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Microsoft hosting partners worry about CRM compensation, support

Some Microsoft partners want better compensation for hosting, lower-cost support from Microsoft, ways to avoid channel conflict.

As Microsoft Corp.'s Dynamics CRM 4.0 hits the market, some Microsoft hosting partners are expressing concerns about their compensation, support from Microsoft and potential competition from the company's own hosted version, Dynamics CRM Live.

Dynamics CRM 4.0, the customer relationship management software formerly code-named "Titan," was formally announced earlier this month. Microsoft hosting partners received a 40% cut to their fees in October, but some fear that Microsoft's lack of a compensation plan will still hurt their business.

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When a Microsoft partner sells on-premise Dynamics CRM deployments, Microsoft sets the price and then gives a percentage of the total sale back to the partner as a Certified Software Advisor (CSA) rebate.

In the hosted model, however, Microsoft sells the software licenses to the partner, who can offer a customized hosted solution and set its own price. Brad Wilson, general manager of Microsoft Dynamics CRM, said the hosted model gives partners more flexibility and the company has no plans to offer rebates.

"It's just a different model," he said.

Streamline Solutions, a Microsoft hosting partner in Irvine, Calif., hosts Dynamics CRM but uses other partners to sell it to customers. Since Microsoft does not compensate those resellers, Streamline has to pay them instead, according to owner Lance McLean. The process also cuts out the reseller's interaction with its salesperson at Microsoft, which can hurt future lead generation, McLean said.

"It's more than just the CSA fee," he added. "You're building up your relationship with your account manager … They should make it easier for internal Microsoft people to get compensated when the deal goes hosted."

Most Microsoft hosting partners also drop their prices for customers with larger numbers of users. It would help if Microsoft offered a corresponding volume discount, but "that's just the way they do it," said Ravi Agarwal, CEO of groupSPARK, a Burlington, Mass.-based hosting provider. He said he understands why Microsoft doesn't offer this, because software costs don't decrease with volume like service costs do.

Microsoft doesn't plan to change that part of its model either, Wilson said.

"We created a low price across the board," he said. "Our hosters can set it at the price they want … We're not looking at any adjustment in terms of volume licensing."

At Sandhills Publishing, a Microsoft hosting partner in Lincoln, Neb., the biggest problem is getting support from Microsoft, according to hosted data center manager Kim Mehring. Some help is free -- usually when the problem is clearly on the vendor's end -- but most times Sandhills has to purchase support tickets, Mehring said.

"I think Microsoft is taking its fair share and maybe could provide a little bit more support," he said. "It would be nice to have a direct line as a hoster."

Greg Loseke, Sandhills' dealer services manager, said he thinks partner support will improve as Microsoft begins hosting Dynamics CRM Live for customers directly.

"They're going to find a lot of problems that we've been dealing with," and they will need to fix them faster to support their own offering, he said.

There are also some drawbacks to Dynamics CRM Live -- specifically the potential for channel conflict. GroupSPARK, like Streamline Solutions, hosts Dynamics CRM for other partners who customize and sell it to their own customers. Some of those customers could choose to work directly with Microsoft and subscribe to Dynamics CRM Live instead, Agarwal said.

"That's a concern to us, because that will be competing with our partners' offerings," he said.

But other Microsoft hosting partners said the vertical customization and other services they provide through their Dynamics CRM offerings will be able to fend off that competition.

"We're very industry-specific, and we're able to serve them better," Loseke said.

Customers will also be willing to pay a premium for those services, which are much more profitable than simply reselling software licenses, said Jeff Pyden, founder and managing director of Omnivue Business Solutions, a Microsoft hosting partner in Alpharetta, Ga.

"Nobody typically takes Microsoft licenses and marks them up to clients," he said.

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