Microsoft partners introduced to the company's software-plus-services strategy this week at its Worldwide Partner Conference (WPC) applauded the plan, though they noted a few challenges as the company makes the transition from selling business software to offering more hosted and Web-based services.

Microsoft used its annual partner conference, held this year in Denver, as a coming-out party for the strategy, with CEO Steve Ballmer outlining the plan for the first time after other executives have been discussing it publicly for more than a year. It seemed fitting that the company's top executive was the one to deliver the message to thousands of partners who play a significant role in the company's success.

"I had no idea how partner-focused Microsoft really is," said Linda Gillis, a first-time attendee of the WPC and director of marketing for Squirrel Systems, a British Columbia company that provides restaurant point-of-sale software and services.

This dependency on partners is a double-edged sword for Microsoft as it moves to a more Web-centric services business model versus the software license model it has used successfully for years. The company not only has to revise its strategy, remaining several steps behind competitors such as Google that started business on the Web and have no traditional software business, but it also has to help its partners make changes, too.

To do this, Microsoft has been slowly ramping up its hosted services portfolio with a series of both consumer and business services. Executives also said at the WPC that those services will eventually become a full-fledged development platform, being both an OS and platform for new applications on the Web in a similar way that Windows is on the desktop.

Gillis said that moving toward offering more services for business in addition to software is the right direction for both Microsoft and its partners. "The addition of services helps to create long-term customer relationships and a recurring revenue stream," she said.

Most partners agreed with this sentiment, but some noted challenges that both Microsoft and partners will face as they make the switch.

Jay Blazensky, vice president of business development for RingCentral, a Microsoft partner that provides voice services, including click-to-call, agreed that creating repeatable revenue is a definite benefit of the plan. But he noted that a challenge for Microsoft and its partners is to convince sales people to "forgo the larger up-front commission in lieu of a recurring annuity."

"Those that buy into the model and are successful -- and patient -- have the opportunity to be enormously successful," he said.

Another partner, Joe McDermott of Solution Canvas, said Microsoft's strategy of transitioning services in a calculated and deliberate manner is the only way to make the change, which is necessary because it is what customers are demanding. Solution Canvas has built a service for small law firms using Microsoft's Office Live hosted service.

"I think the strategy is the way forward strategically for both Microsoft and [partners] ... because in the end the marketplace will dictate and demand," he said. "End-users are who ultimately matter, and now that we have new Web technologies like AJAX and a rapid application development platform in Office Live, the barriers to powerful online applications are gone."

At the same time, McDermott acknowledged that some Microsoft partners will have to learn new skills to take advantage of the new services approach, though the company's "considered pace" for moving to services will help them in that endeavor.

While McDermott praised the technologies that enable more hosted services, one of them -- reliable access to broadband -- remains a hindrance not only to Microsoft's services plan but also its competitors' plans, RingCentral's Blazensky said. "It's an industry-wide challenge ... [but] it's maturing every day," he noted.