Microsoft's Vista, Office delays complicate partner plans

Partner pricing deals, cash incentives key for success in new markets

While European Union regulators were slapping a $350 million fine on Microsoft for failing to comply with a 2004 antitrust ruling, CEO Steve Ballmer and other company executives were getting a rousing welcome from thousands of business partners at the annual Worldwide Partner Conference (WPC) in Boston.

But with the release of Office 2007 delayed and company founder Bill Gates saying Vista, the next version of Windows, is only “80 percent” guaranteed for its January 2007 release, Microsoft needed to bring more than just good vibes to Beantown. As it turned out, Ballmer brought both carrot and stick: new pricing programs and incentives for partners in one hand and vague threats for those who sell non-Microsoft products in the other.

Continuing the theme of “People Ready Business,” Ballmer used WPC to announced plans for an on-demand version of its Dynamics CRM product to compete with Salesforce.com, Siebel, and others.

Ballmer said his company would release the product in the second quarter of 2007 and “won’t be outhustled by anybody” in the fast-growing SaaS (software as a service) market.

Partners will play a role by integrating CRM Live with Windows and Office Live, as well as other Microsoft products, said Brad Wilson, general manager of Microsoft CRM.

With new enterprise search, security, and SaaS products on tap, Microsoft also signaled that it is willing to use its deep pockets to break into areas that established companies now dominate.

For example, SSA (Security Software Advisor) is a new program that provides considerable cash incentives to partners that deploy Microsoft security products such as the Forefront family of client and server security products, ISA Server, and Antigen messaging security products. To promote its security wares, Microsoft is promising to “skill up” existing partners on security and is permitting certifications from organizations such as ISC2 and ISACA to satisfy its Security Partner Competency, said Steve Brown, director of product management for security, access, and solutions at Microsoft.

Microsoft is also dangling cash, offering partners bonuses of as much as 20 percent of the total sales of its security products, and 30 percent in the next seven months, Brown said.

That kind of deal is unusual for Microsoft, which has a reputation for giving partners low margins on its software, said Paul DeGroot, an analyst at Directions on Microsoft.

The deals are a sign of how serious Microsoft is about winning business away from companies such as McAfee and Symantec, DeGroot said.

“Microsoft is marching into an area with entrenched vendors and entrenched models of how [security] works,” DeGroot said. “Giving resellers those kinds of margins is the price of entry.”

But Microsoft is also taking a tougher line with its partners and resellers, as Ballmer made clear in his keynote. Partners, he said, have a choice to work with Microsoft or its competitors.

“Some of these choices will probably be less comfortable than some of the other choices that we present you with from time to time,” Ballmer said.

With Microsoft developing a comprehensive stack of products and relying less on its partners to fill in holes in its product line, the company will need to rely more on partners to drive product sales and profits, Ballmer said.