Microsoft: Sales Force Is Growing, Not Competing

By Peter Galli  |  Posted 2005-05-23

Microsoft: Sales Force Is Growing, Not Competing

As Microsoft Corp. continues to aggressively grow its enterprise sales and services force and move into new software markets, it is increasingly encroaching on the traditional turf held by many of its channel partners—and that is creating tension.

In addition, many enterprise customers who have long dealt with those partners for their solution sets are now increasingly having to deal with Microsoft itself for more of that technology, a move that is not always welcome.

Microsoft executives recently thrashed out the second five-year plan for the company since Steve Ballmer took over as CEO in 2000.

Under that plan, its enterprise group intends to significantly grow its sales force over that period while, at the same time, making them far more vertically specialists in nature.

That is causing increased tension with some of Microsofts channel partners, who already feel that the Redmond, Wash. software firm is stepping on their toes, partners and analysts told eWEEK.

Simon Hayward, an analyst with Garner Inc. in San Jose, Calif., told eWEEK that Microsoft had no choice but to develop a more specialized, vertical-solutions sales force, as to some extent it is a matter of, "When you have pretty much saturated one area of the market, what else do you do?"

But Simon Witts, corporate vice president of Microsofts enterprise and partner group, denied that there was any business conflict with its partners. Rather, he acknowledged in an interview with eWEEK, some partners have seen Microsofts services as "competitive," but that was more because Microsoft had been unpredictable rather than it because it is actually a competitor, he said.

Microsoft responded to this issue by "taking the serious step" and moving the selling of services into its sales force under a program known as "One Microsoft," in which there is one account team and one opportunity pipeline, Witts said.

Microsoft is also not in the services business and does not plan to become a services player, according to Witts: "We still run that as a cost center and it doesnt even break even. I bill $1.6 billion of services in the enterprise, and so it is always going to be less than 10 percent of my revenue and less than 5 percent of my server sales. Our partners make a lot of services revenue," he said.

Under the new 5-year plan just ushered in, Microsofts enterprise group is also working hard at getting its business groups even more involved in all aspects of the business, whether that is helping respond competitively on deals or sponsoring accounts.

"Just take the server and tools group. There are eight thousand smart people there and I measure my success by how many accounts they know and how many situations they have been involved in," Witts said.

Click here to read our interview with Andy Lees, Microsofts corporate vice president for server and tools marketing, on plans to increase integration across all Microsofts server products.

Some customers, like John Engates, chief technology officer for Rackspace Ltd., a managed hosting provider in San Antonio, Texas that has more than 6,000 Windows servers, welcome this greater involvement with the business and sales teams and, indirectly, the product teams.

"We have to manage hundreds of customers who all have different needs. Microsofts management and monitoring tools, as well as Active Directory, have always been designed for a big IT shop rather than for service providers," he said.

"The focus on vertical segments will enable us to have more input into what our specific needs as a hosting company are and see those reflected in the various products like IIS, SQL Server and the management tools like MOM and SMS [Systems Management Server]," Engates said.

Engates said he was working closely with a hosting and communications group at Microsoft, who listen to his input and then provide feedback to the product groups so this will have relevance in the hosting space.

He also pointed to the fact that those in the hosting business are set to become Microsofts large customers down the line, as big IT shops are increasingly becoming hosters to their largest clients. "An IT organization wants to create a hosting business and then sell it off in pieces to their internal market," he said.

Next Page: Microsofts sales force is evolving.

Microsofts Sales Force Evolves

Continuing to evolve Microsofts sales force is another key driver going forward, Witts said, and Microsoft expects to significantly grow the size of its sales force over the next five years.

"Weve actually grown our [enterprise group] sales force by 60 percent over the last five years and I think we could grow it another 60 percent in the next five years. We have also been growing our on-site services team by 16 percent compound annually and we will continue to do that, so we can get to 23,000 people inside the enterprise in the next five years," Witts said.

The number of specialists in the enterprise groups sales force is also likely to double to 50 percent over that period, Witts said.

This "specialist" designation will not just mean that they know all about the individual technology sets, but increasingly that they understand things like straight-through processing, claims, point-of-sale or branch. "This is very much what I would call cross-workload or industry solutions," he said.

The enterprise group is also formally setting up industry and specialist units to cover vertical specialization on the workloads or industry solutions, and those will support the account teams that cover the clients, he said.

Those moves are of growing concern to some partners, who wonder why Microsoft is building up its sales and services forces and making them more vertically specialized, if it does not plan to increase the amount of business it does directly with customers, much of which will come at the expense of their partners.

Gartners Hayward is not convinced that Microsoft will necessarily succeed with this shift, he said. "This is very different from the model that Microsoft has traditionally operated under and it is very far from a foregone conclusion that it will be successful with it," he said.

"If they have to move into the true enterprise-computing world they will have to start dealing with the vertical specialization of channels which organize that way. And that, at the end of the day, is where a whole lot of the issues around competition between Microsoft and partners like SAP is going to come from," he said.

"At the moment theyre doing this clever dance around one another, evidenced by the recent Mendocino announcement, but that does not mask the fact that, over the longer term, while they may not be going for exactly the same revenue stream, the issue of who is driving the bus will come to the front," he said.

To read more about Microsoft and SAPs "Mendocino" project, click here.

Traditionally, SAP had been used to "driving the bus" with its customers as Microsoft had not been in that space, but as it increasingly moved into that space, "A conflict that did not exist previously arose," Hayward said.

Large companies like Microsoft, IBM and SAP AG can no longer play the simple, dominant and paternalistic role that they were used to due to the complexity of the new relationships they are entering into, he said.

Microsofts model had always been removed from what was going on in the brains of its customers decision makers, but it now had to create exactly the types of account relationships that IBM and SAP had cultivated for many years. "So, in that sense, Microsoft is having to learn a new game more than the others," Hayward said.

Next Page: Microsoft insists partners shouldnt feel threatened.

Microsoft Partners Shouldnt Feel


Witts agreed that while Microsofts enterprise group had focused mainly on workload specialists over the past five years, going forward it would be adding more industry specialists than workload specialists.

But he denied that these moves would tread on the toes of its channel and other partners and bring the company into more direct competition with them.

"While it is very true that our small and midmarket business is 100 percent partner-led, but even as we have got into the business solutions business with Great Plains and Navision, they were both 100 percent partner-led as well," he said.

That being said, Microsoft is changing the way it picks and works with partners, he said.

While over the past five years Microsoft had chosen partners based on how committed they were to its technologies, it is now picking partners based on their solution sets. As Microsoft builds out that platform and releases more CRM and financial solutions, "by definition, we only want partners with vertical expertise," Witts said.

"Partners need to self-profile and promote on the solutions side, or we will pick partners through our partner selection and solution segmentation process, which will give us more precise relationships," he said.

Read here about how Microsofts CRM delay is irking its users.

But while Witts stressed that Microsoft was not in the services business and did not plan to become a services player, he said it would aggressively move to make sure its customers infrastructure was more secure and better managed, which means moving into the management and security businesses.

"Thats a boundary thats suddenly gone, but system partners like Citrix are still going gang-busters with us," he said, but did admit that there was friction when Microsoft redefined what software businesses it was in. However, it does not actually have any industry solutions itself but rather the frameworks and accelerators for those, Witts said.

The enterprise group also took a fundamental decision a year ago, after weighing the question of whether its partners were a strategic asset or competitive inhibitor, to remain partner-led in the enterprise.

"Interoperability allows us to have a rich set of partners that makes us a stronger vendor, but we are the guy that has to knit it all together and take single accountability. That is, frankly, our core premise," Witts said.

But he did acknowledge that Microsoft needed to be more predictable and had done a bad job of saying where it was going with new areas like the MBS (Microsoft Business Solutions) platform. "People hate you being unpredictable. Your go-to market also has to be predictable and then I think partnerships can evolve with the industry, and thats the biggest thing," he said.

However, Microsoft is also not going to stand idly by and "let our partnerships stop us from keeping up with where the market and the industry is going. If that happens, both you and your partners lose," he cautioned.

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