In October, Microsoft will start measuring its large account resellers (LARs) not only on the number of software licenses they sell but also on the services and handholding they provide.
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For some time now, Microsoft has pushed LARs to focus less on license sales transactions per se -- a raw numbers game -- and more on services, which supposedly yield higher margins.
“Before, LARs had to have people who knew, for example, Exchange [Server] licensing, and their value was telling customers what they needed to be compliant,” said Josef Hans Lara, business development manager at LAR Long View Systems. “Now they will actually help the customers use the technology.”
Simmering Microsoft, LAR strife
The development comes after years of private tumult in which Microsoft insiders said LARs tended to cut big software deals and then cut the customers loose after payment -- a characterization that reputable LARs vigorously contest.
With the newest changes, a few dozen LARs in North America, including companies like Insight Technology Solutions, Software House International, Softchoice, and Softmart, will now be required to have at least two staff members go through T-36 online training, which is supposed to bolster their skills in account planning, true-up practices and renewal engagement. This training had been previously available but was not mandatory.
After becoming T-36 certified, LARs must meet with customers five to seven times per year over a 36-month period. LARs, for example, would answer any questions a customer has about software management and ensure the implementation is running smoothly.
“We’re very happy [with the new approach] because it’s the model we wanted,” Lara said. “It’s been so transactional for so long, and some LARs would only follow a few of the steps while only focusing on the result. Microsoft understood that until software services are offered, customers won’t see the value in owning that many licenses.”
These changes were outlined to LARs at the recent Microsoft Worldwide Partner Conference by Olivier Dispas, Microsoft director of worldwide LAR sales, to a packed room. Most LARs showed little reaction as Dispas explained the requirement changes.
That might have been because they’d heard it all before.
“This was something we knew about months ago because the [Microsoft Certified Professional] and T-36 requirements had already been postponed twice,” said Ralf Karchow, alliance director for Microsoft at Comparex AG in Germany. He was referring to a new requirement that LARs must have four MCPs on staff, up from two, and five customer references to earn a Gold partner certification.
Microsoft will require LARs to follow a T-36 agenda and visit with customers more than once per year.
Lara also maintained that Microsoft’s new concentration on services will help LARs during the second and third years of a LAR-customer relationship.
“The first year is sweet for a LAR, but during the second and third years there isn’t as much money from Microsoft so adding services will help pad that drop off, Lara said.
Jason Fris, director of software solutions at Compugen Inc., likes the focus on value versus transactions.
“The new model seeks to reward partners driving the right solutions to meet a customer’s business needs,” Fris said. “It tries to align partner compensation with the effort expended and the value provided. For us as a business, this represents a better platform to realize a return on the significant capabilities and IP we have built than the previous model that was much more transaction-focused.”
Karchow said that Microsoft’s new focus “… is a good thing; it’s not a big deal because [completing these certifications] is the minimum that you need to deliver quality to customers.”
Microsoft moving LARs down market
The consensus is that Microsoft is trying to push LARs -- which traditionally sold volume licenses and software asset management services into big companies -- to move down market into smaller accounts. The fear among LARs is that Microsoft will add more of the big business customers to its “named account” list. Those are the largest companies with which Microsoft wants to cultivate direct ties. There are currently an estimated 2,000 such accounts. Microsoft execs told LARs attending WPC that it actually plans to trim the list of named accounts to something like 1,500.
But one WPC attendee was not confidant that will happen and is not pleased with how Microsoft has changed LAR compensation to date. “They’ve segmented us out of a lot of accounts … where LARs can still be involved. But, to be frank, they’ve made our compensation so small that it’s tough to justify continuing [to do business this way],” he said.
Paul DeGroot, principal analyst at Pica Communications said Microsoft has been trying to refocus LARs on smaller accounts instead of fighting each other for the largest accounts, many of which Microsoft is claiming as named accounts.
“Microsoft is telling them that going after just large accounts may be good for their individual businesses, but not for Microsoft’s business,” he said.
Lara agrees that Microsoft is trying to diversify its accounts and steer away from LARs fighting over the same large accounts.
“Traditionally, you’re going to see the same fishes in the same seas, and you can see Microsoft is looking for new net revenue with the registration program,” Lara said.
DeGroot doesn’t think customers care much about the niceties of T-36 prep work and that most LARs are already set. The problem is that given the amount of work it takes to complete a T-36 plan, he wonders if there will need to be further incentives for LARs in the future.
“If you’re serious about being a LAR, you’ll do it,” DeGroot said. “The thing is that it’s the LARs that are completing all the steps, and Microsoft is only involved for about one-third of it. How are the LARs going to be compensated for it?”