Post-$3 Trillion Market Cap, Where Do Partners Stand with Microsoft Now?

Change is the only constant. That quote is commonly attributed to the Greek philosopher Heraclitus of Ephesus, but nowhere does it apply more completely than Microsoft. In the 43 years I've been involved with Microsoft, change has been nonstop -- sometimes blinding, often confounding, deeply frustrating and always challenging. But one thing has remained constant.

Jon Shirley, who assumed the mantle of Microsoft president in 1983 after being at Tandy for 25 years, was the first Microsoft executive -- but certainly not the last -- who ever said to me, "The most important thing to us is that you get the most out of your Microsoft relationship." Since then, I have had the same sentiment expressed to me by Steve Ballmer, Sam Jadallah, Allison Watson, Phil Sorgen, David Willis, Margo Day, Chris Capossela, Eric Martorano, Pam Salzer, Kati Quigley, Pattie Grimm, Gavriella Schuster, Rodney Clark and a host of Microsoft Partner Account Managers (PAMs). It is the one and only thing -- and perhaps the most important thing -- I can think of that has been constant throughout the past 40 years.

Quotas Reveal the Underlying Intent
Many years ago, I found myself at a quarterly partner briefing in Microsoft's New York office listening to one of the PAMs, Andy Pavarini, make some announcements. At one point, Pavarini suddenly stopped and drew a deep breath, as if his next announcement was going to be difficult. The entire room quieted.

"I now have to announce that, for the first time, Microsoft has a quota for you," he said measuredly. Everyone stopped breathing.

Pavarini continued, "Starting this quarter, Microsoft wants to see you earn $250,000 per quarter in revenue for your services related to Microsoft products."

It took a moment for everyone to unpack that statement (and I'm sure there were several in that room who never did). Being an analytics geek, I immediately realized there was no way for Microsoft to measure that. We didn't report our services revenue to them. At that time, they didn't even have a deal registration system in place.

Pavarini's point was simple. Microsoft knew that if we were inspiring, selling and winning projects that involved Microsoft products, those products would get sold. Perhaps not by us directly, but customers would end up buying them somewhere. This was the very beginning of what is today referred to as "transacting" versus "non-transacting" partners.

It had always been my experience that my Microsoft partners were anxious to help me close on projects that would have my team implementing Microsoft products. Pavarini was telling us that we should expect even more enthusiasm from them.

At around the same time, then-channel chief Phil Sorgen was telling me, "Microsoft has only one job, and that is to provide partners with the best possible platform to run their solutions on." This pre-supposed that partners of that era had solutions of their own. If you asked many of them what their solution was, their response would have a lot to do with adding more infrastructure. But then-Senior Director of Dynamics CRM Bill Patterson added that we should expect to see "an evolution of solution!"

That was then, and this is now. Much of the infrastructure has been supplanted by cloud services, which has caused Microsoft partners to completely redefine their "solutions." Patterson was right.

Making the Most
Today, many Microsoft partners have clearly defined the services they offer that complement Microsoft technologies. Many are managed services providers (MSPs), cloud service providers (CSPs) and other kinds of IT service providers (ITSPs). Others create their own intellectual property, often in the form of application software, that they sell to and through the ITSPs. Both groups recognize that customers can always enjoy superior pricing on software and hardware products, so they no longer depend on those for most of their profits; instead, they depend on the revenue they generate themselves from their services and/or their software.

Microsoft enthusiastically assures them that those whose solutions involve their own services should expect to see $7.63 of services revenue for every $1 of Microsoft licensing they sell. Those whose solutions are software can expect $10.11 for every $1 of Microsoft.

For me, this defines how today's Microsoft partner can make the most of their Microsoft relationship: Leverage the reputation and quality of Microsoft products as the foundation underneath the services and software solutions you produce, and look to your own generated revenue to produce far more than any product margin. This should come as a surprise to nobody.

Where Do We Go from Here?
Many people, including occasionally myself, can imagine a time when Microsoft phases out the partner program altogether. Two headlines have changed my thinking significantly: "Microsoft tops Apple as world's most valuable public company" from last month, and "Microsoft confirms more job cuts on top of 10,000 in January" from last year.

It's hard to determine what to think when looking at these two headlines in the context of each other. One could suggest that reducing the workforce by 20 percent (by some estimates) helped Microsoft achieve its lofty new market cap. Or one could see the transactional business model for Microsoft shifting.

Many of Microsoft's products and services can be purchased or subscribed to online, and Microsoft partners continue to drive the majority of their sales. Also, there's now a large community of advisors, consultants and other resources, many of them former Microsoft employees, who help partners improve their Microsoft relationships tremendously. Perhaps this has reduced the need for such a large community of Microsoft employees and contractors.

I'll close this entry by adding my voice to the many who are encouraging you to focus on getting the most out of your Microsoft relationship. There are many resources out there to help you, both inside and outside Microsoft. Look inward to determine what it's going to take for you to get the most out of your Microsoft relationship.

Posted by Howard M. Cohen on February 08, 2024