crosoft’s online services hard to resist:
The company plans to offer them
alongside its own hosted solutions despite the comparatively weaker margins. “If it’s the best fit for [clients],
then that’s what we’re going to put in
front of them,” says a stoic Barrera.
“We just have to realize that we’re kind
of giving that business away.”
By contrast, VARs and solution
providers that don’t host applications
themselves have less to fear from Microsoft’s online service offerings, says
Matt Makowicz, principal at Ambition
Consulting LLC, a Somerset, N.J.-based sales and management advisory firm for SMB partners. So what
if the profits are slender? “Adding any
type of recurring revenue they weren’t
able to collect before is a healthy
thing,” he notes. “I really don’t see
the downside.”
Williams concurs. Sure, third-party
hosting providers enable partners to
earn far more generous margins, he
acknowledges, but there can be countervailing advantages to working with
an established industry titan. “The
honest truth is if Microsoft’s solution
is reliable and provides me with good
service when there are issues, then I’ll
take a 6 percent margin over a company that’s horrible and offers a 30
percent margin,” he says.
PARTNERS
WILL RECEIVE
18%
OF FIRST-YEAR
REVENUES
AND
6%
ANNUALLY
THEREAFTER
MARGINS ON
THIRD-PARTY
HOSTED
EXCHANGE
SOLUTIONS
TYPICALLY
RANGE FROM
20%
TO
50%
“Adding any
type of recur-
ring revenue
they weren’t
able to collect
before is a
healthy thing.”
that control, but he wishes the company offered a “white label” option for
its online services, so partners could attach their own branding and handle all
the customer interaction themselves.
Microsoft says white labeling is a
possibility for the future. In the meantime, the company argues, nothing
about its online offerings will distance
partners from their clients. “Microsoft
believes these business-class services
will extend and strengthen the current
relationships partners have with customers,” says Sassan Saedi, group product manager for breadth partner programs and readiness at Microsoft.
“Right now
I don’t
have any
customers
using
hosted
Exchange.”
MATT MAKOWICZ
PRINCIPAL
AMBITION CONSULTING LLC
CONTROLLING THE CLIENT
Even so, channel partners have plenty
of questions about Microsoft’s new
hosted offerings. For example, Microsoft says licensing distributors such
as Vernon Hills, Ill.-based CDW Corp.
and Downingtown, Pa.-based Softmart
Inc. are just as eligible to resell the offerings as other partners. Might that
tempt these bigger players to horn in
on the smaller firms’ hard-won customer relationships? “That could create some problems,” warns Daniel Duffy,
CEO/CIO of Valley Network Solutions Inc., a
Fresno, Calif.-based integrator.
Some partners also worry that Microsoft itself could pose a threat to their client relationships. “The biggest issue is that Microsoft is
DAVID SCHRAG
PRESIDENT
SCHRAG INC.
FOR MORE INFORMATION
MICROSOFT ONLINE SERVICES HOME PAGE
www.microsoft.com/online
MICROSOFT ONLINE SERVICES CUSTOMER PORTAL
https://mocp.microsoftonline.com
going to be billing our clients directly,” observes Ray Paganini, CIO of Cornerstone IT
Inc., a hosting, managed services, and solution
provider in Concord, Ohio. “They control the
pricing. They control the client touch.”
Paganini doesn’t expect Microsoft to abuse
THE CUSTOMER POINT OF VIEW
Of course, all of the debate about margins and customer relationships presumes SMBs are eager to buy hosted
email and collaboration solutions, from
Microsoft or anyone else. Many partners
say that’s far from given. “Right now, I
don’t have any customers using hosted
Exchange,” says David Schrag, president of Schrag Inc., a Brighton, Mass.-based IT consultancy. Many SMBs feel
safer having their own email server on
site, he notes. And they often worry
about reliability too, Duffy adds. “I don’t
know many customers that can live
without email for very long,” he says. “If
that Microsoft Exchange server is at the
other end of an Internet connection,
that’s going to be a tough sell.”
Most IT industry observers agree,
however, that hosted software offerings
such as Microsoft’s are the way of the
future—whether partners approve or
not. “It’s not like Microsoft is the only
one getting into the game,” says InfinIT’s Barrera, pointing to top technology vendors such as Google that are
rolling out online solutions of their own.
Rather than fight an inevitable trend, he
continues, smart channel pros should
hunt for ways to profit from it. “We just have to
be aware of where things are going and move
toward that,” Barrera says.
RICH FREEMAN is Channel Pro-SMB’s
senior consulting editor.
