April 27, 2004, 5:12 PM — Hiccups in Microsoft Corp.'s efforts to work with its channel partners are continuing to hurt the software vendor's sales in the business applications market it is trying to crack.
When the Redmond, Washington-based company announced its quarterly results last week, Chief Financial Officer (CFO) John Connors had some harsh words for Microsoft Business Solutions (MBS), the business software group that includes Great Plains, Navision and Microsoft CRM (customer relationship management) products.
While there were no complaints about sales abroad, MBS in the U.S. is having trouble maintaining its relationship with partners such as the VARs (value-added resellers) on which it depends, according to Connors. "We aren't having very good U.S. execution," he said on a conference call with financial analysts.
MBS CFO Kevin Mueller attributed the problems to "short-term integration issues" merging Microsoft's traditional channel with the Great Plains Software Inc. and Navision A/S channels it inherited when it bought those companies. The addition over the past year of new personnel managing the MBS channel has also contributed to problems, he said in an e-mail response to questions.
Connors did not hold back in his comments about MBS during the conference call, said Matt Rosoff, an analyst at Directions on Microsoft Inc., a research company in Kirkland, Washington. "I thought he was unusually harsh. That indicates to me that they have noticed that it is somewhat of a serious problem," he said.
The problems aren't new, but they're persistent. Microsoft in the U.S. is "being less effective with the traditional MBS partners than the MBS group was a year ago," Connors told analysts. Last October, Connors said first-quarter MBS results showed a slow down, which he attributed to sales force and channel realignment issues. He said at the time that the company hoped the disruption had peaked and would soon fade.
While all other Microsoft segments reported double-digit revenue growth in the most recent quarter, MBS reported revenue up only 4 percent over 2003's third quarter, to US$153 million. That's a long way from the annual sales of $10 billion Steve Ballmer, Microsoft's chief executive officer (CEO), forecast for the division by 2011.
One Microsoft partner who works with Microsoft CRM -- the MBS group's highest-profile product, first released early last year -- said chaos descended in January, when Microsoft shook up the channel by moving Microsoft CRM into its volume licensing program and cutting the margin paid to partners for up-front sales.
For Ben Holtz, CEO of Watertown, Massachusetts, CRM services firm Green Beacon Solutions LLC, the change meant that he could no longer buy his clients' CRM licenses directly from Microsoft. Instead, he now works via a middle reseller, an arrangement that's been fraught with complications and delays.