Microsoft Channel Changes Irk CRM Partners

In the second conference call in less than a week, company executives got an earful from nervous, sometimes irate, Microsoft Business Solutions (MBS) partners angered by Microsoft's decision to put its CRM offering through broad distribution and volume licenses. Microsoft executives were on a call for more than three hours Wednesday fielding questions and complaints about the changes, first reported by CRN. A similar teleconference was held last Friday.

Many of these partners, with roots in Great Plains and Navision accounting and ERP applications, feel disenfranchised now that Microsoft CRM will be sold the same way as Office, Windows, and other high-volume SKUs. This decision confirms their fears that Microsoft only understands the volume-and not the high-value add-sales and support model.

Microsoft executives on the call responded that separating the actual sales transaction from post-sales service and support will benefit partners in the long run.

Last week, Don Nelson, Microsoft's general manager of managed partners said that by moving more product, this model will ultimately cut partners in on a piece of a much larger pie. While per-seat costs may decline, the overall value of the deals will rise, he said.

On the call, executives added that by putting Microsoft CRM into volume license deals, larger resellers who get certified on MS-CRM will not be able to compete simply on price.

"Microsoft said it cannot stop larger resellers from getting certified and trained [on CRM] and once that happens they will just cut prices to get the deal and that would hurt us," said one partner. Presumably, volume licensing plans set product price up front, minimizing discounting.

That pricing argument rang hollow with some. "They're worried about CDW and Dell and HP coming in and gutting prices, so why not deal with them instead of screwing around with the thousands of partners who are doing things right," asked one MBS partner who requested anonymity.

Under the new plan, to kick off in the fourth quarter with the launch of Microsoft CRM Version 1.2, partners will now get just 10 percent margin on the up-front software sale and must wait for additional margin until they are named the provider of choice by the customer. That means, in essence, they will get less margin up front, and then wait for additional margin that will still not equal what they had earned before. Several partners said they now are getting nearly 50 percent margin on sales and services, and do not hope to approach that figure under Microsoft's new plan. They are not happy about that.

The fireworks come at a critical time. Microsoft is in the midst of a tricky transition to meld its MBS and the "classic" Microsoft channels while trying to maintain the strengths of each. There are about 6,000 MBS partners worldwide compared to 35,000 "classic" Microsoft partners.

It is also trying to become a force in business applications against formidable competitors like SAP, Best Software, J.D. Edwards and others who already have a name there. Many partners told CRN that as a result of Microsoft's move they are leaning towards offering more channel-friendly offerings from SalesLogix and others. Hosted CRM vendor NetLedger is hoping to pick up disaffected Microsoft VARs as well.

"They [Microsoft] are blowing it and there will be a backlash," said another long-time MBS partner.

Several partners on the call reiterated fears that Microsoft will inevitably put its remaining MBS products,Great Plains, Axapta and Navision,on the same path to lower-margin sales. Microsoft executives have denied that repeatedly and did so again Wednesday. Again they said there are no plans to put these products through volume distribution, but they did not promise that would not happen in the future.

"The accounting solution providers are worried sick that Microsoft will do the same thing to them, cutting off major sources of revenue in the name of quantity sales," said another partner.

Some on the call speculated that the real reason Microsoft is opening up distribution is that Microsoft CRM, available since January, failed to hit its target numbers, a contention that Microsoft executives have denied.

Microsoft has maintained that because Microsoft CRM requires the use of other company offerings like Exchange Server, it makes sense to offer it via the same volume deals. Microsoft executives have said other complex products, notably BizTalk server, are likewise offered via the volume channel, and require considerable post-sales support.

Again, partners were skeptical. "So what if MS-CRM requires installation of SQL Server, Exchange Server and Active Directory? Certainly all of the targeted mid-range MS-CRM prospects already have that infrastructure and the in-house knowledge to implement it," said an MBS partner.

This channel move tacitly sends the message that CRM is an easy sale, which it is not, he and others noted.

Partners said colleagues on the call maintained that for the slim upfront margin they can no longer afford to market and evangelize the product. "One guy said what we were all thinking, that this changes his entire business model," this partner said.

The rationale appears to be that the upfront transaction, the sale, is low value so the margin is lower. Some at Microsoft said MBS partners should consider offloading actual license sales to large-account resellers and concentrate on higher-value implementation and support. But many partners have funded their post-sales services with software revenue and are not sure how they will fund it now.

"The accounting Solution Providers are worried sick that Microsoft will do the same thing to them, cutting off major sources of revenue in the name of quantity sales," said the MBS partner.

Microsoft could not be reached for comment.

In another point of contention, many MBS partners also say that in the Microsoft sales reorg accompanying this move, they no longer have a point person to contact. Microsoft is now setting up a new system of Partner Account Managers and Partner Engagement Managers to support and advise partners in these efforts.

Microsoft has said it is working through its channel and sales changes and hopes to publicize the program better at its Worldwide Partner conference in New Orleans October 8 to 11..

That event will be the first combined MBS and "classic" Microsoft partner confab. Keynoters will include Steve Ballmer, Microsoft CEO; Orlando Ayala, senior vice president of small and midmarket solutions and partner group; Allison Watson, vice president of the worldwide partner group; Doug Burgum, MBS senior vice president; Jeff Raikes, group vice president of productivity and business services; and Eric Rudder, senior vice president servers and tools.