Microsoft (NSDQ:MSFT) is asking its 10,000 Dynamics ERP and CRM application resellers to step up their game and develop extended expertise in specific vertical industries -- or agree to take a step back and earn referral fees for Dynamics sales opportunities.
Microsoft has been informing its Dynamics resellers about the planned changes and will launch the new referral program by the end of August, said Doug Kennedy, vice president of Microsoft Dynamics Partners, said in an interview at Microsoft's Convergence conference in Atlanta this week.
Some of the new requirements for Dynamics application partners stem from changes Microsoft is making to its overall partner program, now called the Microsoft Partner Network, which were unveiled last year at the company's Worldwide Partner Conference. MPN adds customer satisfaction and customer reference requirements, among other criteria, to partner qualifications. Those requirements must be included in new partner contracts starting in October.
But Kennedy said the new requirements for Dynamics partners have to go further because application sales require much deeper expertise in vertical markets and, by definition, are more of a "solution sell" (including value-added services, customizations and add-on software) than sales of infrastructure software.
"We've been pushing the envelope on MPN," Kennedy said. "I've been pushing really hard on the messaging to our partners around industry specialization and vertical specialization. We're clearly the more specialized partners," he said of Dynamics partners within the larger Microsoft partner ecosystem.
"Typically, most partner programs are about revenue [requirements] and customer additions. We don't need more partners, we need the right partners. Kennedy said Dynamics applications partners require more sales and pre-sales skills, project management capabilities, marketing skills, and experience with implementation methodologies such as Microsoft's Sure Step. Kennedy's organization has "spent a great deal of money" in the last year developing online training courses and other content provided through the Dynamics Partner Academy.
Microsoft's goal is to have each of its Dynamics resellers and ISVs focus on just a couple of vertical industries. "Having partners that play across 20 different verticals doesn't make any sense at all," Kennedy said. "Our ecosystem will change."
Kennedy said his organization has been analyzing individual partner sales data going back two years. Based on those findings Microsoft partner account managers (PAMs) are currently meeting with partners to determine where they should direct their sales efforts. Microsoft is also using the research to identify areas around the world where there are gaps in the vendor's coverage of specific industries and new partners need to be recruited.
Kennedy pointed to Tribridge, a Tampa, Fla.-based IT services and consulting firm, as a model for what Microsoft (NSDQ:MSFT) is looking for. The company, which gets 70 percent of its revenue from services, resells Microsoft ERP and CRM applications to professional services, manufacturing and consumer packaged goods companies, and state and local governments.
Tribridge CEO Tony DiBenedetto thinks the changes being made to the Dynamics partner program will help solution providers like Tribridge that have deep industry-specific skills distinguish themselves from other Microsoft partners "who are faking it," he said in an interview at Convergence. "If anything, I would argue that they should go faster," he said of the changes.
Robert Cini, director at Connexia Consulting, a Boca Raton, Fla.-based Microsoft partner, also approved of the idea of putting more emphasis on channel partners that provide real value to customers. But he noted that many smaller partners serve customers in many verticals because they cover small geographic areas.
"They're asking a lot of partners to go vertical," he said, speaking at Convergence, noting that solution partners will have to broaden their sales efforts geographically if they focus on a smaller number of specific industries. "All partners can't do that. They may be pushing some good partners away."
Some solution providers in the Dynamics partners program largely sell other Microsoft products such as SharePoint and sell Dynamics applications in the infrequent cases when the opportunity presents itself. Kennedy said a plan developed under the code name "Tobasco" will move these partners to a new referral program under which they will be compensated for passing sales leads for Dynamics applications to full Dynamics partners.
"If we gave them a different way to monetize that opportunity, they'd just as soon hand it over to someone else and we would pay them appropriately for that. I believe that's going to actually move some of our partners to the decision point of whether they want to stay in the Dynamics program or not," Kennedy said. "I want to help those partners with an alternative."
Kennedy said Microsoft aims to launch that referral program around the end of August.
Microsoft, meanwhile will conduct more joint-marketing efforts with its top-tier Dynamics partners and provide incentives to partners that now do a moderate level of Dynamics business to increase application license sales and drive growth, according to Kennedy.
"The overall number of partners will not change, but who they are will change," he said. "The main focus is to drive growth across the board for both ERP and CRM products."
Kennedy also said Microsoft is recruiting more solution providers to work with Dynamics CRM Online, the on-demand version of Microsoft's CRM application that has been available only in the U.S. and Canada until now, but will be rolled out to other parts of the world through 2010. Microsoft is seeking partners who can add value-added services and complementary intellectual property, such as functional extensions and other solutions, to the CRM service.
While those recruits may include solution providers that already focus on services, it may include partners coming from a more traditional reseller background. "It's a different revenue and margin model for them than they've been used to in the past," Kennedy said. "We're trying to help them through that. It's a bit of a business challenge."