Microsoft Overreacts And Drops Anti-Stimulus Financing Package On Partners

Last week Microsoft stunned its partner channel by significantly changing the terms of Microsoft financing for customer deals. Previously Microsoft offered partners very favorable terms, almost too favorable some would say, by only requiring one Microsoft license in any deal financed. Deals could have a Windows Small Business server plus plenty of services, servers, desktops, network gear, etc. and still qualify for Microsoft financing. That's no longer the case as Microsoft has changed qualifications to require a minimum of 35% Microsoft product and services to receive financing. 

There could be multiple possibilities behind Microsoft's move; 1) try to get partners to increase revenues by selling more product, 2) more effective use of Microsoft capital, 3) stricter lending due to increase in bad debts in this tough economy, 4) stop financing purchase of competitive products with Microsoft's capital, 5) taking advantage of tough credit markets as Partners and customers have less options for financing.

Since Microsoft's granted no interviews I'm aware of about the change in policy, it would be tough to really know the reasons for sure, but given Microsoft's historic dip in revenue growth last quarter, I suspect it's primarily (probably purely) an attempt to push more product through the partner channel. The biggest questions on the table are, is this an overreaction to last month’s revenue drop, and will the financing policy change backfire on Redmond? Keep in mind that others, such as HP and Cisco (as pointed out in this ChannelWeb article ), are going with looser financing terms to trying and drive more business, not more restrictive.

On the one hand, partners being able to finance Microsoft related services they provide customers is still a huge plus. Customers can get product, have it installed, customized, and add in development and other services performed, and all of it is financeable through Microsoft. On the other hand, upping the Microsoft product percentage of the deal significantly limits the flexibility and creativeness partners can use to win deals in a tough economy. As many times as not, it's more often a problem of getting customers to spend money vs. competitively win deals. Getting customers to spend in the first place is where creative, barrier lowering, out of the norm deals can make all the difference. 

In the near term, these changes in policy are likely anti-stimulative, making it more difficult rather than easier for partners, and thus Microsoft, to generate deal flow. It's less clear the impact this will have as the economy starts to turn around, particularly if we start to see inflation creep up and lending rates increase... all things that could add to making financing less attractive.

Like this? Here are some of Mitchell's recent posts.

Great Beginning and Intermediate Books Mitchell Recommends: Also visit Mitchell's other blogs and podcasts:

Visit Microsoft Subnet for more news, blogs, opinion from around the Web. Sign up for the bi-weekly Microsoft newsletter. (Click on News/Microsoft News Alert.)

Copyright © 2009 IDG Communications, Inc.

The 10 most powerful companies in enterprise networking 2022