Microsoft BPOS, cloud to dominate partner confab

Microsoft partners want better incentives to push Business Productivity Online Suite and Microsoft cloud.

Microsoft partners congregating in Washington D.C. next week will have BPOS on the brain.

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Microsoft's Business Productivity Online Suite launched in late 2008 to a lukewarm reception from partners. Now, as Google Apps continues to obsess Microsoft and its partners, Microsoft VARs -- many of which will come to Washington for the Microsoft Worldwide Partner Conference -- hope Microsoft will "juice" incentives to encourage them to sell the Microsoft-hosted bundle of Exchange Server and SharePoint services. Currently, a partner that brings a customer to BPOS gets 12% margin for the first year of the subscription service and 6% thereafter as long as the VAR remains the partner of record.

For the past few months, Microsoft reps have told partners that the company knows the compensation system is "broken" and that it will work to better use both partners and distributors in the sale of online services in general. Of course those reps are channel-facing employees -- and what really matters is what upper Microsoft management has to say about the channel's role in Microsoft's cloud.

Business Productivity Online Suite (BPOS) is a big part of that cloud picture, as is Microsoft Azure, the Microsoft-hosted development and deployment cloud that kicked off commercially in February.

Since this spring, marching orders from CEO Steve Ballmer are to go "all in" on cloud computing. And that message has been conveyed to partners. "They told us to stop worrying about traditional license sales," said one partner executive who met with Microsoft recently.

That is no small order. The bulk of the company's profits comes from the sale of licenses (and maintenance) for its on-premises software -- the Office and Windows cash cows. Now Microsoft apparently realizes that if it doesn't cannibalize those sales itself, someone else -- Google, Salesforce.com, Amazon -- will do it for them.

Better BPOS, CRM Online links

At the partner conference, the company is expected to outline ways for BPOS to work smoothly with Microsoft-hosted CRM Online. The company has also pledged to release Windows Server 2008 R2 SP1 and HyperV R2 SP1 betas in July, and the conference would be a likely venue to announce availability.

Microsoft officials have also told partners privately that the company expects to have 70 million BPOS customers online by year's end, a healthy figure. Microsoft would not provide a current seat count but said partners are involved in four out of every five seats sold.

Partners slowly warmed up to BPOS over the past few months, even without a margin boost to date and
despite Microsoft cutting the per-user price from $15 to $10 per user per month last year.

Many VARs scoffed last year when Microsoft gave partners 250 free seats of BPOS at WWPC. The prevailing wisdom was that the giveaway was the only way the company could get anyone to try the service.

The huge Google Apps challenge

So, what happened to make BPOS more lustrous to partners?

"Google Apps happened," quipped Paul DeGroot, analyst with Directions on Microsoft, a Kirkland, Wash., research firm.

Most self-regarding VARs would rather make 12% or 6% margin on the BPOS bill versus 0% on Google Apps. The issue for Microsoft is how to make BPOS profitable for the partner and for Microsoft without making it prohibitively expensive to customers who see that they can get Google Apps for free or for $50 per user per year. Google made lots of hay comparing the cost of Google Apps to on-premises Microsoft Exchange, and BPOS is one way to counter that argument, although BPOS still costs more than the Google alternative.

The $10 per user per month BPOS charge includes 250 MB of storage per user. Google Apps works out to be about $4.17 per user per month and includes 25 GB of storage per user.

And there are other big BPOS issues to resolve. Partners still loathe that Microsoft "owns" the BPOS customer even if the partner brings the customer to the table. And they still dislike the fact that BPOS iterations of Exchange and SharePoint features are not on par with the on-premises versions of those products.

That causes consternation for customers making the move, said George Brown, CEO of Database Solutions Inc., a Microsoft partner in King of Prussia, Pa. "The Microsoft offerings are not the same in the cloud as on premises … and you don't realize you'll miss that functionality until you go looking for it. It will take [Microsoft] two to four years to sync that up," Brown said.

And, most VARs also dislike the BPOS name that, by all accounts, will soon be changed per a mandate from Ballmer who also, apparently, shares their distaste for it.

BPOS problem: Who's the partner of record?

As partners that grew their businesses based on big software license sales acclimated to the idea of smaller, incremental margin of subscription sales, the notion of BPOS has become more attractive. Still, it can be tricky to remain the "partner of record" in order to keep earning that BPOS annuity.

A large-account reseller or a systems integrator can sell hundreds or thousands of BPOS seats to a big customer and become the POR. But then a small partner could come in, sell ten or 20 more to the same customer and end up being the partner of record. DeGroot said he's even heard of companies developing a practice of such account poaching. Microsoft said the customer designates who the partner of record is.

In addition, some partners complain that Microsoft has been competing with them in the profitable business of migrating on-premises Exchange customers to BPOS.

"A partner could make $200 a seat migrating from Exchange and SharePoint to BPOS, but now Microsoft is doing that for $60. That's not helpful," said one source that has seen this happen.

Partners hope that Microsoft will make concessions around this migration business at the conference. At the show, they will also highlight their own cloud-based efforts. Rose Business Solutions, for example, will talk up its new myGPcloud, an on-demand service based on Microsoft Dynamics GP ERP software.

Rose, which already hosted Dynamics GP for customers, said this is a real on-demand service in that customers can add and subtract users as needed and pay by the month.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.

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