In-Depth

Endangered, Not Extinct: Survival Tips for Partners in These Tough Economic Times

Even with the current threats to easy credit, Microsoft partners have resources to draw upon in the tough economic times ahead.

• By Anne Stuart
• December 01, 2008

The bad news is no secret to anybody in the Microsoft partner ecosystem, or, for that matter, to anyone in business around the world: The global economy is hurting, and it's hurting bad. And all involved -- from Redmond's top executives, to the channel's leading entrepreneurs, to the jittery decision-makers at customer companies of all types and sizes -- are feeling the pain.

The good news, such as it is: Things could be worse. While it seems lately that the world's overall credit markets are headed down the same one-way path as dinosaurs and the dodo, there's plenty of evidence that, at least for now, businesses still have some solid options for financing their information-technology projects.

True, thanks to customer skittishness, the future of many such projects remains as uncertain as that of the endangered Sumatran tiger. "Definitely, we're seeing an overall impact of customers wanting to be a little more cautious, and that's impacting our partners," says Allison Watson, corporate vice president of Microsoft's Worldwide Partner Group.

Arlin Sorensen, CEO of Heartland Technology Solutions Inc., a Gold Certified Partner based in Harlan, Iowa, sums up many partners' experience with one simple observation: "Budgets appear to be much tighter for 2009." Midsize customers in particular seem unwilling to commit to making major IT investments, he adds. "We're seeing some midmarket customers slow down projects, and, particularly for 2009, they're pushing off things" until some future date, he says. "It hasn't seemed to impact our small business clients yet, but we're watching carefully."

IT analysts have noticed the same trend. "Demand has started to weaken," says Tiffani Bova, research vice president for IT channel programs and sales strategies at Stamford, Conn.-based Gartner Inc. But she echoes Sorensen's contention that many companies may be simply postponing their projects and purchases rather than canceling them outright. "They may be just pushing it out a few months while waiting to see what happens with the economy," she says.

In other words, those projects may be threatened, but -- to paraphrase the classic line from "Monty Python and the Holy Grail" -- they're not dead yet. And if IT credit options aren't exactly multiplying, they're alive and apparently healthy. Meanwhile, Microsoft Partner Program (MSPP) officials, analysts and others say there are plenty of steps partners can take to make sure they're among the survivors.

A Big-Picture Look
How bad is the IT industry's economic landscape, and how bad is it going to get? Depends upon whom you ask.

Analysts at Gartner and Forrester Research Inc., two prominent IT consulting and research companies, both predict continued growth in IT spending for 2009 -- just at slower rates. "We believe that the spreading economic trouble will reduce market growth from [our original projection of] 5.8 percent down to 2.3 percent, worst-case scenario," Peter Sondergaard, Gartner's senior VP and global head of research, said in a keynote speech at the company's annual Gartner Symposium/ITxpo conference in mid-October.

In May of this year, Forrester had projected that overall business and government IT spending would grow by 10 percent in 2009. Four months later, the Cambridge, Mass.-based company lowered the projected growth rate to just over 6 percent.

Software investment in particular "will come through the 2008 to 2009 slump in good shape, with 7.1 percent growth in 2008 and 7.9 percent in 2009," with much of that expansion occurring in the year's second half, wrote Andrew Bartels, Forrester's vice president and principal analyst, in a mid-September report. But Bartels tempered that optimistic outlook with a now-familiar warning: "Software vendors can't expect to avoid the effects of a tech slowdown. Most CIOs are still expanding their purchases of software, particularly those products that can help reduce IT management costs or business-process costs. They also want to preserve investments to develop service-oriented architectures and protect security. [But] that doesn't mean that some software projects won't be cancelled or delayed because of the economic environment."

Forrester projects 6 percent growth in IT consulting and systems-integration services for 2009, which is stronger than originally expected. Demand for help with building service-oriented architectures (SOAs) and improving business processes, "will set the stage for stronger growth of 8.9 percent in 2010," Bartels wrote. But IT outsourcing is expected to grow at a moderate 5 percent through 2010, according to Forrester.

Meanwhile, small and midsize businesses (SMBs) in particular are keeping a tighter grip on their wallets, according to a recent American Express Open Small Business Monitor survey of 768 SMB owners and managers. Among other things, the poll found that "cash-flow concerns have risen year over year [and] capital-investment plans are at their lowest in the [seven-year] history of the Monitor."

Not surprisingly, SMBs have adjusted their goals accordingly. In the fall 2007 survey, respondents overwhelmingly cited growth as their top priority. This year, 35 percent identified their No. 1 concern as "maintaining their current business and revenue sources." Growth dropped to second place with 29 percent. (Priorities lower on the 2009 to-do list included managing cash-flow issues, cutting expenses and promoting innovation.) Translation: Right now, many SMBs are less concerned about building new relationships than protecting the ones they've already got -- and they'll be making spending decisions accordingly.

Cash and Credit Crunch
Sorensen, who founded an international network of partner peer groups, says many of his colleagues in that organization are already experiencing the domino effect of the downturn hitting their customers' businesses. "We've had several members wrestling with end-customer payment issues, and it's putting pressure on them in terms of cash flow," he says.

Microsoft is hearing the same story. "Our customers are asking our partners to [let them] pay slower, so our partners are asking us to extend credit terms," says Microsoft's Watson. "That's been a really common theme. We're working to address that in a fair way with our partners."

No details were available at press time about new short-term arrangements for partner credit. But Watson points to an existing option that partners can access to help customers raise the money to cover their IT purchases: Microsoft Financing. In the past, many partners didn't know about or didn't bother with Microsoft's six-year-old lending program (see "Finance It," November 2006). Recently, that's changed. "We're seeing more interest in that offering now that things are going on in the economy," Watson says.

And while Microsoft won't provide specifics, executives emphasize that money remains available for lending. "Microsoft Financing anticipates continued growth and will maintain our approach toward risk, including using prudent, industry-standard lending terms and procedures," says Stacie Sloane, director of Microsoft's Worldwide Licensing and Pricing Group. "[We'll continue to] base lending decisions on the creditworthiness of each customer."

Meanwhile, several major IT distributors that have long offered financing appear well-positioned to continue doing so, according to an October report by equity research firm Raymond James & Associates Inc. of St. Petersburg, Fla. The report notes that overall, distributors "have ample [credit] capacity" and "are with major lending institutions that don't appear to be at an equivalent risk as other failed institutions." Some distributors have said publicly that, so far, they've made no changes in how -- or how much -- credit they grant. According to published reports, one major player -- Ingram Micro Inc., based in Santa Ana, Calif. -- is even increasing credit lines for some of its qualified customers.

The New Old-Fashioned Way
Microsoft's Watson has been telling partners that making it through the economic meltdown ultimately requires more than simply solving their cash-flow and credit headaches -- it involves major changes in messaging as well. She sums that up as "talking to customers in their language about what they care about."

That's advice the MSPP is following itself. "We've pivoted all our messages to be about cost-cutting and revenue-generating for all aspects of the Microsoft product line," Watson says. That approach has particular resonance right now, she adds: "It's the time when a value play makes a huge difference. There's never been a better time to be high-value, low-cost and integrated."

In meeting with partners recently, Watson and other MSPP officials have emphasized that survival depends on adapting to a new economic environment. But for insight into who's most likely remain standing after the shakeout, Microsoft researchers looked backward, studying businesses that made it through the Great Depression of the early 20th century and the recessions of the 1970s, 1980s and early 2000s. Watson says that each surviving company -- including some still operating today -- demonstrated three common traits:

• Leadership with clear vision
• Strong marketplace positioning for their products
• Emphasis on great salesmanship and customer service

Microsoft's new messaging reflects those vintage values, she says, and she urges partners to adopt them as well.

Meanwhile, many channel leaders are adopting the same motto as the stranded jet-crash survivors on the hit TV show "Lost": "Live together. Die alone." Recently, members of Sorensen's partner-to-partner network have pitched in to advise peers who have fallen on hard times. "Members are going to other partners' offices to do the strengths, weaknesses, opportunities and threat reviews and provide guidance on how to deal with the situation," says Sorensen, who expects such P2P activities to continue throughout the downturn.

Despite the bumpy forecasts for the next three to six months, experts say there's good cause for long-term optimism. "Our forecast for the U.S. IT market ... shows that the slowdown in growth in 2008 to 2009 will be followed by a surge of buying that will start in late 2009 and carry into 2010," Bartels wrote in his Forrester report. "The subsequent 2010 recovery will be broad-based, benefiting all sectors of the tech market with the exception of IT outsourcing."

But getting to 2010 requires evolving quickly in response to the economy, and Watson offers the following advice for doing exactly that: "My call to action to partners is: Adjust quickly and adjust often -- and stay focused on the numbers. In tough times, that's what great people do."