Microsoft Expands Services

Combined service organizations will give company more responsibility but could alienate partners.

Microsoft Corp., in its ever-growing desire to gain ground in the enterprise, last week integrated its Microsoft Consulting Services and Product Support Services into a worldwide services organization thats 13,000 employees strong.

In doing so, the Redmond, Wash., company has done an about-face on the issue of consulting and managing enterprise contracts. Now, rather than being merely a supplier, Microsoft in certain enterprise contracts will become the prime contractor, taking a greater financial role and assuming more risk, said Bob McDowell, vice president of the new venture.

While acknowledging that the contractor role has traditionally been assumed by Microsofts systems integrator and service provider partners, McDowell insisted that the shift will not detract from Microsofts current relationships with those companies.

As such, Microsoft will take only the role of lead manager on some enterprise accounts where the customer wants greater input from Microsoft. But McDowell stressed that this will take place on an ad hoc basis rather than as part of a standard program.

"We do not believe we should be in a services business as an end to itself," he said. "We will not sell services as an end to itself."

Microsoft has spent a lot of time reassuring its partners in this regard, many of whom could be seriously threatened by the move.

However, a number of partners who spoke to eWeek on condition of anonymity were not at all convinced.

A Microsoft Gold certified partner said the move "has the potential to take business away from companies like Accenture, Avanade Inc., Compaq Computer Corp., KPMG and the like, particularly in the enterprise data center space."

Another partner agreed, saying the expansion of Microsofts Consulting Services "is going to hurt the Compaqs, the Cambridges [Cambridge Technology Partners] and the like. Microsoft sees the opportunity. There are 35 percent gross margins in the services business. The large-account resellers are trying to sell services, but now so is Microsoft."

A longtime Microsoft partner and software reseller who requested anonymity added, "The net of this is that its a really bad time to be a Microsoft partner. There are rumblings they are going to take their Enterprise Agreement licenses direct."

Microsoft, aware of the concerns, recently held a partner summit for its large-account resellers and direct-mail resellers at Lake Tahoe, Calif., where, sources said, "the cynicism was huge."

Nevertheless, some of Microsofts large partners welcomed the move and added they werent threatened by it.

Rick Fricchione, vice president of enterprise-ready Microsoft for Compaq Global Services, in Stow, Mass., said customers wanted a shared-success relationship with a Compaq, SAP AG or Microsoft.

"Theyre not just buying the SQL Server license—they want Microsoft to own the success of that implementation," Fricchione said. "Its a requirement in the enterprise mission-critical marketplace that you have that shared-pain/shared-gain model. Microsoft is growing into that."