Microsoft: Software + Services = ?

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When Microsoft promoted its “Software Plus Services” plans for VARs at its Worldwide Partner Conference this summer, many resellers reacted with a mixture of bitterness and confusion. Most have lived off software license fees from Microsoft’s ERP accounting products for years and now they must discover how they can incorporate the vendor’s Web-based (or software-as-a-service) offerings into their toolboxes and still make money despite significantly lower margins, according to Mark Corley, senior director of Microsoft Dynamics CRM channel strategy.

Microsoft admits it is struggling to educate its channel but continues to introduce tools to help them venture into the SaaS space where online vendors such as Salesforce.com and NetSuite have played for years.

“A number of partners have different starting points on their journey with CRM,” Corley says, noting that there are “hundreds” of CRM channel members but declining to comment on how many and that he is seeing a “substantial increase” in the number of ERP resellers interested in adding CRM to their practices.

Partner Insights

Some are simply reacting to customer inquiries and need to get up and running quickly so those customers won’t seek another VAR. For those resellers, Microsoft offers a quick start guide, and suggests using the Microsoft-hosted version, which offers less customization and development work than a partner-hosted or on-premise alternative would.

“We bill the client for our (VAR),” Corley says. “They get rid of deployment, but the customer still needs help with training and rollout. The focus is all around partner services and opportunities. Partners can bring unique requirements to life for their customers.”

Partners resell a 12-month contract and receive a 10 percent fee upfront (as opposed to smaller amounts each month). Those who sign two-year contracts get paid in two installments, the second at month 13. They continue collecting 10 percent every year the contract renews.

To entice resellers who still do not believe they will make ample money from subscription pricing, Microsoft is offering an additional 5 percent on all deals signed through Dec. 31.

“Some are concerned if they do a five- to 10-user deal, that’s a small payment, so they’ll get a minimum payment of $1,000 just for signing up the customer through Dec. 31,” Corley adds.

Some VARs said they are not comfortable with Microsoft collecting cash from their customers, however, and others expressed concerns that the customers are not required to sign contracts with VARs and therefore could potentially switch partners at any time.

SaaS Preparedness

On the other end of the spectrum are channel members who want to expand their practice around SaaS. Microsoft offers them a self-assessment tool at www.saasreadiness.com for them to figure out if they have what it takes.

“People who want to specialize need a SaaS readiness program,” Corley says. “Customers are buying differently, searching for on demand, clicking to try and buy. The issues people face are not around technology and implementation, so the go-to-market model changes.”

Corley strongly advises VARs against trying to be hosters themselves.

“It would be a tragedy for VARs to spend all the time and effort to build their own hosting competency and playing the economy of scale game,” Corley says. “Get a good hosting partner behind you that has the right service level agreements and the right business approach.”

There are about 150 hosting partners in roughly 30 countries. Microsoft wouldn’t break down how many are in the states but is holding speed-dating type events for hosters to make their case. Some specialize in microverticals such as travel and tourism while others focus on bundled offerings or integration with other products. An online tool called the Microsoft Pinpoint Marketplace (www.pinpoint.microsoft.com) helps VARs and hosters connect. Hosters pay Microsoft and charge the VARs, who then charge their customers based on the level of service.

“That’s what’s exciting for VARs and ISVs, customers will pay significantly more when there’s additional customization,” Corley says, adding that he’s seen prices range from $35 per user per month up to as high as $250.

While third-parties can host Microsoft Dynamics CRM as well as the vendor’s four ERP products — AX, NAV, GP and SL, only Dynamics CRM is currently available as a Microsoft-hosted offering, called CRM Online.

The company said it will continue to improve the ability for third parties to host the ERP products, but is concentrating most of its efforts around on-demand CRM.

One of the ways Microsoft is trying to drive VAR adoption of its customer relationship management software is to sell it to partners at a low cost with no commitment — $19 per user per month with a free month trial.

Typically, CRM Online Professional, which includes 5GB of storage, 100 configurable workflows and 100 custom entities, costs $44 per user per month. CRM Online Professional Plus, which gives 20GB of data storage, 200 configurable workflows and 200 custom entities, costs $59 per user per month. Both require a one-year contract.

To Host or not to Host?

Some VARs already have plunged into the hosting world and can offer tips on how to earn money despite the significantly lower monthly fees, others are in wait-and-see mode but are starting to experiment.

Frank Lee, president of San Francisco-based Workopia, a Dynamics CRM reseller with about 100 customers, just started selling the online version at the start of this year, but sees the subscription model gaining momentum.

“I observe this as so much easier to get an online solution without having the initial inertia of all the things to buy before they get running. It speeds up the sales cycle tremendously,” says Lee, a Microsoft CRM Most Valuable Professional. “It’s critical for any executive thinking of SaaS to realize this is the trend and system choice going forward regardless of whether they decide to embrace it or not.”

Workopia focuses strictly on CRM. Lee relies on his referral network when customers ask him about ERP, and he advises ERP VARs who do not know enough about CRM to either refer customers to those who do or hire someone who has experience in the space to minimize the learning curve.

Mike Snyder, principal of Chicago-based Dynamics CRM reseller and President’s Club member Sonoma Partners, also suggests studying up on the competition, namely Salesforce.com.

“They have a pretty aggressive sales force and they’re good at getting their name out. We run against them 95 percent of the time,” Snyder says. “Microsoft has some competitive guides, but they have to be very careful what they say. Read blogs and do your own research. Some of our best data points have been talking to Salesforce.com customers, getting their point of view of why they’re considering switching and what worked well and what didn’t.”

When it comes to choosing a hosting partner or sticking with Microsoft, Snyder has mixed feelings, but says some of his customers feel more comfortable with the vendor they’ve known for years. Lee only uses Microsoft.

“When I put my core data somewhere, I want someone who’s solid as Fort Knox, I can’t have my core data at the corner store,” Lee says. “I trust Microsoft.”

Queue Associates, another President’s Club member, already has a trusted relationship with a third-party hoster, Valiant Solutions, which provides Web-based workforce management applications to more than 350,000 employees including some MLB teams and which has invested more than $5 million in infrastructure since its formation in 1993.

The two companies have common customers and signed one SL and one GP customer to hosted versions last year and Valiant is interested in similar relationships with other resellers, planning to offer revenue sharing to those who sell their customers Valiant’s products.

The biggest gripe Queue has with that arrangement is that Valiant gets all the credit, so joint agreements don’t count toward Queue’s President’s Club status.

“I got zero credit for revenue or customers; (Valiant) gets all the kudos,” says Jeff Goldstein, Queue’s CEO and president. “If I have the ability to do 20 SPLAs (service provider license agreements), but get no credit, what’s the incentive? How do partners recognize that revenue?”

Microsoft provided no answer to that question, but Valiant did.

Without a pay-as-you-go model, smaller companies may consider a lower-cost product, says Anthony Petraco, Valiant’s CEO.

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