The Cloud message makes sense. It takes time to listen and it takes time to explain it. Partners who engage in the activity of having this type of conversation with their clients are not really doing anything new however their ability to make the associated revenue is greatly diminished from previous business models.
Microsoft believes Partners need to change the paradigm and refocus on a model which drives less revenue. In exchange they offer marginal commissions for brokering an understanding of the value of Microsoft’s services in a space ripe with free competition.
The question is can Microsoft’s BPOS sell in the SMB space against free competition without a partner having the conversation on value? I say that SMB business people will not spend money when they have many free options unless someone they trust explains why the productivity enhancements have value. The answer is no, Microsoft will not see wide spread adoption of products like BPOS unless partners are incented to talk to potential clients.
Microsoft believes it is a numbers game. Activate enough partners by educating on the value of offerings like BPOS for their clients and they will start talking about the product regardless of whether it is profitable to do so. As Microsoft focuses on the numbers of partners they are failing to look at profitability. They can talk to every partner they have but if the underlying profitability is not there, no action will result. So it is not only about activating partners. It is also about incenting partners. This is where Microsoft needs a paradigm shift in its corporate culture. Instead of looking at how little they can give partners, they should be looking at how they incent every partner capable of having the value conversation to want to talk about the value of their cloud offerings.
The profitability of the current offering
Let’s do the math. A partner spends three 30 minute meetings with a customer in order explain the value of BPOS. Let’s say they have a top tier marketing and qualification process which converts one sale for every three potential customers conversations, a very high percentage win ratio. Let’s also look at three customer sizes in what I consider the smallest “equitable” scenarios.
The following chart is in US Currency reflecting US market conditions for a BPOS sale.
|$ 10||12||12%||$ 288|
|$ 10||12||12%||$ 360|
|$ 10||12||12%||$ 432|
Total Revenue per opportunity on a 20 seat deal is $96. Remember we talk to three customers to get one sale. So in all you have 90 minutes of front line sales activity in order to generate $96. Marketing costs per opportunity are likely about $25, Sales person compensation is $87.50 ($70K/200 days/4 x 90 minute periods/ day). Again this is expecting 100% efficiency. Operating, travel and communications costs should be included. A 20 seat deal conservatively nets a loss of about $50. A 25 seat deal nets a loss of about $24 and a 30 seat deal nets a loss of about $2.
Why would anyone engage in this activity when even at 100% efficiency they lose money? What business owner is going to maintain a staff to do this?
Microsoft believes partners will engage in 90 minutes of conversation when other opportunities to engage with that customer present more direct and associated revenue. There is no incentive. As for the services that might go along with the opportunity that adds to the sales process and cost. So partners are looking at other vendors. It is simply a business decisions: focus where you make money. This is no different than Microsoft’s own business leadership making business decisions which reflect their interests.
I could go in to Microsoft’s other options however suffice it to say, they are not going to drive market share adoption in the SMB space. People in large numbers will not buy from a large Telco’s website without understanding the value and they are not going to go looking for ways to spend money when they have free options. If you don’t understand that Microsoft is sold on value that needs to be explained then you don’t understand why Microsoft needs partners. You can only imagine a low cost Telco operator explaining the business value to a business person? They are more likely to choose one of the other free options provided by the Telco then understand the value it delivers for their business. Telco operators don’t dogfood the solution. They don’t understand business value, productivity improvement and return on investment.
Other Business Models
If we look at three other business models in other industries which are facilitated by an expert to explain the value and find the right solution.
- Explains the value of numerous packages including higher priced options
- Earns between 75% and 125% of the first year plus a annual annuity.
- Locates best options and explains the value of different qualifications
- Earns 1-3 months salary of candidate.
Commercial Rental Realtor
- Researches the available options and presents best opportunities to renter
- Earns 1-2 months rent based on term and length.
In each of these options the “Broker Expert” makes thousands of dollars per opportunity which are shared with different levels of the businesses which facilitate their work. These are sustainable business models which incent people to participate in the process. Equally these brokers may have other business opportunities which may have value to their client and those opportunities will also have to incent the broker to talk about them.
Microsoft’s Business Model
Microsoft is not building a sustainable business. They rely on year to year revenues which are not well suited to the annuity business. They believe the have to receive the lion’s share of the first year which does not properly account for the cost of selling the solution. Through ignorance they try to push acquisition costs to partners and wonder why the results are not coming.
Microsoft cannot afford the current model. It is too slow and gives too much opportunity to the competition. They need motivated partners having conversations with customers. The model needs to change.
Microsoft needs partners to sell the services. They need to take a longer term 5-7 year look at the acquisition costs. Some partners will follow and try out the model out of pure loyalty but most won’t. Even those who do will not find it sustainable and will eventually stop.
Microsoft cannot afford the current model. It is too slow and gives too much opportunity to the competition. They need motivated partners having conversations with customers. The model needs to change. They need to adopt the Life Insurance Broker business mode described above if the want to be successful in the SMB space. It is sustainable and it is motivating.