Microsoft's Suite Response to Google, Partners
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News Analysis. As the saying goes, Microsoft will rob Peter to pay Paul. |
Today, at its Worldwide Partner Conference, Microsoft announced pricing and partner compensation for its suite of Online Services. The venue is somewhat surprising, because Microsoft-hosted services directly compete with similar offerings from its partners. Microsoft's solution: Cut in partners on the action.
In a Google world of free services supported by advertising, Microsoft's competitive response options are limited. Microsoft doesn't have a successful enough search and advertising platform to compete with Google in free services such as Docs; there is too much risk of hurting sales of desktop and server products such as Exchange Server and Office; and Microsoft is dependent on a large network of partners to sell its wares. There are few giveaway options.
Microsoft's compromise is to offer services cheap, while compensating partners. It's a risky move, because channel conflict is inevitable. Microsoft can coat this bitter pill in sugar, but the taste lingers: The company is directly competing with its partners.
The company's first Online Service is called the Deskless Worker suite. Ala carte offerings for "light" online versions of Exchange or SharePoint cost $3 per employee per month. The whole Business Productivity Online Suite—hosted Communications, Exchange, Live Meeting and SharePoint—is $15 per employee per month. The math looks good for Microsoft and its customers. A company with 50 employees would pay $750 a month or $27,000 over three years, which is a typical time period for Microsoft volume-licensing contract with Software Assurance.
My initial response to the pricing, without doing a hard volume-licensing comparison, is positive. But Microsoft still charges quite a bit more than does Google for Apps, which are $50 per user per year. Microsoft's suite is $180 per user per year, assuming there are no hidden discounts or other devil-in-the-details considerations.
Microsoft gets recurring revenue from real subscriptions, not just volume-licensing commitments. Customers get hosted services from Microsoft that are in some ways better than packaged software. Microsoft takes on the administrative and technical burdens, which conceptually would reduce staffing and other IT Management costs. You can buy a home, or you can rent. If you rent, the landlord assumes responsibility for maintenance, upkeep and taxes. Microsoft is going into the IT landlord business.
But Microsoft has a problem: Its partners, whom Microsoft relies on to sell and service its products. The company has no large, dedicated sales force. Microsoft can't afford to piss off its partners. Microsoft Online Services compete with partners, whether they're selling or servicing on-premise software or selling their own hosted services using Microsoft partners.
Microsoft is trying to alleviate partner conflict by cutting them in on the action. Partners selling Productivity or Deskless suites will get 12 percent of the first-year contract, plus 6 percent of subscription fees. So, first-year bang is 18 percent. The aforementioned 50-seat example that could work out to $1,620 for the first year. I say could, because the devil is in the details with respect for what Microsoft accounts for when. Regardless, that's recurring revenue for the partner. In this scenario, $540 per year ($45 a month) from the subscription's second year.
Is that compensation model enough to alleviate channel conflict? Ideally, customers would still require something on the desktop, meaning Office and Windows. So there is real software that partners could sell and service. But the big money is on the server, and Microsoft would take away from some partners recurring service and maintenance fees. The hosted service kickback fees wouldn't make up for them, not for truly successful partners. Channel conflict is inevitable.
Should Microsoft be blamed for competing with its partners? Yes and no. The "yes" is Microsoft's over-dependence on the partner model. This isn't the first time Microsoft had to kick back money to partners, simply to avoid competing—or just the appearance of competing—with them. Best example: volume licensing, which technically should be a direct relationship with customers, but Microsoft cuts in partners. It's hush money. Don't complain. Be happy.
The "no" acknowledges a changing marketplace. Competition from Google and other Web 2.0 platform companies is real. There has to come a point where, say, Google's online suite, including Calendar, Docs and Gmail, is good enough for many businesses to stop buying Office. Increasing mobility—the need for informational access anytime, anywhere and on anything—creates a clear future for hosted software, whether done by the enterprise, Microsoft or one of its partners—or coming from competing, ad-supported or lower-cost products. Change is inevitable, too.
These changes affect the partner model by commoditizing some of the products and services they offer today. From that perspective, Microsoft is being generous to its partners. Microsoft is adapting its business to a changing computational marketplace, and it's cutting in partners on a piece of the action. It's adapt or die. If you're a dinosaur, extinction is inevitable.
Comments (7)
The bottom line is your business is paying Microsoft for what it could get for free. Not only that, but is your business doing any monetary transactions online with Windows? If so you deserve better than the most insecure OS on the market, Windows.
Move Your Business from Windows to Linux
If the cost of Windows is getting your small business down, consider shifting to Linux.
http://www.pcworld.com/article/147879/move_your_business_from_windows_to_linux.html
Quotes from the link; "you're still looking for an alternative to Windows Vista, look no further than Linux. The latest distributions are free, easy to install, and highly customizable; they harness your existing hardware without overtaxing it; and they include a wealth of productivity applications and utilities. You may already have a closet Linux expert on staff, but if you don't, paid support is usually available at rates far less than Microsoft's.
Making the switch from Windows to Linux will incur some costs as employees and support staff adjust to the new system's configuration settings, utilities, and applications. Even so, the savings in future hardware and software upgrades could be huge."
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Free yourself and get the MS Monkey Boy off your back and out of your wallet. Chips recommends a visit to distrowatch.com and Mepis or PCLinuxOS.
Posted by chips | July 8, 2008 12:40 PM
Microsoft has outright destroyed their partner loyalty today. One part that you absolutely skipped over, which is critical to the channel, is who controls the subscription and the price level.
Microsoft does.
Which means that as a partner I am simply turning over my accounts to Microsoft and helping them fill out a form for less money than an office secretary makes. Not really what many Microsoft partners, who are entrepreneurs, are going to consider at all.
Microsoft in its fight with Google has just cannibalized its partner loyalty. I have a feeling this move will do more to damage Microsoft than it will give it legs to compete with Google.
Which as a partner of many years I consider to be quite sad.
I made the following image, not safe for work, to show what Microsoft has done to its partners today.
http://www.vladville.com/2008/07/thank-you-microsoft-nsfw.html
-Vlad
Posted by Vlad Mazek | July 8, 2008 12:56 PM
So is it real news that MS is once again competing with its partners? Isn't that just what MS has always done?
Now for some real news, that Joe has not covered. Some of us remember when MS lost the EU appeal case on their fines. MS stated at that time it had no plans to further appeal. Guess what? Its appeal time once again:
Microsoft to EU Commission: We're Not the Bad Guy; You Are
http://www.groklaw.net/article.php?story=20080707192945557
Posted by chips | July 8, 2008 12:58 PM
Hey I can't believe that you have the audacity to say something like this:
Microsoft doesn't have a successful enough search and advertising platform to compete with Google in free services such as Docs; there is too much risk of hurting sales of desktop and server products such as Exchange Server and Office
you just really need to start thinking outside the box buddy.
Google is a flash in the pan.
A one-trick pony.
Google apps aren't competitive with MS Office. Not by a long shot.
Of course-- I'm a database guy so I think that office revolves around Access.
Until Google or Microsoft start having some online database forms / reports tool-- I just don't see the point.
Posted by Aaron Kempf | July 8, 2008 3:16 PM
Aaron Kempf says:
Hey I can't believe that you have the audacity to say something like this:
Microsoft doesn't have a successful enough search and advertising platform to compete with Google in free services such as Docs; there is too much risk of hurting sales of desktop and server products such as Exchange Server and Office................
WHAT part of the fact that Microsoft has lost search to google on an ongoing, monthly basis? You can put your head in the sand, and say its not true, but MS is losing search share to Google at an alarming rate. Why else would it want to buy Yahoo? And MS is losing money on its online advertising as well.
Speaking of one trick pony, where would MS be without its monopoly on the operating system desktop. Office is even built on this house of cards.
Posted by The Hand | July 8, 2008 8:18 PM
Joe, you need to do a little more research on the true costs of Google Apps fo rthe Enterprise. If you want to provision users through their AD account rather than manage users in multiple places - that costs extra. If you want to sync your Email/Calenadr to you mobile device - thats extra. If you want the ability to archieve Email, add Discovery capabilities and use their advanced hosted filtering - that costs you too.
There are all kinds of add-ons for using G Apps in the Enterprise effectively. A lot of these add-ons are built by third parties too. So if G changes something you risk it breaking these paid for service add-ons.
Then there is the issue of Google's Terms & Conditions of Service. If someone hacks the systems and your docs get stolen - they are not liable. If there is a glitch in the system and some docs or emails get lost - not their issue. Then look at theor privacy policy too.
So there is a LOT more to consider than the $50 per user price. It might be fine for very small business, but there is a large risk for larger companies. If one of the add-ons stop working - such as the AD sync, who do you call? Not Google. When someine hacks the system or documents get leaked by mistake, what happens when that confidential informaiton is exposed? Google's not responsible. Some htings to seriously consider.
Posted by jason | July 10, 2008 2:30 PM
That revenue share is paltry, and a fraction of what MSFT gets for selling license products. In the proposed MSFT scenario, te amount you make on day one selling license product dwarfs what you will make in a subscription model over three years (espeically when you factor in the hwardware that is sold-in with the software licenses.
Look at SAAS providers that are currently selling in the channel, they give much more. NetSuite for example gives a minimum of 30% of the fees in the first year, and 30% every year a subscription is renewed. That's the level you need to make transtion from a license model to a subscription model.
Posted by johnnyw | July 10, 2008 4:54 PM