Pledging to make partners more profitable, Microsoft told attendees at its Worldwide Partner Conference in July 2006 that it would share more revenue with partners that help it roll out new services and security products. The company also outlined numerous changes in licensing and pricing, notably for customer relationship management software and virtual machines, that will boost Microsoft's presence in these areas. However, many critical details remain unknown, and some of the more important opportunities for partners are not likely to emerge until 2007.

Need to Make Choices

In a keynote address titled "The Winning Choice," Microsoft CEO Steve Ballmer told attendees that they may need to make some "uncomfortable choices" in the future when deciding whether to work with Microsoft or with its competitors. While the company has tolerated partners who work with its competitors in the past, such as on security software, it may expect a more Microsoft-centric position in the future.

"Do you choose to work with us on unified communications and Voice-over-IP or your traditional partners?"

If they choose Microsoft, they will benefit from a comprehensive end-to-end approach and from the energy and investment that Microsoft applies to important new markets, Ballmer asserted.

That theme was echoed by Allison Watson, corporate vice president for the Worldwide Partner Group, who said Microsoft has begun benchmarking the profitability of Microsoft partners compared with partners of its competitors, and the company is committing to ensure that its partners are the most profitable. As new products and opportunities emerge, the company will specifically measure indicators such as net profit, average time to close a deal, and return on investment, and will also publish guidelines and roadmaps to help partners close deals and achieve the partner profit targets Microsoft has set.

Partner Program Improvements

Many of the major new opportunities that Microsoft outlined at the partner conference promise to provide service partners with part of Microsoft's revenue stream. This marks a significant departure for Microsoft, which has rarely offered partners other than distributors and resellers any margin on software sales. The company does offer service partners margins on Dynamics products offered outside the volume licensing channel and has offered partners "referral fees" in its Open Value plan for small businesses. However, service partners generally make money by deploying, managing, and troubleshooting Microsoft products for their customers, not selling licenses.

Among the areas where service partners can now expect to share license revenue are the company's new online offerings, such as Windows Live, Office Live, and a new CRM Live offering. Partners can get a share of the ongoing revenue by referring customers to the services themselves, or to MSN adCenter, which provides advertising services on the Live sites.

Microsoft executives suggested that other forms of revenue sharing would also be available, but details such as pricing were lacking: most of the new Live services are now only in free beta. In addition, partner eligibility requirements, the kind of partner services that will merit a share of the revenue, and the size of that share were not specified.

The story was similar for a proposed plan to share revenue from Microsoft search technologies, such as new search technology delivered by Microsoft's Information Worker business, which includes Office and SharePoint. Those opportunities will not be specified until Office 2007 is released in late 2006.

In general, most of the revenue that service partners will be able to share will come from subscription services with monthly fees, rather than from any new margins that partners will be able to access on software sold through volume licensing. However, partners who are part of a new Security Software Advisor program will be eligible for adviser fees on software that they deploy for customers. Advisors will get 20% of the product price and, through Feb. 1, 2007, an additional 10% of the product price.

Eligible products include Internet Security and Acceleration (ISA) Server 2004 and 2006 and the various security products sold under the Antigen product name, such as Antigen for Exchange, Antigen Spam Manager, Antigen for SMTP Gateways, Antigen Enterprise Manager, and the Antigen Messaging Security Suite (which includes the Exchange, Spam, SMTP, and Enterprise products). Some of these products are sold through standard server licensing channels, while others are services for which customers pay periodic subscription fees. (ISA and the Antigen products are being rebranded "Forefront" beginning in late 2006; see the sidebar "Forefront Brand to Apply to Future Security Products" for details.)

Product and Licensing Changes

Major product announcements are not common at a partner conference, but Microsoft announced many changes in licensing, bundling, and distribution that could have an impact on partner sales opportunities.

One of the few new products announced at the conference was an upgrade to Small Business Server (SBS), dubbed SBS 2003 R2. The premium edition of SBS 2003 R2 will also contain the low-end Workgroup Edition of SQL Server, rather than SQL Server Standard Edition, which its predecessor used. To compensate in part for the less aggressive feature set, the price for SBS 2003 R2 will be about 13% lower than for its predecessor, putting SBS 2003 R2 Standard Edition at US$599 and Premium Edition at US$1,299. (For more details, see "Small Business Server 2003 R2 Ships".)

CRM Goes "Live," Gets ERP Bundle

Microsoft's Dynamics Customer Relationship Management (CRM) will undergo some of the most significant licensing changes. A Dynamics CRM server license will be included at no charge with each server license for one of the four Dynamics enterprise resource planning (ERP) products (Dynamics AX, GP, NAV, and SL), and partners can sell named user licenses for Dynamics CRM through the Dynamics price list, which offers better margins for partners than Microsoft's regular volume licensing price list. (Dynamics CRM is also available through volume licensing.)

CRM Live, a Microsoft-hosted online service planned for 2007, will provide a third CRM delivery channel for Microsoft and partners. Partners will be able to add custom features to CRM Live installations to which their customers subscribe. The news of a Microsoft-hosted CRM service was disappointing to some Microsoft partners who have hosted earlier versions of the products, but could help Dynamics CRM gain ground on Salesforce.com and similar offerings from other vendors.

Microsoft also announced "Business Ready" licensing for all of the Dynamics products, fixed bundles of each of the Dynamics solutions. These will make it easier and less expensive for smaller customers, in particular, to license Dynamics products.

Virtualization Licensing Changes

In the fast-moving virtualization market, Microsoft will make several changes that lower the cost of running virtual machines (VMs) on its platform.

The most scalable version of Windows Server, Datacenter Edition, will be available through the company's volume licensing channel (until now it has been available only through OEMs as part of a certified hardware and server software bundle) and will be able to run unlimited VMs without requiring additional Windows Server licenses for each VM. The company was planning to permit unlimited VMs on the next Datacenter edition of Windows Server, code-named Longhorn, but the new rule for VMs applies to the current version, Windows Server 2003 Datacenter Edition, as well.

The company also announced that customers using a premium version of Vista, Vista Enterprise Edition, would be able to install four additional copies of the OS at no extra charge. Previously the company planned to permit Enterprise Edition customers to install a single additional VM at no additional charge. Vista Enterprise Edition is available only to customers who have upgrade rights through an Enterprise Agreement or Software Assurance, so the move can be seen as an effort to make these premium volume license programs more attractive.