Do You Need a Contractor?

Service-industry players question whether Microsoft can wear yet another hat.

Microsofts bold move to create a professional-services organization has been greeted with mixed reactions from solutions providers. While some are offering optimism, others fear that the software maker could easily eat their lunch.

The new organization consolidates Microsoft Consulting Services (MCS) and Product Support Services (PSS) into a single entity with a staff of 13,000, one-third of Microsofts work force. The unit is led by Microsoft veteran Robert McDowell, who started MCS in 1990.

Microsoft has yet to detail the rules of engagement, but the company says the move comes at the behest of clients. The company says its new services role is needed to establish a stronger foothold for itself and .NET partners in enterprise accounts dominated by companies like IBM, Oracle and Sun Microsystems.

Be Wary This latest development represents a radical move for Microsoft, which relies on its services partners for most of its revenue. Partners acknowledge that Microsoft has been better at controlling its consulting services than other vendors that have poached partners accounts.

Also, Microsofts new services group will now become a profit center, whereas in the past, MCS was a break-even unit.

To that end, Microsoft says that it will assume the role of "prime contractor" in some enterprise accounts and choose its teammates on big enterprise jobs.

But some partners fear they will lose out in this arrangement.

"Of course these partner companies should be afraid. What will happen is that the leads that are being funneled to the partners will instead be funneled to Microsoft Consulting," says an East Coast Microsoft Certified Partner who spoke on the condition of anonymity.

Another Microsoft Certified Partner, who asked to remain anonymous, says there is quiet skepticism among partners.

The New Pitch However, as McDowell tells it, government agencies and corporations are leaning on Microsoft to put more "skin in the game." These customers want Microsoft to mitigate risk by assuming prime-contractor responsibility, due to the "newness" of Windows 2000 and .NET technology. Microsoft is "unwilling to lose key global customers," McDowell says.

"This is all a natural outgrowth, though, as Microsoft moves more into the enterprise world," says Tim Lambert, director of Microsoft program management at Unisys.

"Microsoft is now bringing together architectural consulting with product support. The more integrated and organized Microsoft can be, the better for us," says Unisys Lambert.

"I think that Microsoft had no choice because the customer forced it," says Jim Townsend, CEO of Information Strategies. "However, Microsoft still needs its channel in ways that other companies may not."

Shakeout? Some partners say Microsofts latest move may lead to a shakeout among its 31,000 partners worldwide. "It will make Microsoft start thinking in terms of limiting the numbers of partners they work with," says Lambert, who thinks this will bode well for Unisys.

Others say Microsoft is not expected to hog the enterprise accounts. "Microsoft doesnt want the lead all the time. They dont want to be IBM Services," says David Smith, an analyst at Gartner Group. "Microsoft will only take the lead role when this is demanded by customers."

However, some Microsoft partners question if the vendor has the proper bandwidth to take the prime-contractor role. "Microsoft doesnt really have the strong capabilities to be a prime contractor. Other companies like Unisys and IBM Global Services have armies of people and contract specialists that can bid on billion-dollar contracts," says another Microsoft partner.

Microsoft already has assumed the prime role in a couple of engagements with Avanade, a venture between Microsoft and Accenture, says Adam Warby, Avanades VP and GM of the Americas.

Microsofts new consolidated services arm could produce advantages for customers and partners—but its really too early to tell.