In-Depth

Judging the Impact of Microsoft's Master VAR Program

The Master VAR program evokes strong emotions in the Dynamics partner channel. There are plenty of critics of the program, but Microsoft is committed to pushing the model forward, which will bring a new dimension -- and perhaps new energy -- to the Dynamics partner ecosystem.

Proponents of the controversial new Microsoft Master VAR system in the Dynamics channel contend the program could create new opportunities for smaller partners who sign on as affiliates.

The Changing Ecosystem
Craig McCollum, president of True North Strategists and former Microsoft Dynamics Worldwide Sales vice president, believes the changes facing channel partners are unparalleled. "I've been in this business for over 30 years and I think that now there's more change going on that impacts these partners than any other time in our history. There are times when there have been technical changes going on like the early 2000s with the Web," McCollum says, "but now, with the economic, social, technical and political changes hitting everyone at the same time, it's the most challenging time I've ever seen. Yet at the same time, there are tremendous opportunities that are presenting themselves."

And with change, adaptation must follow. McCollum suggests that this is a critical time for partner owners to revisit vision and strategy. Owners should realistically evaluate whether they can achieve their goals on their own or if they'll need a partner.

For Dynamics partners that follow McCollum's advice and come to the conclusion that partnering is the best solution for their business going forward, there's a new vehicle open to them in the Master VAR program.

The Master VAR Program
Master VARs are Microsoft-authorized Dynamics resellers who provide centralized services -- including marketing and sales operations -- to independently owned partner organizations known as Sales Affiliates (read RCP's feature story on the Master VAR program here). Sales Affiliates conduct business under the Master VAR brand but retain access to their customers' data and continue to serve those customers. Master VARs are authorized by Microsoft, and have a contractual obligation to deliver a set of services to their partner ecosystem. The relationship between Master VAR and Sales Associate, however, is independent of Microsoft.

From the Microsoft perspective, the Master VAR program gives smaller partners a trusted vehicle allowing them to remain independent without having to grow to meet steeper Microsoft Partner Network (MPN) requirements. Microsoft has recognized that channel consolidation is happening and in some cases -- such as "buying clubs" -- has not been happy with the direction. Providing an endorsed avenue makes sense to help guide partners in a desired direction.

Jeff Edwards, director of Microsoft Dynamics Partner Strategy, explains, "Microsoft wanted to do the work for the partner. We've created the program to help the smaller partner understand what they're getting. We're going to ensure that the partners executing on this activity have the resources, are committed and have a proven success level. They must also have the internal operational investment and processes in place. From the three to four authorized as Master VARs, partners can have the conversations about fit for their specific company."

Partner Path to Growth
The ultimate goal of the Master VAR program is to assist smaller partners who've been unable to build growth momentum to tap higher-end marketing and operations resources to grow the business.

Microsoft tapped Terry Petrzelka, owner of the Petrzelka Group and retired owner of Tectura Corp., to help mold the Master VAR program, incorporating lessons from the acquisition giant. He believes the key to the success of the program will be the growth potential for the Sales Affiliates.

Petrzelka notes that while half of the partners he speaks with want to keep their business as is, "The other 50 percent have been trapped by not having enough time and energy to grow the business -- most significantly, a lack of time to market and [to] sell, besides [time to] invest in new services and technology. They've been trapped by support calls and keeping customers happy. Master VARs will allow those partners to drive their business to grow and prosper, leveraging the assets of the Master VAR's network."

To his point, for 15 years Paul Silvani dealt with the challenges of a small practice as owner of Lakeshore Consulting Inc. "I consistently struggled with trying to grow the business. It was always feast or famine with marketing. We would do it for a month or two and then it would drop off when we got busy. We wanted to sell new products like CRM and AX, but didn't have time. The only way we would be able to achieve our growth objectives was to join SBS Partner Network." (The SBS Partner Network is run by SBS Group. SBS Group and Socius LLC were named by Microsoft in late October as the first two Master VARs. Microsoft named a third firm, Tribridge, in November.)

Through the Master VAR program, Microsoft wants to give partners like Silvani with growth ambitions a new option. Partners can focus their efforts on service delivery and customer relationships as they've done in the past, while a marketing engine helps them build pipeline for growth. Additional operational costs are pulled out of the company through centralized sales operations. The end game is higher profitability and sustainable growth of the Sales Affiliate partner.

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The SBS Group Experience
Helping SBS Group earn a selection by Microsoft as a Master VAR was the company's launch in October 2010 of the SBS Partner Network, which served as a model for the Master VAR program. With 10 partner organizations currently in the SBS Network, the Microsoft announcement has spurred interest from more partners and undoubtedly will lead to additional expansion.

Jim Bowman, president and CEO of SBS Group, explains the goals of the program: "It's designed for partners who want to stay engaged in their business, want to grow their business and recognize that the resources they need to do so are beyond their current capacity." Bowman continues, "They love this business, they want to stay in it, and they want to grow it. They want to continue to participate in the Microsoft ecosystem but they also recognize that the market has changed. Technical sophistication needed to support the solutions has changed, and that requires a different set of skills and resources to be successful."

Partners who are invited to join the program are evaluated across several factors. One is location in a region that can support growth and augments the current network. Additionally, SBS looks at the vertical expertise, particularly when the partner has proven intellectual property (IP) or a repeatable service package that will add value to the network. For those partners, the network provides a distribution and delivery channel for verticals across the country.

Selections are strategic to balance the SBS Group business as a whole. "Our approach is that we look at a portfolio of vertical markets both cyclical and countercyclical," Bowman notes.

As a CPA and 25-year Dynamics SL implementation consultant, Carolyn Chasteen and her business partner, Melissa Douez, were proud to provide personal service to their Denver-based customers. With the MPN changes looming, they knew they had to make a change. There were offers of acquisition from partners, but Chasteen and Douez wanted to retain full ownership of their business.

Having known Bowman and General Manager of SBS Toledo Joe Longo for many years, Chasteen was comfortable joining the SBS Partner Network last October. But the results have surprised even her.

"We've seen about a 35 percent increase in revenue. We're having the best year since 2006," Chasteen, now SBS Denver general manager, says. "It's been a very positive experience. For a small company like ours it was definitely the right move. When I look back a year ago to where we are now, there's just no comparison."

Chasteen believes in Bowman and Longo's dedication to making the SBS Partner Network a win-win for everyone. "I would say the biggest thing that they've done is the strength of their marketing department. We want to have a consistent SBS Group brand," Chasteen continues. "We have a marketing plan that we adhere to. It has really helped us build more demand and close more business."

Benefits of the program have been deeper than profits, according to Chasteen. Customers have access to services that they could previously not offer, like Project Server and infrastructure. Monthly operations and sales calls with the SBS Network Partners lead to collaboration between the network partners.

Silvani, now SBS Chicago general manager, sees benefits for customers and employees. While his customers had some concerns with the change, they're taking full advantage of webinars and additional services, such as programming and CRM that Sylvani's group can now offer through the SBS Partner Network.

Employees are also seeing benefits from being part of a larger network. "They like what they're doing and this gives them more stability. We will continue to grow as an organization," Silvani says. "Through the network, there are more people to bounce ideas off or to support activities that we may not be strong in. Now they have internal training programs and resources available to help with infrastructure."

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Silvani now has his sights set higher for his organization, which focuses on the process manufacturing industry. As a single entity, his team faced challenges winning deals based on the perception that they were too small in spite of their successful implementation track record. With the strength of the SBS Partner Network behind them, Silvani feels confident that they can play and win in the larger opportunities, taking the company to a new level.

The Catch
This all sounds great -- take costs out of the company and add enterprise-level resources -- but is there a catch? The answer depends on your perspective. As part of the agreement, the Sales Affiliate partner adopts the Master VAR brand but retains full ownership of the company. For example, Lakeshore Consulting is now SBS Group Chicago, but still wholly owned by Silvani.

A veteran of scores of acquisition and business negotiations through Tectura, Petrzelka is very familiar with the value that partners place on their own company name. "The small partners have put in a tremendous amount of time building their local brand," Petrzelka says, "but the reality is that local brand is really them, it's the owner and their team members. I know it's a tough decision for the local owner to have to do business as the other name, but the reality is the ownership of the client is really with the individual. No way is the brand going to take that over. The channel partner business is a service business -- a trusted agent [and] local service provider business."

Another concern voiced by skeptics is the ownership of clients. In the Dynamics partner business model, customer ownership is protected and tracked in partner accounts through the Dynamics partner portal, PartnerSource. Dynamics ERP maintenance renewals are a significant revenue source for Dynamics partners. While renewals will be managed by Master VAR operations, Microsoft assures Sales Affiliates that customer ownership and access will be restricted and not shared across the organization.

Petrzelka sees great potential in the retained local ownership afforded by the Master VAR program, as opposed to acquisition strategies of the past. The local entrepreneurial spirit drives the business with a network of shared resources that can be leveraged by the larger group. "The best of both worlds."

Those shared resources are also the prime differentiator with the buying clubs that don't require a central brand. "Master VARs are better positioned to add value to the smaller partner than the buying clubs who have no capability, no investment capacity and/or no real interest in adding value other than providing a storefront name. Fears of the Master VAR taking over the business are unfounded," Petrzelka says. "Better to be part of a network where your value is understood, than a buying club where you are still essentially on your own and possibly just prolonging the inevitable."

Should Gold and Silver Partners Worry?
How will the Master VAR networks affect partners outside the program? The impact on most gold partners is likely to be minimal, because their competency level suggests vertical or regional sales leadership. But silver level partners, still adjusting to their perceived value downgrade, are watching the Master VAR program very carefully.

There will clearly be a change to the regional Dynamics ecosystem when a local partner with a couple of consultants joins a Master VAR. With the stated purpose of the Master VAR partnership to grow the partner's business, that small player just became a much bigger presence. And while the Dynamics partner channel has earned a reputation as a channel of "co-opetition" with a mantra that there's plenty of business for everyone, a Master VAR in town will be unsettling.

Some silver competency vendors are concerned that Microsoft is trying to squeeze them out, but Microsoft hopes to calm those fears. As Terrence Abrahams, Dynamics Channel director of U.S. Channel Strategy notes, "From an MPN perspective, partners think, 'I'm either gold or I'm nothing.' That's very much not what we're trying to do. There is still a space for the silver and registered partners."

An important point that Abrahams is trying to spread to the channel is that Master VARs don't get special treatment. "No unfair advantages are provided to the Master VARs," he said. "They're on exactly equal footing with everyone else."

Risks and Rewards
As Dynamics Partners continue to adapt to the pivotal changes facing their business models, affiliation options continue to emerge. The Master VAR program, endorsed by Microsoft, holds promise as an alternative to the classic merger and acquisition model. Yes, partners must conform to a common brand and trust others to respect hard-earned relationships. But the potential to break free of small partner constraints may reignite entrepreneurial spirits that the channel could use.

More on the Master VAR Program: