Partners On Microsoft-Nokia Deal: Don't Mimic Apple's Channel Strategy

Microsoft partners Tuesday said the success or failure of the software giant's planned $7.1 billion acquisition of Nokia's mobile devices and services business ultimately rests on whether Microsoft sheds its Apple envy.

The biggest potential pitfall for Microsoft is if it insists on attacking the mobile market by mimicking Apple's consumer strategy and not leveraging the power of the Microsoft channel, said Mont Phelps, CEO of solution provider NWN, No. 88 on CRN's SP500 list with $266 million in annual sales.

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"The big risk for Microsoft is approaching the device market like Apple," said Phelps. "Apple does not have a successful [device and services] channel strategy. Microsoft's strongest play would be to leverage the channel to penetrate the market. The thing about the channel is it can not only be your best friend, but your worst enemy.

"This deal depends not only on product offerings, but the channel strategy," said Phelps. "The question: Is Microsoft going to be able to get the channel to work with them, or are they going to end up with the channel working against them?"

Microsoft's retail store channel strategy for the Microsoft Surface tablet is just the latest sign of the company's Apple envy. In July, Microsoft snubbed the vast majority of partners with plans to distribute Surface through just 10 large account resellers.

The LAR channel strategy, which ignores the solution power of partners such as NWN in the enterprise market, leaves Microsoft vulnerable in the battle against Apple, said Phelps, and leaves a huge void in the midmarket channel, where it could be capturing significant devices and services market share.

Microsoft's channel strategy has been hampered by a sales compensation model that simply does not recognize the power of partners such as NWN, said Phelps. "Big companies like Microsoft run their business with comp plans," he said. "Microsoft has no way of tracking how much revenue we influence. They don't know who we do business with, and they don't track it. There is no compensation metric around our relationship with Microsoft."

Douglas Grosfield, president and CEO of Xylotek Solutions, an Ontario-based solution provider whose Microsoft sales are up about 20 percent in the past year, said Microsoft needs to aggressively engage the channel if it is going to be successful with the Nokia acquisition.

NEXT: Can Microsoft Redeem Itself With Channel Partners?

"Any opportunity for great reward often comes with great risk, and I think that's what is facing them now," said Xylotek's Grosfield. "The mobile or smartphone market is so highly competitive and is so reliant on the whim of what's favored, that the risk of failure is extremely high for anyone trying to get into that space. With Microsoft, that's a lot of money they're investing. If they want that to pay off, the only sure bet in this scenario is that their partners are going to be the ones that can see it through and help them succeed and make this a wise investment. If they want to see a return on this investment they need to involve partners fully, right from the get-go, and be very transparent throughout that process, or the likelihood is that they will fail."

The blockbuster deal opens the door for Microsoft to redeem itself with partners that feel burned by the Surface distribution debacle. "If they handle it the same way they did with Surface, it's going to be a disaster," said Grosfield. "The partner community is heavily involved in growing a mobility practice as part of our business, and part of that is partnering with companies like BlackBerry and some are partnering with Apple ... and you're counting on them to walk with you together through growing this part of your business. And if Microsoft [doesn't] involve the partner, wholly, it's going to be pretty hard to come back from that one in terms of credibility with their partners."

Microsoft's success or failure will hinge on whether it leverages its dominant share in the business market to succeed in the mobile device market, said Grosfield. "Microsoft has such a stranglehold on the business community as a whole, in terms of desktop and server operating systems and collaboration software, adding in the ability to seamlessly integrate your smartphone into that environment and manage it using the same tools that they already provide to manage all their other technologies, they have a massive advantage over the competition," he said. "If they can focus on ensuring the software that they run on the Nokia platform is tightly integrated with their desktop operating systems and applications, they are going to be a formidable player in the mobile space in a heartbeat."

Michael Goldstein, president and CEO of LAN Infotech, a Fort Lauderdale, Fla., Microsoft partner, said the deal will make it easier for Microsoft to innovate against Apple in the smartphone and tablet markets. "This is a great thing," he said. "When you own the software and the hardware, it makes it easier to innovate.

"The Nokia 1020 with the 41-megapixel camera was kind of cool, but I want to see something new," said Goldstein. "I want to see Microsoft put their touch on a new device. ... This comes at a perfect time, a week before the new iPhone release."

LISA BARRY contributed to this story.

PUBLISHED SEPT. 3, 2013