Microsoft Exec: Services Success Hinges On Change

Stephen Elop, president of the Microsoft Business Division, runs a $20 billion operation related to information workers and business applications, and has been on the forefront of Microsoft's efforts to articulate the changes partners will need to make to follow Microsoft into cloud services.

Elop sat down with ChannelWeb at Microsoft's Professional Developer Conference in Los Angeles to discuss the of future Microsoft's Software Plus Services strategy, how the current economic situation is shaping its conversations with channel partners, and how end customers will benefit from the coming wave of Microsoft services.

How do you see the economic situation impacting Microsoft partners in the coming year?

ELOP: No one can predict what's going to happen in the economy. But in our last quarterly results, what we signaled for the year ahead is that there's ambiguity, and it's hard to predict things like that. What that means is some degree of uncertainty for all our partners and the channel at large.

What we're deliberately trying to do, therefore, is to communicate with channel partners -- and the field teams working with them -- that this is a time when you're out there trying to help the ultimate customers, save money, derive greater value from what they're doing, and focus on the areas of greatest return. Hopefully, that will help our customers deal with their business challenges in the short term.

And also this is time when you build share and great relationships with customers that will last for a long time. Customers are wondering, should I be dealing with this company or that company in the ecosystem around Microsoft.

Microsoft is going to make it through whatever financial challenges come to pass, so we're seeing customers and partners having people trust them because they know they're going to be around.

In the year ahead, we're heavily focused -- and already messaging -- about value, about helping customers save money, and about helping them deploy software they may have already purchased, but may not know how to gain value from.

During the opening keynote at PDC, David Thompson (corporate vice president of Microsoft Online) said that in the future, all of Microsoft's enterprise applications will be available as services. Should partners be surprised by that statement?

ELOP: No, it's really just a continuation of what we're doing. For example, if you think about the major applications in the Business Division, like Exchange, SharePoint, Office Communications Server, those are all either in the cloud or coming into the cloud shortly.

Everything will end up being in the cloud. It's hard for us to imagine any of our applications that don't have a strong client, server and cloud story to tell across the PC, the mobile phone, and the browser. I'm responsible for Word, Powerpoint, and a whole ton of other applications, and that mandate applies to these, too. Even for applications that people wondered if they would ever see in the cloud, that's what we're doing. We're definitely changing it up in a big way.

Everyone gets excited because one of our competitors adds bolding or underlining to a cloud based application, but we're running entire corporate email systems, collaboration systems, communications systems, at scale for large organizations in the cloud -- that's already happening.

What Microsoft technologies are going to have the biggest impact on partners in 2009?

ELOP: Companies are realizing the need to focus their limited IT resources on issues on which their businesses are based. And they're looking to Microsoft partners, or Microsoft, to help in offloading certain tasks, to free them up for more strategic tasks. So, in Software Plus Services, we can take SharePoint and Exchange and deliver them for you as a service, which is a powerful message to companies of all sizes.

Some partners have wondered: If Microsoft is running Exchange in the cloud, for example, is there still a role for us? At WPC, I was there to deliver a very powerful message: Microsoft has been deliberately dependent on the partner channel. It's a competitive asset, and it's how we go to market.

So, regardless of whether it's software in the cloud, ultimately run by us, or however it's done, we need our partner organizations involved.

Economical models may change: We may have to collect money one way, and pay partners another way, and do different things. But nonetheless, partners are a critical part of that whole strategy.

We hear people telling us: We want software in the cloud, we want to take advantage of someone else's even larger economies of scale, and we want to take advantage of the fact that you built a data center right next to a hydroelectric dam to drive the price of power down. Microsoft is one of only a handful of companies that has the scale to do that type of thing. So we're doing it, and we're trying to bring that benefit to our customers through partners.

NEXT: How will channel partners need to adjust?

How much will channel partners need to evolve to remain relevant in Software Plus Services?

ELOP: A big part of conversation is to recognize that the world is changing. It's not about Microsoft, it's not about Google, and it's not about [Chairman of the Board of Governors of the United States Federal Reserve] Ben Bernanke. It's about all those things together.

I'm running a $20 billion operation related to information workers and business applications, and I know that my economics are changing. I have to deliver services as well as software, and I have to make certain things available in the cloud as opposed to just on a desktop. Our customers are pulling us in that direction, and the world of partners must evolve also.

Partners should be aware of the fact that the world is changing, and they have to change with it. For those who develop applications, or help people develop applications in a .Net environment against a traditional Windows server, if they don't start thinking that this same paradigm is shifting into the cloud, then they will be left behind, because the world is moving forward.

The most important thing for partners to take out of all of this is that you've got to be moving, too. Things are changing: The way the money is flowing, the development work that you do, the support services, that's all going to change. There's no avoiding it, so jump in, the water's fine, is basically Microsoft's overall message.

Has partners' perception of Software Plus Services changed since WPC?

ELOP: A couple of things have happened since WPC: One is, with the passage of time, partners and Microsoft are able to work together on things and solve ambiguities, and that has helped everyone move along, and if necessary, adapt. That means changes that Microsoft may have to make in how we price and package services, and that's learning we do together. Partners are now in a phase where they understand what Microsoft is doing with Software Plus Services and are working together with us.

It's also clear that this massive economic churn has kicked in, and with that comess all sorts of dynamics for the partners in terms of how they run their businesses. They have to make decisions about what bets to place and what's most important, because on average, they probably have less options available to them today than they did even six weeks ago. Credit markets are freezing, and a lot of the partners are small businesses that rely on rotating credit and so forth.

I can guarantee that a bunch of partners have experienced a credit line squeeze. They're having to make some pretty tough decisions, so what we're doing with the partner community is to make them understand the decisions we're making so that they can make aligned decisions.

What types of changes does Software Plus Services require of developers?

ELOP: The big differentiator for Microsoft with Software Plus Services is that there are less changes involved with moving to the cloud. Whether it's Visual Studio, .NET, SQL Server, all of the things you've learned, you can use the vast majority of that experience in the cloud. And you can carry on with us in terms of familiarity in how you develop applications.

Having said that, the cloud introduces new economic models, and new ways of building and deploying applications. For example, the point of scalability, where before you used to build an application, you'd have to buy a bunch of servers to run it on, and try and guess how many servers to buy. There was a lot of risk associated with that.

With Software Plus Services, we're trying to reduce the risk for developers and partners. They can build an application, if they use a certain amount of processor power in the early days, ultimately they'll only have to pay that much. And if they add new customers, we can scale with them, and they're just paying for what they use on a utility basis.

So, for our partners who are building applications and trying to take advantage of Microsoft technology to take something to the ultimate end customer, I think we are actually changing a bunch of things, just as we are for corporate developers. But they're things that can actually help them in their business, particularly given the state of the economy.