Partners: New Microsoft CEO Nadella Must Quell Channel Angst

Solution providers Tuesday said new Microsoft CEO Satya Nadella's biggest challenge is a channel that is disengaged from the company's cloud computing strategy.

Nadella, a 22-year Microsoft veteran, previously was executive vice president of the company's cloud and enterprise engineering group. He has been widely credited with leading the technical shift across the company's products and services, including its cloud computing initiatives. 

"Nadella faces challenges with the product strategy and development, but his biggest challenge with regard to the major transition to the cloud should be focused on how to leverage the channel," said the CEO of one of the top Solution Provider 500 companies in the country, who did not want to be identified.

"Microsoft's view of a channel partnership is a one-way street," said the CEO.

[Related: Report: Microsoft Picks Nadella As CEO, May Replace Gates As Chairman ]

Microsoft has designed a channel with a heavy focus on a few Large Account Resellers who are increasingly competing with enterprise partners driving huge cloud computing engagements, the CEO said.

A number of Microsoft partners also say the channel issues around the cloud are heating up as Google and Amazon Web Services are stepping up their own partnering efforts.

"My message to Nadella is try to understand how Microsoft can differentiate [itself] and leverage the channel," said the SP500 CEO. "Google and Amazon right now don't have the advantage that Microsoft has with the channel. I would tell him to make sure that Microsoft builds their go-to-market [strategy] around protecting the building out of the channel. If I were him, I would much rather have the channel working for them rather than against them. They don't want us working against them. I don't think they fully appreciate the potential impact the channel can have en masse."

The latest channel uproar among partners has come from a move by Microsoft to slash the fees partners get from the Microsoft Online Services Advisor Incentives program.

Those cuts have left many partners furious about the likelihood of making less money selling Office 365, Exchange Online and other cloud services.

"Microsoft is [screwing] its partners," said the CEO of one Microsoft cloud services partner, who did not want to be identified, upon learning of the changes. "It's total [crap]. I am not happy about this."

Microsoft also said Tuesday that Bill Gates, previously chairman, will assume a new role on the board as founder and technology adviser and will devote more time to shaping technology and product direction and to supporting Nadella, who will become a member of the board.

John Thompson, lead independent director, will assume the role of chairman and remain an independent director on the board.

NEXT: Nadella Will Have To Convince A Skeptical Channel

Larry Velez, CTO and founder of Sinu, a New York-based Microsoft Gold partner that specializes in cloud services, said Nadella will have to convince a skeptical channel that it won't be more of the same.

"Nadella will have to prove that two decades in the company isn't a liability and he is going to be able to see things with fresh eyes and do things differently. I'm encouraged that Nadella puts the focus back where it should be -- on the technical side of the business. But his business acumen is an unknown," Velez said.

Despite Nadella's long tenure at Microsoft, he is a breath of fresh air when compared with Ballmer, said Velez. "Right now Microsoft's biggest challenge in the channel -- or outside of it -- is Azure and the cloud. Partners are moving from managing physical hardware to bits and bytes in the cloud. How is Microsoft going to compete going forward? Before today, Microsoft's game plan for the cloud was murky, but with Nadella we know cloud will be front and center and get the focus it needs."

Microsoft's biggest channel challenges can be counted on one hand -- Azure, Surface, Windows, Office365 and Windows Phone 7, said Velez. "That just about covers everything at Microsoft. Those are big challenges but also Nadella's opportunities."

In addition, Nadella faces significant roadblocks with solution providers because it has positioned its Office365 strategy as more of a self-service offering vs. something that includes the channel, said Marcus Buckley, director of business development at Network Data Systems, a Springfield, Va., partner that specializes in Microsoft Lync.

Buckley said he will be listening closely to Nadella's message to the channel on whether Microsoft will incorporate incentives to reward providers that carry out a services model around the software.

"We focus a lot on the services side and have had some success implementing Office365, but adoption on the large end with Lync is where we see momentum," Buckley said. "I anticipate more of a channel philosophy answer from the CEO and then we'll have to wait to see if there is more than just words behind the message."

NEXT: Partner Says He Is Glad New CEO Isn't Turner

David Powell, vice president of TekLinks, a $100 million solution provider based in Birmingham, Ala., breathed a sigh of relief that Microsoft COO Kevin Turner was not named to the top job.

"Nadella is a relative unknown to me," said Powell. "That is likely a positive. I haven't been a big fan of Turner's and didn't want him to see him get the job. He is a gifted businessman, but Microsoft is not the type of company that would benefit from his style. Running Microsoft is a really big job. For the new CEO to be successful, they must adapt quickly to changing business models and consumption models, innovate and create great products, focus their efforts on the places they can win, and embrace the partner channel. Those are the things that made Microsoft great.

"Let's face it, the past few years Microsoft hasn't led -- they have followed, and slowly," continued Powell. "They haven't been nimble enough to respond to the market. They haven't innovated and created products that people really want. They have lost their focus by concentrating on Bing and Xbox and they have done many things to upset the partner channel, such as its Office365 strategy. Microsoft is a great company. The world's businesses run on Outlook, Word, Excel and PowerPoint. They need to focus on what they are really good at and stop getting into fights they can't really win, such as search and mobile phones. So, I'm optimistic about Nadella, only because I don't have any information to make me think otherwise. But he certainly has his work cut out for him."

Christopher Hertz, CEO of New Signature, a Washington D.C.-based Microsoft partner, said he was hoping Microsoft would promote someone from within to replace Ballmer.

"I was hoping they'd pick someone from inside," he said, applauding the decision to name Nadella as CEO. "I'm interested in continuity."

Hertz noted that as head of Microsoft's cloud and enterprise group, Nadella has overseen development of the products and services that have represented the vendor's biggest growth areas in recent years, including cloud computing and server platforms.

Nadella's appointment is also a return of sorts to Microsoft's engineering roots, he said. "At its core, where Microsoft will win over the next decade will be in innovation."

Douglas Grosfield, president and CEO of Xylotek Solutions, a Microsoft Silver partner, said he was somewhat surprised by the Nadella appointment given that the Microsoft veteran has "always been a behind-the-scenes kind of guy."

"I say, why not Satya Nadella?" said Grosfield. "He has proven himself as a quiet and soft-spoken leader in many areas of what has really been his sole employer for the majority of his working life, as a relatively young man. He certainly knows the company, its divisions and products, and has been instrumental in many areas of import from the partners' perspectives, such as server systems, cloud, Office etc., but has some proving to do on the mobile front as yet."

Grosfield also applauded the move to have Gates play a bigger role in the technology strategy as Nadella takes the helm. "That is great news for all concerned," he said. "Gates' vision and leadership, even as a mentor role to Satya if that is the motivation, will ensure a successful transition and minimize disruption to the consumer, corporate clients and partner ecosystem."

RICHARD WHITING, ROBERT WESTERVELT, ROB WRIGHT & STEVEN BURKE contributed to this story.

PUBLISHED FEB. 4, 2014