Tuesday, December 30, 2008

Microsoft Partner Ecosystem and the 1:3:5 Ratio

Steve Ballmer often says 96% of the Microsoft revenue comes from partners. I’m sure he is right, but keep in mind that this is primarily OEM revenue. Office and Windows drive a lot of OEM revenue. This is great … For Microsoft. But what about partners? Where Partners means primarily ISV’s and SI’s - training partners play a role too. (ISV = Independent Software Vendor and SI = System Integrator)

How do partners play into this number?

While I don’t have the specifics I am sure that the number is significant and one that Microsoft knows requires a vibrant and growing partner ecosystem. Otherwise they would not continue to invest so heavily in the partner ecosystem – See Microsoft Partner Program (MSPP) for details.

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The 1:3:5 Ratio – Why is it important? This is a ratio I have vetted over the last 10+ years in working with and for both Microsoft and partners to verify and validate the value proposition for both Microsoft and the partner ecosystem. It is a conservative estimate of what partners and Microsoft can expect to generate in revenue from each engagement. When done right this ratio can be increased and more importantly can be made to be extremely predictable and repeatable. This is the golden ticket for Microsoft and Partners.

Let’s not forget the customer. I also think this is the best for customers too. Because customers can take comfort in the knowledge that the partner ecosystem will be there to support them. Note that I said the “ecosystem” – I did not say the specific partners. A vibrant partner ecosystem allows the mix of partners to change over time to meet the ever changing needs of the customer.

What does the 1:3:5 ratio mean to Microsoft? to Partners?

The 1:3:5 ratio is a set of numbers that correlates to $1 for an ISV and $3 to Microsoft and $5 to the SI. It relates to what the ISV can expect to make; it tells Microsoft what they can expect to make; and it tells an SI what they can expect to make for each engagement / sale they make with Microsoft products. Again, when done right it makes for a very predictable and repeatable business model. Smart partners know this is the key to their success in the Microsoft partner ecosystem. Microsoft knows that building this ecosystem is in their best interest too.

How to insure the 1:3:5 Ratio is achieved?

How can Microsoft help? How can Microsoft influence the partner ecosystem? For the most part they are already on the right path. One of the biggest challenges partners face is that Microsoft is HUGE! One mistake that I have seen made all too often by partners that want to break into, or otherwise fit into, the Microsoft partner ecosystem is that they think it’s a one stop engagement. It’s not. It is a process and one that needs development, nurturing, and commitment. This will be the topic of a few follow on blog posts. (Search for #MS_Partner)

The ever present challenge for Microsoft and for the partners that want to work with them is that they need to understand that, pardon the metaphor, there are multiple boats in the water and it’s not easy to get all the oars in at the same time - let alone pulling in the same direction.

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Why do Partners Care?

Partners primarily want to make money. Not in a greedy sense – they just want to run their business for a profit. Hennie Laubscher, the COO for , has a great line for how likes to run their business. It’s not meant to be an insult to partners or customers. It’s merely a statement of what the company is and wants to maintain. It’s a very simple statement. He says “This is a for-profit business” and that’s how they run the organization.

Partners only want a few things (at least at the beginning):image

1. Predictability (Do What you Say)

2. Repeatability (Be Consistent)

3. Training (Tell me what it is/does)

     and most important

4. A Heads Up (Transparency)

Partners know that Microsoft will continue to raise the tide. Any partner worth their salt knows this and expect this. All they ask for is a heads up. Partners just want to know when their technology will be made obsolete or obfuscated. This is not an indictment of Microsoft. It’s a request for transparency.

Good partners will achieve the 1:3:5 ratio. Great partners will exceed it. It is possible to exceed these ratios. Just add on more products and services. In a next part of this series about engaging effectively with Microsoft I will be writing about the value partners bring to the equation and what it means to them, to Microsoft, and to their customers.

I’d love to hear your comments and feedback. If you have seen this ratio or another ratio work well in your partner ecosystem I’d like to compare notes with you. Leave a comment or send me an e-mail. Thanks for reading and look for the next elements in this series. I will use the #MS_Partner hashtag to make it easier to search.

Good Selling and Good Partnering,

Jeff

2 comments:

Francine Hardaway, Ph.D said...

I'm not sure I understand any of this, because I'm not reselling, and I'm not an ISV. I actually am just doing this to help.

Erica said...

My gut reaction was that the "5" for SI revenue was too high. However, as I thought about it more I realized this number does make a lot of sense. Too often in SI engagements we are only addressing how to get the technology implemented as fast as possible, rather than how to best integrate the change into the existing culture & systems. I think if adoption, program management, product management, PM, etc. are addressed strategically, "5" is an accurate ratio.