As anticipated Microsoft announced a new Online Services strategy at their annual Worldwide Partner Conference. They announced new pricing and availability of Microsoft Online Services. Products such as Exchange, SharePoint, Live Meeting, and Dynamics CRM will be hosted by Microsoft and sold by partners. This presents a huge opportunity for partners to provide integration, migration, customization or consulting services for Microsoft Online Services.

And they are also dangling a big fat carrot. Partners will receive 12% of the first year contract price and 6% each year after (for as long as the customer is subscribed to the service). That means for each customer a partner brings in, they will receive an 18% commission of the subscription value in the first year and 6% each year onward. This announcement inevitably means some partners will be left behind. Particularly those who already hosting plain vanilla versions of those services. Now that Microsoft is providing the hosting, many of these companies may see their businesses disappear.

The news made only a small splash in the blogosphere however, I think this announcement is monumental and one that shouldn’t be overlooked to quickly.

Why? As I mentioned before, Microsoft has mastered the partner sales channel. 95% of Microsoft’s revenue is driven by their partners. With more than 400,000 partners worldwide, this makes for an extremely strong sales channel. In fact, this IS Microsoft’s sales force. And to put things into perspective, there are about 10,000 Microsoft Dynamics Partners worldwide. That means for every Salesforce.com sales rep there are about 3 Microsoft partners that preach Dynamics. Most of these partners specialize in a vertical and can customize Dynamics to fit the exact niche. In contrast, Salesforce.com’s reps are organized by region (at least when I was there) and may not have the expertise to sell to each and every vertical.

What does this mean? Microsoft has signaled to their troops to change direction. If they are successful in doing so, Microsoft will have a large army of sales reps and consultants pushing Dynamics and other services. They will undoubtedly be able to convert a lot of customers given their expertise and established relationships. Even though their solution may be technologically behind, Microsoft’s army has deep relationships with their customers and no competitor can take that away overnight. Especially with the strong incentives, partners are motivated by the recurring commissions each year when they sell a subscription. We have seen Microsoft leverage the strength of their partner channel before and I think we’re about to see it again. Actually some people have already placed their bets.

But aren’t they leaving some partners behind? It’s true that this news does not sit well with all partners. Simply because this means that some partners will fall directly into competition with Microsoft. And I couldn’t have put it better than, Stuart Lauchlan himself:

“Microsoft is clearly encroaching on some partners that have themselves been providing plain-vanilla hosted solutions based on Microsoft’s products. But the vendor has been signaling its intentions for some time, so this week’s announcements should take no one by surprise. Nor is the need for partners to provide higher-value solutions unexpected. After all, plain vanilla hosting is destined to become a low margin, commodity business, if it isn’t one already. To a large extent, Microsoft is simply accelerating a transition that partners would face anyway - but it’s also offering them tools they would otherwise have to create by themselves.”

More Information:
Official Press Release
Quick Start to MS Online Services for Partners
Official Online Services Site