Microsoft is shifting its entire sales and marketing strategy to focus on vertical markets.

Microsoft is reorienting its own field sales force to sell vertically; encouraging its solution-provider partners to sell vertically; and putting a sizeable chunk of the company's marketing dollars behind vertical campaigns for the rest of this year.

It's hard to overstate how significant Microsoft's realignment around verticals could be. Microsoft has been an almost entirely product-focused company to date. If it is successful in going vertical, it will become a much more solution-focused one, more akin to IBM.

IBM realigned its sales and software strategy vertically, starting in late 2003. Now it's Microsoft's turn to try to do the same.

Approximately 40 Microsoft executives from across several of the company's seven business units have spent the last four months working out the details of Microsoft's vertical plan, officials confirmed.

Microsoft's goal is to have aligned half of its existing partners vertically; to have obtained vertical field commitments and training; and be well on its way to vertical lead distribution before the end of 2005, company officials said.

The company's growing emphasis on the midmarket also will have a vertical flavor. Microsoft is emphasizing to its salesforce and partners that new products aimed at companies with 50 to 250 PCs will do best if they are tailored for specific verticals.

Microsoft is readying several new midmarket products and services itself, including a new Windows Midmarket Server (MMS) SKU. The MMS product, still a year or two from delivery, will bundle together five different Microsoft server products into a single offering, much like Windows Small Business Server does.

Microsoft's top four verticals -- the ones in which it feels it has existing strength -- are manufacturing, services, distribution and the public sector. The next tier: retail, health care, financial services and media/entertainment.

"We need to convince partners that they'll make more money doing this (going vertical)," said Craig McCollum, vice president, Business Solutions sales strategy, in a presentation for press and analysts at Microsoft's Convergence conference for its Microsoft Business Solutions customers earlier this month.

McCollum outlined some of the tools and strategies upon which Microsoft plans to rely to get partners and its own sales folk thinking more vertically. These include solution maps; opportunity maps; the recently introduced Industry Builder and Channel Builder programs; new industry partner-advisory councils; Web services integration tools and more.

Microsoft is appointing industry managers to spearhead the vertical campaigns for 14 key vertical segments, representing more than 600 solutions.

Microsoft isn't building any vertical apps, McCollum emphasized. But he did acknowledge that Microsoft's new vertical focus will have an impact over time on how Microsoft designs and develops its products. McCollum didn't specify exactly how this change will occur or what form it will take.

Orlando Ayala, senior vice president of Microsoft's small and midmarket solutions and partner group, was quite clear, in speaking with Microsoft Watch, about the near-term effects of Microsoft's vertical moves.

"Our advertising and marketing is going to line up behind this. We're moving most of our marketing dollars here. It will be a big chunk," Ayala said.

(This is an updated version of an article which appeared in the March 10, 2005, issue of the Microsoft Watch newsletter. Want to see what other Microsoft news nuggets you might have missed? Sign up today for a free two-week trial subscription to Microsoft Watch.)