The Enterprise Software Market: It's the Channel, Stupid: Page 2

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Problem one is the aforementioned functionality/complexity dichotomy, which is about to afflict the Microsoft channel in the form of an increasingly important series of online services that will, I predict, usher in the second coming of Microsoft, while potentially squashing the majority of channel partners who can’t keep up. When I went to Microsoft’s partner conference in July, I was struck by the fact that there were pitifully few partners ready to become high-volume, high-touch, low-margin partners any time soon. Of course, this isn’t just Microsoft’s problem, everyone is in this same leaky boat. It’s just all the more evident at a partner love-fest how forlorn these partners are going to become once Microsoft’s second coming arrives.

The other problem is that the best way out for Microsoft’s partners is one that relatively few understand. At a time when Microsoft is about to launch a complexity-killing cloud initiative, it’s also gearing up a major effort to turn Office into the preferred interface for all the functions currently buried in arcane user experiences, poorly designed interfaces, and overly complex enterprise software “solutions” that don’t (solve business problems, that is). This Office Business Applications (OBA) initiative has the promise of dramatically altering not just how users use enterprise software, but how partners earn their daily bread. The only problem is how few partners are actually going to be able to develop OBAs, as they are called. It turns out that the average Office partner can’t, being ignorant of all things enterprise that they are. And so on down the line of Microsoft partners, all technical as technical can be, and most unable to understand the fundamental needs of the business users that OBAs are meant for.

The one group that has the best chance of making OBAs work are those Dynamics partners who are enterprisey by nature, having been forced to evolve up the food chain from the primordial technical ooze that the rest of the channel is still mired in. Of course, these are the ones still trying to figure out how to make a dime doing what they thought was their birthright – earning big bucks implementing and servicing a now disappearing on-premise enterprise software opportunity.

How do I spell whipsaw? Let me count the ways.

The irony in relating this long-winded tale of channel dysfunction is that Microsoft, as stated above, is probably the best there is when it comes to offering opportunity to a broad-based channel that, despite the whipsaw, delivered $1 billion in revenues to Dynamics and a few dozen billion more to the rest of the Microsoft product family. So, if this is how things are in utopia, imagine the dystopias that typify the rest of the market. A market, as I mentioned about 1,200 words ago, that is out orchard hunting, and has settled on the SME market as its next great hope.

Well, good luck, is all I have to say. I’m afraid that the channel model is fracturing faster than it can mended, due mostly to legitimate market shifts that are inherently customer-friendly – like less complexity and more functionality – while being inherently partner unfriendly. Don’t get me wrong, the traditional SME channel will always be there, survival being its core value. But as on-demand business models and the need for enterprise-level functionality – and selling skills – begin to permeate the SME market, the old models for channel-driven sales are going to have to change. In its place I predict a return to selling direct, as painful as that would be for large vendors unused to the relatively low margins they’ll be able to command from the SME market.

If the fruit from this market is going to be plucked by the top tier vendors, they’re going to have to evolve their strategies to meet the new reality. With so much changing in terms of technology, service delivery, and functionality, a commensurate change is needed in how to reach out to the customer base. Or we’ll be back to square one, buying and building third party channels that will be obsolete as soon as they go to market. Again and again....

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Tags: services, Microsoft, software, SaaS, marketing

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