Category Archives: Microsoft

Fragmentation in the mobile market

At last week’s Web 2.0 Summit in San Francisco, Morgan Stanley’s Mary Meeker gave an insightful talk on the economy and internet trends.   She asserts that the mobile internet will be bigger than most people think.  Her slides are here with the ones on internet trends beginning on page 28.  Let’s look a little more closely at the complex, rapidly morphing telecoms market – where the action is now largely in mobile devices.   For a pithy overview of the telecoms industry, allow me to copy from that industry’s changes as cited by the eComm conference in Amsterdam that is concluding today:

• Telecom is becoming software
• Today’s model of the telephony and SMS cash-cows will significantly dry up long-term
• “Phones” are becoming general purpose always-on computers
• A march is underway to change how spectrum is allocated and utilised
• Applications innovation is being democratised
• The media industry is converging with personal communications
• Internet-style ecosystems are starting to pressurise the traditional value chain
• Search engines and computer manufactures are encroaching into the space
• App downloads; media content and even communication streams are increasingly routing-around operator’s billing systems
• The telecom kingdom is fragmenting daily.

What is a supplier to do?   Let’s look at smartphone operating systems and the Symbian operating system in particular, backed by the likes of Nokia, Sony Ericsson and Samsung, and as of this year,  an open source venture.  Speaking on the subject of innovation at a London’s  Symbian SEE 2009 show yesterday, noted author Geoffrey Moore declared that the only recourse for members of the Symbian ecosystem  is to copy as fast as they can the innovations made by Google and Apple, commoditize those innovations, and use Symbian’s huge installed footprint to turn the tables on its competitors – or lose share to Google and/or Apple.  In other words, copy Microsoft’s strategy when faced with the upstart Netscape and use its platform to commoditize and integrate its competitors’ functionality. His slides are here.

Moore also predicts that there will only be one winner amongst smartphone mobile operating systems.  He expects that within two or three years we will see which one will reach a critical tipping point. In Symbian’s favour, Google he said is disadvantaged by attention deficit syndrome – it keeps on innovating and has trouble concentrating on anything long enough outside its core advertising/search business.   Apple he claims prefers to occupy prestige brand positions.   Microsoft has problems breaking out of blue collar mobility.

Whilst copying competitor innovations and leveraging a huge installed base may help guard aganst some encroachment, I am not so sure we will see a consolidation in the near term.   I suspect mobile ISV’s will continue to have to port to several OS’s for the next decade if they want to grow from tens of millions of dollars turnover to hundreds.   Mobile infrastructures vary widely between regions and consumer profiles.  Where Japanese demand high sophistication, developing countries need inexpensive basics.   An elderly person is likely to use a different handset to that of a much younger facebook, YouTube addict.  The sheer size of the smartphone market, diversity in use types and supporting infrastructures have made it possible for different mobile business ecosystems to thrive, unlike the simpler and smaller early PC era that Moore often cites.  There is room in the mobile market for diverse approaches, devices and ecosystems – so fragmentation will probably continue for at least a few more years.


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Filed under Apple, Google, Microsoft, Sony

Changing a Partner Program & the New Microsoft Partner Network

 Partner programs grow like coral reefs on steroids, rapidly accreting new forms, morphing into shapes that bear no resemblance to the outcrop that provided its original bedrock.  Microsoft’s program is such a reef, providing shelter and structure in a diverse ecosystem of partner types and business models.  Every so often a program needs a refresh, a shock to take it to the next level and it hopes that changes announced last week at its Worldwide Partner Conference will do that. Microsoft cannot hope to broaden its partner base – it already has 640,000 businesses within the program – the majority of all companies serving other companies in information technology.  The issue is quality not quantity.  There are already 16,400 Gold partners, the highest level of achievement within the program.  To differentiate within that level and the middle, Certified tier, Microsoft currently has 46 competencies corresponding to different sets of products or types of services and business models.   It wants to raise the bar. Microsoft, like many other companies could create a higher, platinum tier, but that would further complicate the program. The company has as one of its aims to simplify as well as purify the program.  

Partners want certainty.  Anytime a program changes, whether or not it will, in the end, benefit the partner, stresses a partner’s business.  Every new benefit proposed by a vendor always comes with a price tag, either explicit, or implicit in time, focus and energy.

Customers want certainty.  A vendor’s seal of approval should be a good indication of future partner performance.  When a partner’s program changes those changes need to be communicated and embedded in customer minds. 

And vendors want certainty that their interests and the end user’s interests are in balance and being well served.

The first change the company announced was a rename of the program itself, from the Microsoft Partner Program to the Microsoft Partner Network,  a more partner focussed sounding phrase.  Partner to Partner networking is a benefit of most partner ecosystems.  As Microsoft put it, “We want to create passionate communities where partners share best practices, spark innovation, and discover opportunities to serve customers better.”

The second change is that, by November, Gold partners must have participated in the Microsoft Customer Satisfaction Index (CSAT).   The index (or indices as it is a composite of scores) is flawed.   It is purely quantitative and relies on getting respondent details third hand. Four times a year, a request to participate in the survey is sent to contact email addresses provided by partners wishing to participate in the CSAT program.  Firstly, because Microsoft does not know who the significant influencers are in most of its end customers, it must rely on partners to supply those names.  Because partners perceive they have a vested interest in getting high CSAT scores, and because Microsoft has a vested interest in viewing individual partner scores, partners are more likely to provide details of satisfied customers.    Within partners, usually only the salesperson knows who the supporters (and detractors) are.  Salespeople are likely to be asked to provide contact names.  As individuals they have a vested interest in providing only the details of happy campers.  Plus account managers are likely to “assist” a customer to fill out the survey.  Secondly,  gauging satisfaction and loyalty in a changing business is complex.  It is in no way as straightforward as it is with individual consumers.  Relying on quantitative indices alone is foolhardy.  Raising the competence bar is a much better way of ensuring that customers are being served well.

To signal that the bar is being raised, Microsoft is changing the name of the two higher tiers, from Gold Certified to Advanced Competency and Certified to Regular Competency.   One question every vendor should ask before changing a program is this, “Will this change deliver more value to end customers?”  Because end users are used to the Gold Certified and Certified labels, the new names deliver less value in the short run.  If the competence of partners rises substantially in step with the name change, then in the long run, it may be a good thing.  The jury is out on this one.

Microsoft is also reducing the number of specializations from 46 to 30 and (thankfully) simplifying how they are known.  For example, “Custom Development Solutions competency with Application Infrastructure Development specialization” becomes “Software Development”.    The five specializations under Microsoft Business Solutions competency (e.g. “Microsoft Dynamics AX specialization”) become “Enterprise Resource Planning.”  Throughout the program, Microsoft has adopted the same principle of simplification and translating into a language that is meaningful to customers.  That is common sense and a signal that Microsoft is getting more in tune with its end customers.

But is Microsoft raising the partner quality bar, or is this just window dressing? Beyond compulsory participation in a customer satisfaction system that can so easily gamed, and language, how are these changes going to deliver more value to the end user?  At first glance, most of the competency requirements – technology exams and customer references –  do not appear to have changed.   There are lessons here for any vendor building end customer value through partner routes to market.

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Power Relationships and Cloud Computing

Last week at the London leg of Lotusphere Comes to You, a potted version of the January Floridian Lotus Love Fest, I re-visited LotusLive, IBM’s SaaS offering.  While the astute Nick Shelness neatly summarizes the set of services and though there are teething problems,  and aside from my belief it is too pricey, I believe IBM is paying heed to how a third party ecosystem can help promote and support cloud computing.  There have been doubts, but unlike Microsoft’s Business Productivity Online Suite (BPOS),  Microsoft’s set of cloud services, at least with IBM’s, partners are able to white label and bill.  

It is a matter of power.  IBM cannot reach SMB without indirect channel support, unless it does much more to promote a direct route to the SMB market.  Post the Lotus acquisition, the company did not have strong brand equity in SMB.  Microsoft, though it had used indirect channels exclusively to transact, always had a strong brand relationship with SMB, enabling it to transition easily to a direct route to market via the cloud.  That isn’t to say that partners can’t play in BPOS, in fact Microsoft is encouraging it, but a partner’s added value is diminished.

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Filed under IBM, Microsoft, SaaS

Partner value chains vapourizing in the cloud

The arguments for SaaS or “cloud computing” are compelling.  By sharing the infrastructure of a service provider, the customer is able to make significant savings as compared to the buried labour costs of on premises software incurred when testing, integrating, securing, installing, backing up, customizing and upgrading.  Occassionally, and this usually depends upon the size of the company and the available resources inhouse, they call on external companies to assist with those tasks.  Only when they do that, do some of the costs become explicit.  As I have mentioned before, both Microsoft and IBM claim that for every $1 of software sold, there is between $7 and $8 of services opportunity for partners.  Put another way, the customer has to spend up to 9 times as much as the license price to extract value out of the on premises software they buy. 

Cloud computing throws a spanner in software economics.  While at the event in London this week, I asked partners who specialize in implementations where they derive their revenue from.  It is mostly around the same areas that Microsoft and IBM partners operate in – implementation, integration, training, customization, development and helping clients redesign their business processes.   And it seems to be in the same SMB sweetspot – between 20 employees and 1000, with occassional engagements in enterprise accounts, though enterprises are more likely to hire’s own professional services arm.  The big difference is in the size of the engagement.  A large one for a partner might be 80  man days.  Most are a lot less than that.  Take for example one slide that Marc Benioff,’s CEO, put up.  Titled “Fastest Way to Build Apps”, it portrays, the branding for the company’s platform delivering an 80% reduction in development effort.  For partners, what might have been a 20 man day engagement becomes a 4 man day one.

Squeezed by SaaS and Indian outsourcers, traditional on premises software partners who do not differentiate themselves by aligning with a vertical niche or application have felt the pinch.  Cloud computing is changing the value dynamics as more value is concentrated in a cloud’s shared infrastructure, a change that has been accelerated by the downturn in the economy.   The traditional partner value chain is much more tenuous.

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Filed under IBM, Microsoft, SaaS

Microsoft’s Business Productivity Online Suite and Partners

Yesterday I attended a partner briefing at Microsoft UK for their new Business Productivity Online Suite (BPOS) which goes live in a few weeks in Europe and Japan.  The service has already been up and running since November in the US.  I was particularly impressed by the level of investment Microsoft is putting into their data centres – with a primary one in Dublin, a secondary centre in Amsterdam as well as installations in Virginia, Washington State and Singapore with plans for more in APAC.   BPOS is Microsoft’s online offering of Live Meeting, SharePoint, Office Communications Server and Exchange Server with a minimum of 5 seats and around 13,000 seats max for standard (their multi-tenanted version) and a dedicated version intended for larger installs that is also finding favour amongst small customers.  At $15/user/month it is more than three times the price of Google Apps. The types of clients interested in BPOS cluster at the low 5 to 50 seat end, and surprisingly for Microsoft, the very high end blue chip clients. 

It is plainly evident that the company has put a lot of thought and effort into this. It has clear competition from and Google and is determined to get SaaS right.  It is important to note that the service is not Microsoft Office online (yet) nor does it offer full telephony (yet) or CRM (yet)  but it doesn’t take a crystal ball to predict that they will soon flesh out their offerings.  Their sales projections are, on the other hand, relatively modest.  That is the issue I have with many new Microsoft ventures.  The company is huge and experienced sales hands know how to game the system.  They know to sandbag and slightly over-achieve.  An ambitious sales target presents higher risks – and lower individual rewards.  But that can also mean a new venture fails to find support in the company, and it flounders through lack of investment. That does not seem to be the case here as Microsoft feels the hot breath of competition and still retains much of the DNA that drove them to strive for share and seek choke points. 

By extending BPOS down to 5 users, and offering 5G of mail storage per user, they are competing squarely against their own SharePoint and Exchange hosting partners.  It must be said that if you add up all the company’s hosting partner’s mailboxes it doesn’t amount to more than 20% of the total number of Exchange seats, so though significant, partners have been at that game for a number of years and haven’t grown as quickly as Microsoft or they had hoped.   And that is because hosting Exchange technically isn’t easy – as Microsoft is finding out, because these partners started small and have been  growing organically, and because, importantly – most customers mid tier and up are loathe to give up their data.  For small companies, who don’t have an IT person, there isn’t a choice, so the data issue is not significant – but those small companies can be as difficult to service as ones 10 and 100 times their size – and can have the same cost of sale.    

It looks like there are significant teething problems for Microsoft at the low end. Microsoft needs partners in that segment. Their infrastructure software out of the box needs integration and support.  And it needs a sales force, so it can’t afford to alienate its partners.  By offering partners an 18% finder’s fee the first year and 6% thereafter and pledging not to offer end user help desk support, it is hoping to sweeten the medicine.  But by transacting directly with the end customer, the company is asking the partner to become an agency, and that is a point to which many partners are openly hostile.  Partners hate to lose control of their customer and a vendor transacting is a threat.  Microsoft tried to spin it, saying it was taking the credit risk, but it wasn’t sufficient to disperse the unease in the room. Yet many partners haven’t been transacting for on-premises Microsoft licenses anyway for years. There is no margin in it and they leave that to license specialist resellers.  Microsoft point to a 7:1 partner services vs license revenue ratio of opportunity for partners.    But that is also a problem. If you have to spend another $7 to get value out of $1 of software, that is an opportunity for a competing SaaS vendor to embed value in the service directly,  lower cost of ownership and time to value.  However, if there is one thing I have learnt from 25 years of competing against and working with Microsoft, it is this – they are extremely tenacious.  Eventually, they get things right. It may take five years, it may take ten, but they are determined.  And partners, as they have always done, will first bob and weave, then adapt or close shop.


Filed under Direct, Google, Indirect, Microsoft, SaaS

Microsoft’s new direct retail channel

Two weeks ago, Microsoft announced that it had hired David Porter, a veteran of DreamWorks Animation and WalMart as their corporate vice president of Retail Stores.  Just as Sony announced it would close its flagship PlayStation store in San Francisco, Microsoft decides to follow Apple’s well developed path by opening up its own retail channel, at least in the US.  Coincidentally, it was in the very same centre as the ill fated Sony store that Microsoft ran its own store from 1999 till 2001.

As part of the Vista launch last year, the company had already experimented with the store in a store concept once so often finds in department store cosmetics.    Apple hit on a successful formula that supported the notions of simplicity, personality and flair, in an accessible, come try me, environment.  They are destinations that Mac fans flock to.  They were developed as Apple’s response to a lack of control over its indirect retail channel.  Now Apple has 251 stores across the world with plans this year to grow that by 10%.  The stores are a source of comfort to their consumers, places where they can have problems easily sorted out. Microsoft has much broader, more well- developed indirect channels and a much more complex product portfolio that requires third party hardware platforms. It faces the same challenge of control Apple had, yet in an ecosystem where so many variables are beyond Microsoft’s control even in retail.  Does this mean that Microsoft will also risk producing or labelling a Microsoft PC?

If the company can develop its positive personality through a friendly, accessible, cool retail environment, then its entire channel stands to benefit but it is a bold and risky move.

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Filed under Apple, Direct, Microsoft, Retail, Sony