Microsoft To Change Dynamics Partner Compensation

This is the way of the future, and not just for Microsoft Dynamics. Mark our words: Microsoft is moving toward rewarding larger partners and sloughing off smaller ones, starting with the policy that will soon be in place for Dynamics compensation.

We're not saying that this is all bad, just that it's reality. Check out how Jeff Edwards, director of Microsoft Dynamics Partner Strategy, explained some of the changes to RCPmag.com:

"A new Dynamics Incentives Program, which will go into effect in January 2012, will add growth into Microsoft's calculations of partner margins, in addition to total revenues. Partner margins will go up by up to 20 percentage points if license revenue growth hits one-year and two-year targets, and if customer additions hit certain targets. Conversely, if growth isn't hitting Microsoft's targets, margins can go down by as much as 15 percentage points, Edwards said.

"Additionally, Microsoft will be separating license revenue targets from maintenance targets. 'Larger portions of contracts renewed will get paid more, smaller portions of contracts renewed will get paid less,'" he said.

"'The high-level message is pay for performance. A partner can make more than they do today selling Dynamics software. A partner can make less than they do today selling Dynamics software,'" Edwards said.

Simple, right? Well, yes...depending on what those revenue targets are and how they will play out in firms of various sizes. Larger firms with bigger sales forces and more consultants would seem to have an advantage here, and smaller partner shops that rely on deep relationships with a few customers might be in trouble. Remember that quote: "A partner can make less than they do today selling Dynamics software."

That hasn't been Microsoft's policy in the past, but it's likely to start permeating other aspects of the forthcoming Microsoft Partner Network, which, of course, is replacing the Microsoft Partner Program. It would be a bit harsh to say that the free ride is over for some partners, but growth is clearly going to be a much more important metric than it has ever been in the past.

For the smaller shop that's more about maintenance than aggressive growth, that's not good news. It is however, exactly what Microsoft wants. The days of Microsoft rewarding partners for treading water and opening its partner program more or less equally to bigger and smaller firms are ending. Microsoft's stock price is stagnant, and the company's future of growth is in doubt. Microsoft needs pit bulls, not lap dogs, in its partner program. And instead of letting the lap dogs feed, it's going to start kicking them to the curb.

Of course, the flipside of that is opportunity for any firm that can meet Microsoft's revenue numbers. Microsoft folks and other observers in the Dynamics area say that the key is for partners to move into microverticals -- really small slices of vertical markets. That's easier said than done, of course, and to some extent larger firms with more access to experts in specific fields are once again at an advantage there.

In any case, Dynamics looks like the test case for the direction of the Microsoft Partner Network in general. It will pay to be aggressive and, in all likelihood, larger rather than smaller. Failure to move in Microsoft's new direction will, in a fairly literal sense, not pay at all.

How comfortable are you with the changes in Dynamics compensation? How will this sort of change affect your business? Sound off at lpender@rcpmag.com.

Posted by Lee Pender on October 28, 2010