In-Depth

The Microsoft Partner Network's 1st Year: What Changed, What Worked and Where Does the Cloud Fit?

What's happened since Microsoft completely switched over to the Microsoft Partner Network with its dramatically different competency, specialization and incentive structures? A lot.

It's hard to pin down the exact age of the Microsoft Partner Network (MPN), Microsoft's relatively recent replacement for the former Microsoft Partner Program (MSPP). The MPN name made its debut in mid-2009, for example. But you can make a pretty strong case for a start date of Nov. 1, 2010. That's when the gold competency structure and some other critical changes took effect.

Based on that date, Nov. 1, 2011, was the one-year anniversary for the Microsoft program overhaul. Over the last year, hundreds of thousands of Microsoft partner companies worldwide have digested significant program changes aimed at fostering specialization among Microsoft partners. The changes range from a streamlined competency structure to stronger alignment between incentives and partner program categories, to new revenue tracking systems and increased cloud focus, to changing gold status from a company-level designation to a competency-level designation.

The Nov. 1 anniversary is as good a time as any to assess how Microsoft's huge overhaul has gone for partners.

"There is definitely a resetting of the bar that's happened here. That was done very much in partnership with the partners."

Jon Roskill, Corporate Vice President, Microsoft Worldwide Partner Group

By The Numbers
Jon Roskill, corporate vice president of the Microsoft Worldwide Partner Group, marked the anniversary with a blog post. "We continue to be the largest, most robust partner program in the industry, with 640,000 partners in 170 countries accounting for a staggering $580 billion in revenue," he wrote.

Roskill's statement gets at one of the top questions about the overhaul: How would Microsoft's massive partner base vote with their feet? Would they dance around within the MPN's new competencies and categories and find new homes there, or would they stampede off to competitors' programs?

Howard Cohen, a longtime Microsoft channel member who recently stepped down as president of the New York chapter of the International Association of Microsoft Channel Partners, suspects there are already a lot fewer partners, and says that's not a bad thing. "There are a lot of partners that have signed up for their own specific reasons that have nothing to do with providing Microsoft-based solutions to customers," Cohen said. "I think those folks are paring away rapidly. I think partners who really just signed up with Microsoft to get a deal done are dropping away, which is really desirable. They're not real contributors and it's good to see them leave the program."

At the same time, Cohen is concerned about higher-value partners that have told him they may have to opt out. "I'd like to think that not too many valuable partners are leaving but that's still the tenor [of conversations] I have with a lot of partners that they don't know how they're going to survive over the next several years. Given that's a question for them, they're still up in the air, and I'm not sure how much the ranks are going to shrink."

Microsoft, the only real source for such figures, had been mostly quiet about partner registration numbers since 2009, citing the changeover of systems related to the MPN transition as a reason to hold off on releasing figures. On the anniversary, Microsoft began sharing more detailed numbers for subsets of partners in the program. The numbers generally support Microsoft's position that its partners haven't been rushing for the exits since the overhaul.

"One of the things we're absolutely tracking is churn rate. Our churn rate is very, very low," Roskill said in an interview with Redmond Channel Partner magazine on Oct. 31.

The MSPP structure had Gold Certified Partners, Certified Partners and Registered Members. Those levels don't map directly to the current levels in the MPN, but rough comparisons are possible.

At its peak, the MSPP structure supported about 400,000 partners across all three categories and occasionally the company would talk about having 600,000 or more partners worldwide when non-registered partners were included.

Throughout this year Microsoft has been discussing a figure of 640,000 partners, which Microsoft officials clarified still includes both members of the MPN and non-member partners. Partners that are actually signed up across all the programs now number around 420,000, somewhat higher than the old MSPP enrollment, according to the latest Microsoft figures.

The closest comparison to the former Gold Certified Partner level, which contained 17,000 partners in 2009, is partners with at least one gold competency in the MPN. Roskill said there are about 8,000 unique partners with gold competencies now. Meanwhile, the Certified Partner level included about 18,000 partners in 2009. The MPN's nearest equivalent is partners with at least one silver competency, and Roskill put that group at roughly 18,500 unique partners now. Given that partners with at least one gold competency may also have at least one silver competency, that means roughly 10,000 or more formerly Certified Partners or Gold Certified Partners did not earn a competency.

"If you look back at what was the equivalent of the gold and silver before the new design, we had many [more] partners in those equivalent levels," Roskill said. "There is definitely a resetting of the bar that's happened here. That was done very much in partnership with the partners in order to drive that quality criteria with the customers in mind."

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One of the main pieces of partner feedback that Microsoft executives consistently said they were being responsive to in the MPN redesign was the common complaint from Gold Certified Partners that there were so many partners at that level running around that the brand was devalued.

Roskill said that Microsoft doesn't intend for the current numbers of partners with precious metal competencies to remain static.

"The expectation is we will see this ramp. We'll see additional gold and silver. We don't expect to go two times this year, for instance, and in fact that's not what we're shooting for," Roskill said. A more reasonable goal is high single-digit to low double-digit percentage increases in numbers of competencies attained. Altogether partners have gotten about 38,900 competencies -- 8,800 gold and 30,100 silver (partners can earn more than one of each).

Microsoft isn't just looking for growth in the overall number of partners with competencies, but also in the number of competencies each partner achieves. "I think we'll see acceleration happen in the practices. For example, they start off in Application Platform and they move into Business Intelligence," Roskill said.

Meanwhile, the Subscription level of the MPN has seen some growth, and Roskill takes that as a good sign. "For me, that in some ways is the most legitimate measure. At that point, they've actually voted with their wallet. They're getting our software, as well as some additional benefits around that," he said.

A few years ago, Microsoft boasted of about 150,000 partners with a Microsoft Action Pack Subscription (MAPS). Now, Microsoft puts the number at about 165,000 subscribing to the two descendents of MAPS -- Action Pack Solution Provider and Action Pack Development & Design -- and a few other subscription programs.

All up, according to Microsoft's figures, partners are staying in the Microsoft camp. The falloff in the numbers of partners engaged at the gold and silver competency level compared to the former Gold Certified Partner and Certified Partner level, though, lends credence to the idea that while still in the program, some formerly committed partners may be less invested in the program than they were in the past.

MPN Costs*

$3,800 gold competency**

$1,850 silver competency**

$1,850 Cloud Accelerate

$329 Action Pack Solution Provider

$429 Action Pack Development & Design

* Costs are average prices in U.S. dollars

** Partners only pay for first competency, subsequent competencies are free

It's Really About Specialization
Analyst Tiffani Bova with Gartner Inc. argues that too much can be made of the program numbers. "Intentionally, these changes were not about changing the total number of Microsoft partners but rather to create greater differentiation among those partners who are specialized around certain technologies and markets. The total number of partners is less important than the number of skilled resources in the field servicing customers with their current and future Microsoft needs. Capacity planning is at the heart of [the] MPN, too little or too many partners with specializations is not good for partners or Microsoft," says Bova, who evaluated the changes in a 10-page report in 2009 and has kept close tabs on Microsoft's progress since.

"While many partners had to make some tough decisions about their future with Microsoft, many took the opportunity to focus their businesses around a key set of offerings and invest in greater certifications and training, which resulted in further specializations. All along, the intention of Microsoft with these changes was to ensure they had the right partners with the right skills in front of the right customers at the right time, and with these adjustments partner feedback has been positive," she says.

Among partners, there's been a general acknowledgement of a need for self-examination to determine core competencies, Cohen says. "It's kind of like medicine; the day of the general practitioner is gone. I think the same is true for those of us in IT, the days of the general networking integrator are over. Over the next few years you'll see a community of highly focused, highly differentiated specialists. Perhaps the business requires it, but I think that's one area Microsoft is exhibiting thought leadership by making everything more specific," he says.

Microsoft does not provide numbers on enrollments by competency, but Roskill provided an anecdote that reinforced the specialization theme.

With the new competency structure, Microsoft made a somewhat late addition of a Midmarket Solution Provider Competency. The idea was that jack-of-all-trade partners could pursue the competency as a general-purpose approach. Partners had been clamoring for the less-specialized option, and Microsoft officials at the time anticipated that about 16,000 partners would sign up for it worldwide.

Although he wouldn't provide a number of partners that have earned the midmarket competency, Roskill says, "The thing I would say is that I was expecting more partners to show up in the midmarket competency, because we'd heard from early on, 'Hey, I've only got three or four technical people on staff, and so what should we go do?' This was an answer for that."

Instead, the midmarket competency has been less popular. "They've elected to specialize in a higher percentage than I would've forecast early on. I don't think it's a bad thing. It's interesting that they think that walking into midmarket accounts ... that they're better off going in with a specialization," Roskill said.

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The Role of the Cloud
The first full year of the MPN also coincided with a significant cloud push by Microsoft. Although the originally announced MPN structures didn't include the cloud, Microsoft fielded the Cloud Essentials and Cloud Accelerate badges outside the competency structure. Those badges have been available for most of the first year of the program.

According to Darren Bibby, a channel analyst at IDC, the badge approach has grown on him. "At first I was wondering why was there this Cloud Essentials and Cloud Accelerate? Why didn't they put those into the competencies? [But] I think they're doing a good job. Cloud is going to be a part of every competency," Bibby said. "They're weaving it into everything and I think that's smart."

On that theme, Microsoft has started to talk about possibly requiring some percentage of cloud sales for all gold competencies in the future, although most details, including whether to go forward with the idea at all, remain up in the air.

For Bova, cloud is one of the areas where Microsoft still has the most work to do in the MPN. Asked what changes were necessary going forward, Bova suggested "further investment in helping those partners who have built strong businesses with on-premises solutions transition to more of a hybrid approach including Office 365 and [Windows] Azure and other cloud-based solutions in the market."

Favoring the Big Partners?
A lingering complaint among small solution providers is that the MPN requirements have favored larger solution providers at their expense. That criticism is especially prevalent among Dynamics partners, where the falloff at the gold level has been more dramatic -- going from more than 2,000 Gold Certified Partners before the MPN transition to roughly 700 gold competency partners now. On the infrastructure side, Microsoft officials argue that needs of partners across all sizes are being balanced, but it's clear that for some of the very largest Microsoft channel partners, the distributors and large account resellers, there have been difficult transitions, too.

"[Microsoft wants] to focus on the top-tier large accounts, and have the LARs now focus on the corporate accounts, the [midsize] accounts," explains John Cullen, an analyst with Directions on Microsoft. "What's happened is as Microsoft moves into more of a hand-holding role of the big accounts, for those big enterprise customers, you're seeing the LARs that were handing those major accounts having to adapt by having to staff and establish a new business model for the [midsize] corporate account segment. [For the LARs], the rebate and the fee percentages are higher that Microsoft provides, but the deals are going to be smaller. That's beginning to have a pretty big impact on the large account resellers."

Cullen said the changes are working for some LARs, such as Software ONE Inc., which has its U.S. headquarters in New Berlin, Wis. At the same time, the process is weeding some LARs out and leading to consolidation among others.

"This change could reduce the number of LARs overall, and lead to more consolidation in the market," Cullen says. "In Japan alone, they've consolidated from 40 or 50 LARs down to 15."

Effects of Microsoft's moves to change the LAR payment model surfaced in the earnings reports of one public LAR in the United States. Earlier this year, Insight Enterprises Inc., based in Tempe, Ariz., warned investors to expect a bottom line hit due to channel incentive program changes from its "largest software partner," code for Microsoft.

"[Insight] has updated its analysis and now expects the full year 2012 impact on gross profit to be between $5 and $10 million," the company said in February. "The program changes will be finalized over the coming months and in the meantime, the company is implementing action plans intended to help mitigate this expected impact."

In another area, Roskill notes that some changes that committed partners had been most concerned about turned out to be overblown. One was the requirement that partners demonstrate $250,000 in Microsoft-related revenues to qualify for the gold competency. "There was some level of energy being spent around whether or not we were going to kick people out around those requirements. Basically every one I've looked at where the partner was stressed out about whether they would make the revenue requirement was making the revenue requirement easily," Roskill says.

A Tale of Two Partners
The approaches of two U.S. partners show the different ways longstanding partners are responding to Microsoft program changes.

David Rosenthal, the president of Atidan, founded his Yardley, Pa.-based firm in 2005 and was one of the Gold Certified Partners that welcomed a higher standard. "It was very easy to get Gold, and you certainly could feel like it was too easy to get certified on any of the levels. Personally, I'm glad they made it harder," Rosenthal said.

Atidan embraced the new competency system, and has earned four gold competencies and eight silver competencies so far in the MPN.

"The jury is out whether it will benefit us," Rosenthal says. "For a small firm, we've achieved a lot of golds and silvers and I am hoping that will make us stand out from the rest."

To date, the competencies haven't been important to customers, Rosenthal says, but added that the enhanced listing in the Pinpoint directory at the gold competency level has been a plus. "Though we're a small firm, we come up at the top of searches because of our competencies," he said.

Kevin Fream, president of Matrixforce, was the first Microsoft partner in Oklahoma to become a Gold Certified Partner all the way back in 2003, but Fream isn't sold on the value of gold competencies under the new MPN.

"The partner gets torn in so many different ways. They're supposed to focus but also they're supposed to grow," Fream says of the competency system that requires employees to get certifications in each specialty area, but mostly doesn't allow the same person to be certified in related practice areas.

Those employee-based, rather than company-based, certifications also raise a problem, Fream says. "You have a conflict between employee and partner. You pay to get your employees certified [to meet the competency requirements], but the certifications are theirs. It pads their resumes, and empowers them to move on and start their own businesses."

Rather than pursue gold competencies, Fream is maintaining a silver competency and putting his MPN energy into the Cloud Accelerate badge. So far, he's one of only 96 partners showing up in a worldwide Pinpoint search for Cloud Accelerate.

The cloud badge, Microsoft training and the Pinpoint listing are all helping Fream develop a Microsoft cloud business. "We're just now pushing over the 1,000-user mark," Fream says.

For Atidan, the MPN competency structure is sound. For Matrixforce, the model has problems but the MPN cloud badges are proving valuable. In each case, the MPN seems to be flexible enough in its first year to offer the support and tools necessary for a creative partner to thrive.

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