Every year, Microsoft holds Worldwide Partner Conference. In 2011, it was held in Los Angeles. Not surprisingly, 95% of Microsoft's revenue is stemming from their partners and the number of partner companies in the World is up to 1.3 million.
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| Microsoft Worldwide Partner Conference 2011, Keynote |
From 2001, Microsoft started to drive 3 year cycle licensing model for their Office suite instead of selling shrink-wrap packages.
A great invention, software franchising + licensing model
After that, this business model significantly affected customers, and partners as well. Especially, in this scheme, partner structure was necessary component. And by making partners to stay for foreseeable revenue stream, Microsoft could build a huge and strong ecosystem embracing partners. It was a deliberately designed great invention of delivery model at that time and maybe it can match the invention of App store today.
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| Some Microsoft volume licensing programs |
Fundamentally, the model led a change from sporadic connection to contractual relationship for the product, to staying always in a program with ideally perpetual recurring licensing. Over a decade, it may be not an exaggeration to say that there isn't any company, which has some scale, unreached by their partners. This franchising has been so successful that the other players in the market cannot help facing another hurdle challenging long-established chain among partners and IT departments in nearly every company.
And contenders, finally, may find that it is not easy to prove the benefit from TCO against MSO's licensing model deliberately designed for and locked in not only other Microsoft software components but also nearly every aspect of convenience on maintaining contracts.
On the other hand, Microsoft's WPC, in 2010, was different a little bit. As Steve Ballmer had been stressing Could All-In from early 2010, Microsoft had to explain how this will affect partner relationships at that conference.
After introducing SaaS as a new viable delivery model, Microsoft started to face challenges from market disruption. Although Microsoft has been experimenting with various delivery models for years, they aren't likely to take an approach with an entirely new design of delivery model. Microsoft will keep deliberately taking a two-pronged approach with Office 365 and gradually tightening locked-in user experience.
Advent of new battle of ideas for new level of abstraction
Still, the franchise seems invincible at this moment. However, Microsoft should keep delivering tangible value into market for justifying license fee that keeps raising every year for sustaining their huge ecosystem. Inevitably, this approach also will keep introducing complications. That's where Microsoft's dilemma exists. History always showed us that simplification by new level of abstraction is derived from over excessive complication. The market seems to have started to turn into new battle of ideas already.
- Part one: Network effect, the characteristics of Office suite market
- Part two: Another standard, user experience
- Part three: As a matter of fact, Microsoft is a franchise company
- Part four: Growing opportunities and new battle of ideas
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