Microsoft shifts its attention cross-country this week, from its Washington state headquarters, overcast with uncertainty, to Washington, D.C., where company leaders will try to make sunny optimism shine at its annual partner conference.
The Worldwide Partner Conference (WPC), which runs through Thursday, focuses on five areas: cloud computing, big data, mobility and devices, enterprise social software, and sales and marketing.
"Partners are core to our success and growth," said John Case, corporate vice president in Microsoft's Office division. In particular, partners will drive Microsoft customers to the cloud, he said.
However, making sure that at the end of the conference partners head home with a broad smile on their faces might be a tougher job than in previous years.
A moment of transition for Microsoft and its partners
Microsoft is at a critical juncture in its years-long transformation. It's getting reshaped by a new CEO intent on putting his own stamp on the company. It's in the midst of integrating Nokia's massive smartphone business. And, most critically, it's still morphing from a provider of on premises software to a provider of cloud computing services and hardware devices.
That Microsoft will make this transition successfully is far from a given, and this can be unsettling to resellers, system integrators, independent software vendors, hardware makers and distributors that have hitched their businesses -- partly or fully -- to the company's fortunes.
While Microsoft has made big strides in its transformation, its approach to cloud and mobile in the not too distant past has been blasted by critics as contradictory, reticent and erratic.
Case acknowledges the message to partners wasn't always clear. "When we first went to the cloud, I think there was some confusion over what our company's position was on the partner channel," he said, adding that, from Microsoft's perspective, this hasn't been an issue for the past two years.
With a strategy that's gotten much clearer, in particular since Satya Nadella took over as CEO in February, Microsoft hopes to now refine its partner programs so they are more aligned with its "cloud first, mobile first" philosophy.
What Microsoft will announce on day one of WPC
Specifically, Microsoft has recognized it needs to give partners more control over the cloud services they resell, so on Monday, the company plans to announce the Microsoft Cloud Solutions Provider program. It will grant partners reselling Office 365 and Windows Intune control of billing, provisioning, support and sales of complementary tools, products and services.
"It fundamentally enables our partners to own the customer relationship," said Phil Sorgen, executive vice president of worldwide partnerships at Microsoft.
The Microsoft Cloud Solutions Provider program will be expanded progressively until it covers all Microsoft cloud services.
"This is fantastic," said Tim Wallis, CEO of Content and Code, a systems integrator in the U.K. which got advanced access to this program. It gives Content and Code more control over its relationship with customers, and simplifies the sales and billing process, he said.
Content and Code, which focuses on email and collaboration systems, has sold to date about 90,000 end user seats of Office 365, and Wallis would like Microsoft to beef up the suite's usage analytics, so that partners and their customers get a more detailed view of how it's being used.
"With a cloud service, it's not so much about net new users, but about how many are using it," he said.
For partners developing applications and services on Azure, Microsoft announced the logo certification Azure Certified program, designed to help them market and sell their wares. The program is kicking off with the Azure Certified for Virtual Machines certification, for partners that offer their applications in virtual machines deployed from the Azure Management Portal. Azul Systems, Barracuda, Bitrock, Oracle, Riverbed Technologies and SAP are already active in the program.
The company will also unveil three new programs aimed at Office 365 and Azure resellers. Small and Midmarket Cloud Solutions is for partners re-selling Office 365 to SMB customers, while Cloud Productivity is for partners re-selling the enterprise editions of Office 365. The third program is called Cloud Platform and it's for partners that resell Azure IaaS, SaaS and PaaS services. At the same time, Microsoft will retire the existing Cloud Accelerate, Cloud Deployment and Azure Circle programs and offer a path for partners to switch to the new ones.
Microsoft is also taking steps to motivate partners to resell Azure and Office 365, including by waiving the first year fee to register as a Silver-tier provider and by increasing between 25 percent and 200 percent the number of internal-use rights (IUR) licenses available to them. Microsoft will also launch a program in September called Signature Cloud Support that gives partners direct access to what the company describes as a "high quality support team." Another step is to cut fees by up to 10 percent of partner programs for on-premises software products.
The company is also beefing up its e-learning offerings with the new Azure Machine Learning University, which will provide partners with an overview of Azure ML, and walk them through processes like importing data, building predictive models and deploying this analytics cloud service in production.
Will the announcements be well received?
Whether these and other announcements satisfy partners in attendance is an open question. With a universe of hundreds of thousands of partners, Microsoft faces the challenge of serving a vast and very heterogeneous group whose needs, priorities and preferences are extremely diverse. Catering successfully to partners is always a work in progress.
For example, many long-time resellers and integrators that have built businesses upon selling and implementing on-premises Microsoft software face a significant adjustment when pushing cloud services.
"A lot of these guys don't like the new model," said IDC's analyst Darren Bibby.
For starters, the nature of the deals is different. The on premises deals usually involve a one-time payment, while cloud services are sold via subscriptions, which generate a recurring revenue stream. The size of the deals tends to be smaller.
"Cloud causes partners the most issues," Bibby said. "At WPC, partners will want to discuss what their place is and what opportunities exist for them."
At the same time, Microsoft has started to attract a new type of partner which hasn't done business with the company before -- the "born in the cloud" partners that never focused on selling on premises software. They face no transition pains in adopting Office 365, Azure and other Microsoft cloud services. In fact, for them, Microsoft can't go fast enough in the direction of cloud and mobile.
Then there are partners that feel equally at home with cloud and on premises products, and are able to cater to customers that want hybrid implementations.
"The channel overall is in this transformational phase," said Gartner analyst Tiffani Bova.
To sell cloud computing services, partners may need also to revamp their staff's skill sets, boosting software development capabilities, learning how to deal with Microsoft cloud APIs (application programming interfaces) and adding expertise on mobility, she said.
Likewise, salespeople will have to be trained on selling cloud services, and those who resist learning the new model may have to be let go, Bova said. Partners may need to engage in a similar pruning process of their historical customer roster, based on whether they're open to moving to the cloud or not.
Partners may also struggle with their business identity. Bova cites the hypothetical example of an on-premises software reseller that generates US$10 million in annual revenue and pockets $1 million in profit. In a cloud world, this same partner may see revenue shrink to $6 million but margins may grow so that profit doubles to $2 million.
"Culturally, the lower revenue has significance for them," she said. They need to shift their mindset and measure the success and size of the company by the higher profit, not the amount of revenue.
In addition to hearing about Office 365, Azure, Dynamics CRM Online and other cloud products, partners are likely interested in hearing about the Surface device, whose latest edition, the Surface Pro 3, is positioned by Microsoft as a tablet that can replace laptops.
Microsoft has been criticized for not making the Surface broadly available to its channel partners, opting instead to deal with a relatively small set of distributors and resellers.
Asked for comment, a company spokeswoman said via email that the company is "enthusiastic about the partner opportunity around Surface and we expect it to continue to grow with the introduction of Surface Pro 3."
In addition to the distributors and resellers it's involved with, Microsoft also has the developer-focused Apps for Surface program and the Designed for Surface program for accessory makers, she said.
WPC attendees will get to hear from Nadella live
WPC attendees will also get a chance to hear directly from Nadella, who is scheduled to speak on Wednesday, an opportunity for them to better understand his vision and plans for partners.
Under Nadella the company is more open to porting its software, like its Office crown jewel, to non-Windows platforms, like Apple's iOS and Android. He also will usher in significant changes in the coming months.
In a manifesto-type letter to employees last week, he stressed the need for Microsoft's culture to become more conducive to innovation and more responsive to customer needs and market opportunity.
He outlined changes for the engineering team, and retired the "devices and services" tagline his predecessor Steve Ballmer had used to signal the company's new focus, replacing it with his own: "productivity and platform."
Microsoft will "reinvent productivity" for individuals and businesses worldwide, he wrote, explaining that "productivity for us goes well beyond documents, spreadsheets and slides" and means helping people "who are swimming in a growing sea of devices, apps, data and social networks."
Some industry analysts and commentators, reading between the lines, believe that the letter strongly implies that a sharp reduction in the company's headcount is coming, although that is not explicitly stated in the text.
Content and Code's Wallis is looking forward to participating in a roundtable discussion with Nadella at WPC and getting to hear what he has to say about a range of subjects during his keynote.
He's been positively impressed by the new CEO so far, and sees similarities between Nadella and Bill Gates, especially their emphasis on the importance of innovation.
"I'm interested to see how Satya Nadella's changes impact Microsoft," he said.
Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.