In every downturn, there are always sectors of innovation that do spectacularly well. With companies cutting travel and with the growth in flexible working and dispersed teams, corporations are turning increasingly to unified communications to reduce costs, improve productivity and raise job satisfaction. According to IDC’s latest research, the European UC market will grow from its present size of $2.6 billion in 2008 to $13.5 billion in 2013, an annual growth rate of 39%. IDC believes that presents a significant opportunity for service companies. Their value is enhanced because they can be a single point of contact for voice vendors and IT suppliers such as Cisco, IBM and Microsoft. As any UC systems integrator will tell you, getting pilots off the ground involves multi-disciplinary teams within the customer. It is a complex, political sale, one where channel partners can add significant value. All three of the top UC vendors have made significant strides in growing their UC partner ecosystems to help address the demand.
Tag Archives: Microsoft
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.
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 Salesforce.com event in London this week, I asked partners who specialize in Salesforce.com 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 Salesforce.com’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, Salesforce.com’s CEO, put up. Titled “Fastest Way to Build Apps”, it portrays force.com, 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.
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 Salesforce.com 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.
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.