and we think we only have probably two-thirds of the world's population [covered by] our partner program. We aspire to have Microsoft partners making an impact all over the globe, both for Microsoft's benefit, but also for making an impact in economies and communities.

No. 1 is going deeper, but even more, probably, is reaching the individuals who work with those partners. We've been, in my organization in Redmond, partner-centric in that we think about the partner as a unit, as opposed to the partners as made up of the individuals who work there.

What we believe can really differentiate partners and their businesses is if we have the world-class salespeople. If we have the world-class marketers. If we have the world-class technology architects. If we have the world-class developers. If we have the world-class CEOs. So I think you'll see us take more of a deep focus at the individual-role level, because I think that's how we all operate.

That's my challenge. My challenge now is not only getting more deeply penetrating with the number of partners, but I've actually got a challenge to get 10 million people engaged. When I get 10 million people engaged, which is, I think, the conservative estimate of the number of employees in partner businesses -- if I can get 10 million people engaged and super-passionate about the business impact that they individually can make, then I can start to really change the world in some of these other areas that we're talking about.

That's an interesting and daunting challenge because the value-prop has to be right, they have to have a reason for wanting to go there.

On the "Good-Better-Best" Partner Levels As a Work in Progress:
When I present that kind of concept, everyone nods their head. 'Yeah, Good-Better-Best, I like that, guys.' I don't know if they like the labels, by the way. I don't like those labels. Those aren't the labels we want to use. I'm not sure I would have used those at the conference. We wished we could have been further along [before introducing the concept at the WPC].

The concept of a rating system [could be] three star, four star, five star; one star, two star, three star; gold, silver, platinum ... whatever. We're not even sure that we're going with the 'labels' yet. I hate the Good-Better-Best label. Personally, I don't want to brand our stuff that way.

But the concept people agree with. I think they all agree because most people sitting in one spot think they're the best. I think, if anything, the challenge will be what's going to make the difference? Because part of the design is keeping the bar high, so that Best is a target to continue to aspire to, not one that everyone can just achieve. And I think that will be our challenge. [It's one that] partners press us on a lot ... No one has ever said to me 'I want to be better,' or 'I just want to be good,' to be fair. That's our challenge.

We're studying a lot of models. I like to study consumer models, restaurant models and other business models to how we deliver value at every level. I'm happy to have people at all levels in our organization, but I do want to differentiate our Best uniquely.

On the Software plus Services (S+S) transition as a partner challenge and opportunity:
Microsoft has been saying that we're going to be partner-led in Software plus Services for two years. However, it's never true until it's true. [At the WPC,] the questions that came into peoples' minds were: 'Is Microsoft going to bring me along?' and 'Is Microsoft going to be there?' I've gotten no concerns [back from partners about those questions]. I think if anything it's 'We are there with them. We are on board. We're part of the strategy, we're part of the solution and they're putting proof behind it.' That's a wonderful accomplishment in this quick of an announcement. In the next 12 or 18 months, we're going to have loads more services announcements. We've got a long way to go and even more partner opportunity coming.

Reinforcing with proof that Microsoft partners are a credible and important part of our [S+S] strategy was the first hurdle for us to get over. Obviously, the second important thing is how to get partners there. And I think partners have been very excited about the tools we're rolling out, and really see our investment is about helping them model their business, helping them model their profitability, helping them learn from each other about how to get there.

And the third major area, the compensation model for referrals and influencing and having that available to all of our partners. I think that's an interesting concept. Ninety-eight percent of our solution partners today don't resell software. Because we've announced this model, there's a chance for them to participate in an ongoing annuity revenue stream for making referrals, whereas in the past, they weren't involved in our licensing business.

So that's net new referral revenue stream that partners were choosing not to participate in. For our reseller partners and transactional partners, that's an area where, if your core business is reselling and transaction and you're one of our very large partners that's one of our deepest, [you're] saying 'Wow. It sure is going to be easy for all these partners to be involved in the business that is our core business now.' So that's where I see some partner-to-partner competition being felt. But on the other hand, I'm seeing rich, rich interest by those partners.

On Microsoft's Hopes to Follow Partners on S+S:
We're a $77 billion business today in the software market. Of course, their businesses, everyone has their multiplier in their own head of 'how much I make every time Microsoft sells a dollar.' Studies are out there between $5 and $7 on average. So a $77 billion business growing [at] 10 percent -- whatever multiplier you have of your number times that is pretty solid growth in the current business. And then showing the Software as a Service market, or the market for hosted offerings, is growing at 25 percent but still fairly small. I think the most important statistic out there for partners in thinking about services is that one in three customers is expected to evaluate a SaaS-based offering in the next three years. So if there's no other call to action than one in three of all of the customers we have out there, if that in fact is true, now's the time for partners to say, 'Where should I be and how do I play? What's my unique offering?'

The beauty of our strategy is that customers have a choice. Whether it's an on-premise offering, whether it's hosted by partner or hosted by Microsoft, we'll give our customers choice. So partners decide how they want to play because it's a continuum. It's not as if we think things are going to bifurcate. We actually think they will integrate, then it becomes a giant integration opportunity.

So I do think partners have to think and make that transition to [thinking about] how does integration change and differ when you add more devices into the environment and when you add online and on-premise together. We've been doing that for a long time with the Web. It tends to be a Web application and a Web thing or a Web site and a Web thing. Now think about it, data integration and security and information layers having to transcend boundaries. That's a pretty big change of technology model and I think that will be an extreme change on business model as well.

Partners will have to get there, but I know they'll lead the way. Partners always lead us, a little bit faster than we even lead ourselves.

They surprise us every day and amaze us.