Does Microsoft Have Control Issues With SaaS?

Earlier this month, when a Microsoft executive said solution providers that sell its SaaS applications would be given the choice of billing their customers directly, whoops of joy went rippling through the software giant's channel partner community. But Microsoft quickly backtracked on that pledge and said partners would only be able to tailor services offering to customers.

For Microsoft partners, the episode raised a question that many have been puzzling over since Microsoft unveiled its Business Productivity Online Suite (BPOS) of SaaS applications at WPC last July: Why does Microsoft insist on controlling the SaaS billing relationship, when VARs are the ones who do all the legwork?

One longstanding theory in the channel is that Microsoft is frustrated by the fact that not all partners offer its entire software stack, and by taking control over billing, Microsoft will be in a much better position to push hosting on its platform.

"He who controls the billing controls the account, the offering, the solution, the up-sell and the relationship," said Vlad Mazek, a Microsoft Exchange MVP and CEO of Own Web Now, an Orlando, Fla.-based solution provider.

Controlling the billing relationship could, for example, allow Microsoft to identify customers that are using hosted Exchange and pitch them on using Microsoft-hosted CRM, thereby keeping them out of Salesforce.com's hands. In contrast, a Microsoft partner might decide that a product mix of Microsoft-hosted Exchange and Salesforce CRM is best for their customers.

"Microsoft wants a lot more traction than it has been getting [in hosted services] and believes that it has to get into the market directly. This is a new effort on their part and I think they want to track it very closely, and know who the customers are," said Paul DeGroot, an analyst with Directions On Microsoft.

VARs that sell Microsoft's BPOS receive 12 percent of the first year's subscription value and 6 percent of the ongoing annual service fees from reselling the suite. In the second quarter, Microsoft will let partners place tailored BPOS orders for customers and designate themselves as the "partner of record." The order will generate a URL that the partner will send directly to the customer to confirm and complete the order, according to Microsoft.

The partner of record provision, which lets one VAR take away part of the revenue from a hosted service sold by another VAR, wouldn't be possible if partners control the billing, and that's another reason why Microsoft refuses to budge, according to DeGroot.

"Partners are going to drag their feet when it comes to diverting their revenue stream to another partner. But if Microsoft does the billing, it's not a problem. They just send the check somewhere else," DeGroot said.

Microsoft is by no means the only vendor to make a recent play for increased customer control, as Symantec and Hewlett-Packard have both been called out for engaging in similar tactics, noted Daniel Duffy, CEO of Valley Network Solutions, a Microsoft Gold partner in Fresno, Calif. He said the Microsoft billing issue is just one in a long series of cases that illustrate the constant ebb and flow of channel relationships, and promises that aren't always kept.

"For any one vendor to believe they can own a complex, multivendor, multitiered end-customer relationship is ludicrous, and most would probably say they don't disagree," Duffy said. "Meanwhile, many vendors continue to be guilty of doing things that circumvent the very partners that brought them in to these accounts."

With Microsoft SaaS, "I think some VARs may not be able to handle the billing, and some may not want to do the billing or have to carry the paper. But I think Microsoft should let that be each partner's choice -- not theirs," Duffy said.