Why Microsoft’s right-handedness is better for partners

(The following is an excerpt from “Partnering With Microsoft: How To Make Money In Trusted Partnership With The Global Software Powerhouse” by CMP Books)

A firm’s position on the need for and structure of a channel often has its roots in its very business model. In terms of the corporate schema developed by noted IT industry analyst Geoffrey Moore IBM and Oracle are “left-handed” organizations.

That is, at their core, process drives the business model. In their case, process consists of “complex systems” that encompass and integrate products and services. Their products are developed in a vertically hierarchical model, as stacks of software, or platforms that yield solutions, which are conjoined with services that are meant to facilitate their usefulness in the market.

The products and services are sold to target customers, an undifferentiated mass in Mr. Moore’s model, with a bottom-up exclusivity among internal groups from product and services development to solution sales and delivery.

Partners and their third-party products are on the periphery of this bottom-up development-to-delivery cycle, subject to internal processes and only supporting those approved by IBM and Oracle themselves. Partners, by definition, are outsiders to these firms and so are largely disengaged from their vendors’ corporate activities, and they rarely touch customers. This is an unfavorable partnering model.

By contrast, as detailed in the pages that follow, Microsoft inherently has a more partner-friendly business model that actively recruits and nurtures symbiotic relationships with its partners. In Mr. Moore’s schema, and in contrast to IBM and Oracle, Microsoft is a “right-handed” organization that works according to a “volume operations paradigm.” At the core of a right-handed organization, technology drives the business model. Increasingly, Microsoft’s technology is spun outward into products with integral and channel-provided services leveraged appropriately to focus on distinct customer segments, rather than an undifferentiated mass of sales targets.

That is, Microsoft partners with other firms in order to drive its own and complementary technologies to market and, in so doing, extend its capabilities without owning all of them-or even customers. For 841,000 high-technology firms throughout the world that have registered with Microsoft as partners, this partnering model is preferable to the partnering models of IBM or Oracle.

This apparent lack of distinction extends to IBM’s partners, too, which IBM tends to view as peripheral mechanisms for getting IBM hardware, software and services to market. In any event, IBM is the driver and chief beneficiary of its partner relationships. Although IBM appears to have many business partners, in fact, it has only 11 per cent of the total number of partners in Microsoft’s channel. Most ISVs and services firms prefer to partner with Microsoft because their revenue opportunities are more expansive.

According to Mr. Moore’s schema, the challenge for such vendors is to be effective in their “off-handed mode,” to develop capabilities that complement their core strengths just as the ability to swing a baseball bat both right-handed and left-handed provides one far greater flexibility at bat than hitting left or right alone. Ambidexterity is exceedingly difficult to achieve, yet firms that complement their core strengths with other capabilities approximate it.

In this respect, Microsoft has proved itself very successful in terms of leveraging partners and, in fact, involving them in pre-sales initiatives for their mutual benefit. That is, Microsoft sells software directly only to its largest corporate customers. But any firm, any individual can buy Microsoft software from any of its resellers, of which there are literally hundreds of thousands. Microsoft sells the majority of its software through its channel.

Accordingly, Oracle only sells software directly — not through a reseller channel — and mostly sells consulting services directly, only rarely working with and through its services partners. That is, Oracle vertically integrates all applicable software into its product set and controls its intellectual property to the point of excluding its partners. With Oracle, there is very little room for lucrative partnering.

Moreover, Microsoft services are sold through its channel with the backing and support of MCS. This “right-handed organization,” then, is more channel friendly than the left-handed organization, which bundles services and products together as the solution.

In general, Microsoft has built a strategic operating model that is contingent on, and that materially benefits, its partners, whether they are service providers, ISVs or resellers. This model is consonant with Microsoft’s culture, which is customer-focused, product-centric and partner-driven, among other traits.

Longtime Microsoft partners reminisce about the early days of Microsoft when Bill Gates would fly coach class and the company’s first partner executive — Sam Jadallah, at the time a vice president reporting to then-sales chief Steve Ballmer — ran Microsoft’s entire channel business. Today, the appointment of many executives across Microsoft’s business divisions, customer segments, subsidiaries and local districts demonstrates the breadth and depth of Microsoft’s expanded partner focus in parallel with its expanded products and solutions.

Consider this when choosing to partner with either Microsoft or IBM: at Microsoft, there are roughly 30 corporate positions whose title includes the word “partner” and who carry some partner-facing responsibilities. There are many more whose compensation is based, in part, on the overall customer-partner experience (CPE), a recently introduced metric that puts partners almost on par with customers for Microsoft. In IBM, there are only three corporate titles with the word “partner” in them.

Microsoft announced that, in FY05, it plans to invest US$1.7 billion in its partner programs up 13 per cent from FY04’s US$1.5 billion and consistent with Microsoft’s annual growth rate of 17 per cent. By contrast, IBM claims to invest more than US$1 billion in partners worldwide yet it is unclear what this investment buys them given IBM’s peculiar mode of partnering.

Microsoft has more than 841,000 partners distributed among the three categories-again, service providers, ISVs and resellers-whereas IBM has 90,000 business partners around the world, which are almost exclusively ISVs (especially WebSphere-related development firms) and IBM Business Partners of various flavours. Some of these are Lotus Business Partners that IBM inherited after acquiring Lotus in 1995.

So from these realities one can, in part, discern the relative merits-the strengths and weaknesses-of partnering with Microsoft. One strength is the number of corporate executives with partner-facing duties; therein lies a weakness, or a challenge, because it implies that one needs to know how to leverage the organization, navigate the labyrinth of the “Microsoft Partner Ecosystem,” in order to succeed, which is the subject of this book.

Another strength is the sheer number and breadth of Microsoft partners, a number that is approaching one million. But this also implies an inherent weakness, or a challenge: Microsoft’s investment in its partners can stretch only so far with so many partners. Partner-demand for Microsoft resources far outweighs the supply. One needs to know how to make the most of-how to get the most from-partnership with Microsoft in order to capitalize on the partnering opportunity. This requires significant investment from partners. Partnership with Microsoft is neither cheap nor easy, but it can be rewarding if you know how best to achieve it.

Microsoft is very cognizant that its sizable partner community is a key differentiator in the market. Mr. Ballmer summarized the company’s confidence in its partners, products and business model rel

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Jim Love, Chief Content Officer, IT World Canada

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