By Paul DeGroot [bio]
Posted: Aug. 7, 2006

• Sidebar: What's a Partner?

The following an excerpt of a Research Report published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

Few major technology vendors rely on partners as heavily as Microsoft does. The company sells few products directly to customers and maintains a relatively small field sales force of its own—according to the company, its partner channels deliver 96% of its revenue. Even among customers to whom it sells directly—typically large enterprises—the company relies heavily on partners to help make the sale and to provide after-sale services. To ensure that these relationships are fruitful for both partners and Microsoft, the company has extensive programs in place to identify, court, enroll, and manage hundreds of thousands of other companies with which it works. These partner companies span the entire gamut of IT markets, segments, and business models, from global consulting companies with tens of thousands of employees that engage in multibillion-dollar IT deployments to small software companies run out of basements.

OEMs that preinstall Windows on the PCs they sell account for about a third of Microsoft's revenue and a larger percentage of its profits. Independent software developers create thousands of applications that drive sales of Microsoft platforms, such as Windows and SQL Server. Thousands of systems integrators and consultants recommend, deploy, customize, and manage Microsoft-based solutions for their customers. Training partners have taught, tested, and certified more than a million people at some level of expertise on Microsoft products. Software resellers distribute the company's products worldwide and advise customers on volume licensing.

While partners often like exclusive relationships with vendors to help distinguish themselves from their competitors, it is in Microsoft's interest to encourage as many companies as possible to promote and sell its products. Such competition drives down prices, making Microsoft solutions more attractive. However, this strategy has drawbacks for partners, such as increased competition that can lower sales margins, particularly for partners who rely on high sales volume rather than services. A well-designed partner program must thus strike a careful balance between encouraging competition and rewarding distinguished service. It must also provide assurances for end customers that the advice they get from partners is accurate, relevant, and suited to the customer.

With so many different types of partners performing different roles in every market segment, Microsoft engages its partners in many ways to ensure a balance between price and quality.

This report describes some of the types of Microsoft partnerships, what partners gain (and give) through those relationships, and eligibility requirements. (For a general view of what makes a Microsoft partner, see the sidebar "What's a Partner?".) Our main focus is the Microsoft Partner Program (MSPP), which embraces the largest number and the widest range of partners. This program has been in existence, in various forms and under various names, for more than a decade, and it was significantly changed in 2003.

This report updates the Apr. 2005 Research Report, "2005 Guide to Microsoft Programs for Partners." Major changes since that report include the following:

• Most transitions from earlier partner programs are now complete and the Microsoft Partner Program (MSPP) has in general reached its designed state. This means that some partners in other programs (such as Microsoft Business Solutions Partners), or whose status was grandfathered from earlier programs (such as some Certified and Gold Certified Partners), are now regular members of the MSPP and need to meet the program's standard requirements.
• Go-to-market campaigns are being restructured and renamed, and Microsoft will engage a broader range of partners aligned to its People-Ready business vision and its partner-oriented Customer Campaigns.
• Several new partner benefits, such as the Partner Solution Finder and a substantially improved Web portal for partners, have been developed.
• Partner points, which partners can earn to move to higher levels of the Microsoft Partner Program, have been modified slightly.
• Most competencies have been subdivided into more granular specializations.

What's Ahead

The chapters that follow provide more detail about Microsoft's partner relationships:

"Microsoft Partner Benefits and Risks" provides a high-level overview of Microsoft's partner relationships and the benefits and risks of such relationships.

"Managing Partner Relationships" looks at how Microsoft segments partners by their size and strategic fit, how it organizes its own resources to get the maximum benefit from its relationships with partners, and what partners need to do to get more out of Microsoft.

"The Microsoft Partner Program" provides detailed information about the program, including partner tiers, competencies, points, benefits, and technical support.

"Summary of Microsoft Initiatives for Partners" describes other Microsoft initiatives that can be used by a variety of partners. Some require membership in the MSPP while others do not.

"The Future of Microsoft Partners" explores some of the factors that partners should evaluate when considering what they should invest in their relationship with Microsoft.

"Resources" contains links and pointers to additional material about Microsoft's partner programs.

"Appendix: Microsoft Partner Management Teams" contains organization charts for some of the Microsoft units that work specifically with partners, including the names and titles of key Microsoft personnel.