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FEATURE

Unveiling the Influencer
A = new=20 Microsoft program aims to pull those partners that = influence=20 sales of Microsoft software out of the shadow of the = Large=20 Account Resellers who close all the = deals.

by Scott=20 Bekker

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May 2007

A few years = ago,=20 executives at SoftwareONE Inc. had an idea for growing = their=20 New Berlin, Wis.-based business and Microsoft's at the = same=20 time. But to work, the idea would require Microsoft to = make=20 some exceptions to its partner program.=20

The problem that executives at SoftwareONE -- like = most=20 Value Added Resellers (VARs) who sell into enterprise = accounts=20 -- faced when asking for favors from Microsoft was = this:=20 Because they had to funnel their enterprise licensing = deals=20 through Large Account Resellers (LARs), neither they = nor=20 Microsoft knew exactly how much Microsoft revenue = SoftwareONE=20 influenced. The system itself prevented Microsoft from = knowing=20 whether SoftwareONE itself was a significant enough = player to=20 merit special treatment.

Over the years, Microsoft has never really = addressed that=20 influence issue despite recurring calls from channel = partners=20 for the company to do something about it. Many = partners=20 selling into midmarket and enterprise accounts still = have no=20 way to demonstrate to their Microsoft partner account = managers=20 (PAMs) and Microsoft product groups that their efforts = are=20 driving significant business to Redmond. But that's = about to=20 change. Right now, Microsoft is rolling out a new = initiative=20 called the U.S. Partner Revenue Influence Program, = designed=20 specifically to recognize such contributions. The = program is=20 partially modeled after the workaround that = SoftwareONE came=20 up with five years ago.

The LAR = Structure
Among the=20 most surprising things that Microsoft channel = newcomers learn=20 is that most partners don't actually sell Microsoft = software=20 to their customers (see "A Shallow Dive into = Microsoft's=20 Channel"). For smaller customers, partners typically = refer the=20 customer to retail stores such as Best Buy, OEMs like = Dell or=20 direct market resellers like CDW Corp. With larger = customers,=20 solutions providers must rely on a tiny group of uber = partners=20 called Large Account Resellers (LARs), who actually = handle=20 selling the Microsoft licenses to end-user = customers.

Those LARs tend to be experts on Microsoft = licensing and=20 can close orders quickly. The arrangement makes sense = from=20 Microsoft's perspective because the software giant can = more=20 easily train one or two dozen LARs in each = geographical area=20 (the United States currently has 18 LARs), and be = confident=20 that those companies are thoroughly familiar with = Microsoft's=20 complex licensing rules. It's also simpler for = Microsoft to=20 collect licensing checks from, say, 18 partners in the = United=20 States, rather than from 10,000 individual solutions=20 providers.

While the process works for Microsoft, it can be = galling=20 for solutions providers. "They're not recognized even = though=20 they're probably the ones in there that are driving = that deal=20 to closure. They've caused the transaction, they're = just not=20 enacting it," says George LaVenture, president and CEO = of=20 Trinity Consulting Inc., a Gold Certified Partner = based in=20 Marlborough, Mass.

LaVenture, who also serves on the board of the=20 International Association of Microsoft Certified = Partners=20 (IAMCP), says the issue has been simmering among = Microsoft=20 partners for quite awhile: "There've been discussions = with=20 Microsoft going back at least five or six years."

Robert Deshaies, vice president for the Microsoft = U.S.=20 Partner Program, confirms that sustained partner = pressure is=20 the source of Microsoft's new program. "This program = was=20 driven by them. We came up with a solution to their = request.=20 For a number of years, they have felt that they = weren't being=20 credited for a lot of the drive and interest and = investment in=20 Microsoft products and solutions that they've put = together=20 around those products. So this program was really a = way to=20 help deliver on something that they've asked for."

A Shallow Dive = Into=20 Microsoft's Channel

Thanks to Microsoft's = market=20 dominance in desktop operating systems and = productivity=20 software, its channel delivery structure is = unlike any=20 other company's. Major players include: =

Large Account Resellers = (LARs)
What they do: These are = the=20 companies authorized to sell Microsoft volume = licenses,=20 specifically under Select Agreements and = Enterprise=20 Agreements.

How they relate to Microsoft solutions = provider=20 partners: Some partners enter agreements in = which=20 they refer their solution customers to a = specific LAR in=20 exchange for a percentage of the LAR's cut in = the=20 licensing deal. Often a customer will have its = own=20 relationship with a LAR and will simply go to = that LAR=20 to obtain any Microsoft licenses that their = solutions=20 provider partner recommends.

Whom they sell to: End-user customers = in the=20 midmarket-to-enterprise space (generally = customers with=20 100 seats or more)

Examples: Softmart, SoftwareONE Inc.,=20 Softchoice Corp., Technology Integration Group = (TIG)

Authorized = Distributors=20
What they do: These companies sell to = value-added resellers and other Microsoft = partners.=20 Their hallmarks are high volume with razor-thin = margins.=20 They distribute hundreds or thousands of = different=20 vendors' products across the software and = hardware=20 spectrums.

How they relate to Microsoft solutions = provider=20 partners: Partners buy Microsoft software = licenses=20 directly from Authorized Distributors and resell = to=20 customers as part of a solution.

Examples: Tech Data Corp., Ingram = Micro Inc.,=20 Synnex Corp.

Direct Market=20 Resellers
What they do: These = companies=20 take Web and telephone orders directly from end = users=20 for thousands of IT products, including = Microsoft=20 software.

How they relate to Microsoft solutions = provider=20 partners: Partners may refer customers to a = direct=20 market reseller.

Examples: CDW Corp., Zones = Inc.

Original Equipment = Manufacturers=20 (OEMs)
What they do: These are = the PC=20 and server manufacturers who pre-load Windows, = Office=20 and Microsoft server products on to their = systems. This=20 channel is the most sizable source of Microsoft = revenues=20 and profits.

Whom they sell to: End-user customers, = partners, direct market resellers, authorized=20 distributors, systems builders

Examples: Hewlett-Packard, Dell Inc., = Lenovo,=20 IBM Corp.

Retailers =
What they=20 do: These companies sell boxed Microsoft = software=20 and complete PCs and servers loaded with = Microsoft=20 software from stores.

How they relate to Microsoft solutions = provider=20 partners: Partners may send small customers = to=20 retailers to pick up systems or software. Some = retail=20 stores are competing with Microsoft partners for = small=20 business services, while others are recruiting = those=20 partners to build referral businesses.

Whom they sell to: Consumers, small=20 office/home office customers and small to = midsize=20 businesses.

Examples: Best Buy, CompUSA

--S.B.

An Outside Job
In=20 SoftwareONE's case, the company originally wanted = Microsoft's=20 attention so it could become a LAR itself. Despite a = business=20 model that specialized in upselling customers into = more=20 sophisticated licensing arrangements with Microsoft = and others=20 vendors with the intent of saving customers money over = time,=20 the company didn't fit the usual LAR profile. "We had = to prove=20 to Microsoft in that first year that we could write = the=20 agreements accurately and hit the quotas that we were = expected=20 to sell," says Peter Ells, director of strategic = alliances at=20 SoftwareONE.

Executives at the two companies worked out an = agreement in=20 which Microsoft and SoftwareONE would cooperate to = keep track=20 of how much Microsoft revenue influenced by = SoftwareONE went=20 through the two LARs that fulfilled SoftwareONE's = orders.=20 Ultimately, it was enough for Redmond, and SoftwareONE = achieved LAR status. When the company began partnering = with=20 VARs to expand its licensing sales business a few = years later,=20 SoftwareONE began reporting influence revenue for its = VAR=20 partners up to Microsoft.

VARs who embraced the approach found it an = eye-opening=20 experience, Ells says. "They didn't know their PAMs = [before].=20 They never probably met their area sales manager. They = had=20 just been left to be kind of floating on the ocean on = their=20 own."

Building an Influence = Program=20
Mike Haines, a former analyst for the Stamford,=20 Conn.-based IT research firm Gartner Inc., joined = Microsoft in=20 2005, about the time that the company decided it = should tackle=20 the influence issue. As general manager for partner = strategy=20 on Deshaies' team, Haines says the move to address the = situation came down to affirmative answers on some = essential=20 questions. "When we looked at what we wanted to tackle = at=20 least in the United States, we asked: 'Is it really = relevant=20 at Microsoft? Is it doable? Is it affordable? Can we = do it in=20 a timeframe and within a budget that makes = sense?'"

Under the new program, Microsoft partners who refer = customers to LARs for software fulfillment will = provide their=20 unique Microsoft Partner Program ID numbers to the=20 participating LAR, who then includes that ID number = when=20 reporting the deal to Redmond. Microsoft built a data=20 repository that will include information about the = partner,=20 customer, deal amount, products influenced and = geographical=20 area involved.

In Haines' view, the main benefit for partners will = come=20 when it's time to meet with PAMs or other Microsoft=20 representatives. "When a partner sits down with = Microsoft,=20 there's a complete picture of Open License sales plus = what=20 they've influenced in enterprise sales," he says. "Now = when we=20 do planning, it can be much more tailored to what you = do as a=20 partner."

Haines makes it very clear that the program isn't a = partner=20 compensation initiative. But he believes having the=20 information will help Microsoft make smarter decisions = about=20 investing its marketing dollars with partners. = Additionally,=20 the information will be shared with the product = groups, which=20 would then gain greater visibility into which partners = are=20 really selling their products.

Darren Bibby, a channel analyst with Framingham,=20 Mass.-based IT research company IDC, says an influence = program=20 makes a lot of sense. IBM Corp. already has one for = its=20 channel, and Bibby and IDC expect many other vendors = to follow=20 suit. "The LARs are not the ones making [customers'] = minds up.=20 It's the trusted advisors, the 25- to 50-person firm," = Bibby=20 says. While the information collected is incredibly = valuable=20 to Microsoft and will help some partners show up on=20 Microsoft's radar, Bibby contends that Microsoft will=20 ultimately need to tie concrete benefits to the = program to=20 make it worth partners' time.

"Marketing development funds, speaking = opportunities, PAMs,=20 being a managed partner or a telemanaged partner -- if = all of=20 that had to do with influence points, then I think = people=20 would start putting that information in," he says.

LaVenture, of Trinity Consulting, also gives the = influence=20 program good marks. "It's not a bad idea. For a = service=20 partner, licensing is not a primary part of his = business. The=20 LARs do licensing. It can be a great one-stop shopping = for a=20 partner that needs to put together a full solution for = a=20 client. If someone is an HP partner, and they're going = to be=20 purchasing HP hardware, hopefully they could get = credit=20 through the LAR," LaVenture says. "The LAR can be like = the=20 equal sign in these transactions."

Haines uses a similar balancing image to describe = the LAR's=20 role: "We decided to leverage a set of LARs to be the = fulcrum=20 of the group that collects the influence partner=20 [information]. Our intention was to make this very = simple and=20 not a burden to anyone."

To Pay or Not To Pay =
Some=20 observers say that benefits from Microsoft probably = shouldn't=20 get too tangible -- after all, money can lead to = trouble:=20 "Let's say someone's selling Exchange to Bank of = America. Do=20 you think there's one influencer? If you double-count, = you=20 double-pay," Bibby says.

SoftwareONE's Ells agrees that financial = compensation can=20 lead to more problems than it's worth. "It's not going = to be=20 money. They don't want to create a deal-recognition = program.=20 If they put too much reward on it, you're going to get = those=20 ambulance-chasers trying to get the dollars," Ells = says.

That's not to say that LARs won't begin to compete = more=20 openly on margin. According to one solutions-provider = partner=20 who asked not to be identified, LARs may be able to = generate=20 business at first by simply reporting the results back = to=20 Microsoft. Eventually, however, LARs will need to = offer=20 compelling margins along with the reporting to = Microsoft to=20 attract Microsoft partners or lose their rainmaking = solutions=20 providers to higher-paying LARs.

Others, like Paul DeGroot of the independent = research firm=20 Directions on Microsoft in Kirkland, Wash., believe = that=20 Microsoft should use the influence program as a first = step in=20 a move toward compensating partners directly for sales = that=20 they influence (see his Directions column, "Will Greater Influence Lead to Greater = Affluence?").

Next Steps =
Microsoft rolled=20 out a pilot of the influence program in November 2006. = A=20 handful of LARs got ready quickly and 13 now = participate, with=20 a 14th on tap (see "LAR List: Influence Program=20 Participants"). On the partner side, Microsoft first = opened=20 the pilot program to its 1,700 to 1,800 U.S. Gold = Certified=20 Partners, some of whom were already members of a = program with=20 one of the LARs.

"As we got into the New Year, several of the LARs = were now=20 ready and had tested the ability to transmit the data = to us,"=20 Haines says. "I did a snapshot over the course of a = 30-day=20 period. We weren't fully operational, but I was = already seeing=20 a significant amount of deals reported with an = influencer.=20 Even when only two or three LARs were functional, it = was=20 millions of dollars worth of business. It was proving = to us=20 that what we had was working."

Since then, Microsoft has extended the program to = Certified=20 Partners as well, formally launching the program on = March 28,=20 just before the start of Microsoft's fourth quarter. = For now,=20 the main purpose is to collect the data and return it = to=20 Microsoft's partner-facing people, such as PAMs and = area=20 managers. "I understand it's a bit of a soft benefit, = but it's=20 an important one to the partners nonetheless," Haines = says.=20 "When a partner sits down with Microsoft, there's a = complete=20 picture of Open License sales plus what they've = influenced.=20 We'll have real contributions to talk about. We can = now do=20 much better planning."

Immediately, that will translate to PAMs making = more=20 informed decisions about which partners get = discretionary=20 marketing dollars, program support and other forms of = local=20 investment, Haines notes.

As this issue goes to press, Microsoft expects to = have=20 automated systems that will allow partners to check = online to=20 make sure their LARs are properly reporting the = revenues that=20 each partner has influenced.

LAR=20 List: Influence Program Participants

At the launch of the Microsoft Influence = Program, 13=20 of Microsoft's 18 Large Account Resellers (LARs) = were=20 participating by reporting an organization's = influence=20 numbers back to Microsoft. They are:

ASAP Software Inc.=20
CompuCom Systems Inc.=20
GTSI Corp. (government business)=20
HP (through HP Software Licensing & = Management=20 Solutions)=20
Insight Enterprises Inc.=20
PC Connection Inc.=20
Software House International (SHI)=20
Softmart=20
SoftwareONE Inc.=20
Software Plus Inc.=20
Softchoice Corp.=20
Technology Integration Group (TIG)=20
Zones Inc.

A 14th LAR was expected to have a program = online by=20 summer, according to Microsoft.

--S.B.

The next step will be for Microsoft to lay out = concrete=20 benefits in its fiscal year 2008, which begins in = July.=20 Neither Haines nor Deshaies would elaborate on what = Microsoft=20 will roll out there, although public details are = likely to be=20 available at the Worldwide Partner Conference in = Denver in=20 mid-July.

Microsoft is also looking for a sensible way to = include=20 Influence Revenue in the Microsoft PAM compensation = model,=20 Deshaies says. In any case, the Influence Revenue data = is=20 valuable information for PAMs, he says. "The PAMs are = excited.=20 What this is going to do is it's going to drive = another level=20 of transparency to what's really happening in their = areas.=20 Because there are so many partners, it really is = difficult to=20 understand what all the partners are doing. We will = definitely=20 include this into the planning aspects of their = business as=20 they're working with the partners."

Outside of the Microsoft U.S. Partner Group, the = influence=20 revenue information is supposed to be shared with the=20 Microsoft product marketing groups, such as the = Microsoft=20 Office SharePoint Server team and the Exchange team. = "Our=20 various product marketing groups are always targeting = which=20 partners that they can effectively drive marketing = initiatives=20 through," Haines says. "This will provide one more set = of data=20 that shows which partners are actually influencing the = sales=20 of products. It will give them better insight so they = can make=20 sure they're targeting the right people. For marketing = people,=20 that's a very exciting proposition."

Although the U.S. program is already out of the = pilot=20 stage, the full-blown effort here over the next few = months is=20 also serving as a pilot program for Microsoft's = worldwide=20 partner program. "From a country standpoint, [the = official=20 March 28 launch date] is the big rollout," Deshaies = says.=20 "From a company standpoint, we're really piloting this = on=20 behalf of the global community. We're working in = conjunction=20 with the Microsoft Worldwide Partner Group as far as = what this=20 will look like in '08."

Deshaies is also looking to modify the program = extensively=20 in the United States as well, based on partner = feedback and=20 adoption. "This is not what I would say is a mature,=20 self-running program at this point. We're going to = continue to=20 give it a lot of care and feeding and evolve."

An open question is how many partners will = ultimately work=20 through their LARs to record their influence with = Microsoft.=20 In theory, the program could hold all 10,000 to 12,000 = of=20 Microsoft's U.S.-based Gold Certified and Certified = Partners.=20 Deshaies says it's too early to tell how many will = ultimately=20 participate.

A different approach is looking at what kinds of = partners=20 have been most successful with SoftwareONE's existing=20 VARassist program. "The sweet spot is probably the = partner=20 that provides full value-add services," Ells says. = "It's a=20 small or regional actor, and probably a partner who is = more=20 SMB-focused, calling on a customer from 50 to 750 = seats."=20 3D"end =20

Scott Bekker is news editor for Redmond = magazine and editor of ENTmag.com. You can contact = Scott=20 about "Unveiling the Influencer" at mailto:sbekker@redmondmag.com?Subject=3DUnveiling=20 the Influencer.

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