Microsoft Renews Its Partner Commitment

Computerworld - Los Angeles

Microsoft Corp. took advantage of an opportunity at its Fusion 2002 conference here last week to announce a $500 million investment in its partner community and to assure its partners of their importance in its long-term success.

That point needed to be emphasized perhaps more than usual at this year's partner event, since many of Microsoft's partners had gotten rather prickly just over a year ago after the company outlined a serious push into the consulting services space.

During his closing keynote address, Microsoft CEO Steve Ballmer acknowledged the "troublesome" change that his company had subjected its partners to during the past 12 months.

"We've learned a lot about how to focus—or not focus—our consulting force in the last year," Ballmer told conference attendees. "Our strategy's never changed in what we're trying to do in consulting.

"But it sure looked that way in the early part of the year," he said, "because we managed to get a misalignment between our incentives and our resources and our strategy in the marketplace that caused our consultants to look sometimes less like a friend and more like a foe than we ever would have intended them to."

Microsoft brought in 32-year IBM veteran Mike Sinneck in January to head its services division, and Sinneck wasted no time in addressing the situation that, as he put it, had gotten partners into "an uproar and sort of a fever pitch."

"We were competing with partners," Sinneck told Computerworld. "Being a prime contractor [on consulting projects], thinking about making profit in the services business created all the wrong behaviors." So he said he worked to "put it back the way it was." Sinneck directed his field force not to be the prime contractor, even though he recognized that there might be exceptions with some large customers that insist on it. Microsoft instead would "fit" its resources underneath, he said.

To the outside world, Microsoft Consulting Services (MCS) had grown, in part, because it hired a large number of people. But MCS has since reduced its head count by 140 people and plans to keep it flat "because we don't want to compete with partners," Sinneck said.

Hoping for Profits

Perhaps that will help the division's bottom line, too. Even though Microsoft hoped for a profit with its consulting services business, the company never actually saw one, according to Sinneck. Overall service revenue—which also includes Premier Support—grew in double digits, but the division lost "tens of millions of dollars" worldwide, he said.

"As a matter of fact," Sinneck added, "on the bottom line of the P&L [profit and loss statement], it's several hundred million dollars' worth of drag."