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Microsoft is rallying the partner faithful this weekend. Partners are descending on Minnesota for Microsoft's annual Worldwide Partner conference, where attendees will be given the word on strategy by the ministers of Redmond, culminating in a Sunday morning service by chief executive Steve Ballmer.

Microsoft will stoke the feel-good-factor, with sessions highlighting business opportunities using the ubiquitous and pervasive platform that is Windows.

The certainties of old, though, no longer hold true and ISVs need more to convince them to buy into Microsoft these days than faith alone. Microsoft must use the next three days to convince partners that Windows - and the "Redmond way" - are the right foundation for their business in four key areas.

Microsoft's biggest problem is in the Small and Medium Business (SMB) sector. Microsoft's operating systems, servers and business applications are generally the default software platform for SMBs, thanks to the ubiquity of Windows, ISV backing for products like Office and Outlook and Microsoft's grip on the channel.

Competition, though, is coming from IBM and Oracle who have realized SMBs represent a substantial business opportunity. SMBs accounted for 44 per cent of overall IT spending in the US last year according to Forrester, with spending expected to grow by eight per cent this year. Spending by enterprise customers will grow by six per cent.

Recognizing this, IBM this year committed to spend $300m helping partners sell services and consulting to SMBs while it has delivered Express editions of DB2 and WebSphere that offer "simplified" administration and reduced pricing. Oracle's efforts have seen it launch the E-Business Suite Special Edition North America, consisting of core applications, services, support and education for SMBs, and the Database Standard Edition One for single processor servers.

IBM and Oracle's mission is to provide the underlying database, application server and platforms that suit SMBs' pockets and level of technical expertise, and that ISV partners can use as the foundation for their own offerings. Microsoft must convince ISVs, though, it also the technology, pricing and vertical market expertise SMBs require for it to beat IBM and Oracle.

Closely tied into SMBs is the debacle that is Microsoft's business applications strategy. Microsoft Business Solutions (MBS) - the unit that covers Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) - is wrestling two demons: business performance - which has been worst than expected - and meeting shifting technology and time deliverables of Project Green. MBS has misfired to the extent it was last year put directly under Steve Ballmer.

Delays and poor execution from Microsoft have created a vacuum in which Oracle, SAP and new entrants like salesforce.com and SugarCRM are operating. The SMB market opportunity for business applications is huge: 19 per cent of small companies plan to deploy ERP software this year - up from three per cent last year - while 23 per cent will deploy CRM/SFA software - again up from four percent in 2004, according to AMI Partners.

Microsoft must convince ISV partners - the companies who are essential for developing the kinds of functionality and plug-ins that enrich the baseline CRM and ERP product - that MBS and Project Green are on track and represent a viable future. You can expect MBS senior vice president Doug Burgum will use Microsoft's conference to, again, detail the Project Green roadmap laid out at the MBS conference in March in order to assure ISV the future is looking good for MBS.

Another challenge is in desktop operating systems and applications. Longhorn appears to be in the pipeline, however the Longhorn that is scheduled to ship in 2006 will be a world away from the operating system that was promised in 2003 by Bill Gates. Innovations in storage, web services and graphics have been ripped out and re-allocated, meaning Longhorn will now concentrate on more bread-and-butter operating system features like scalability and security.

The challenge for Microsoft during the next few days, and going forward, will be to convince ISVs customers will buy Longhorn and that Longhorn is worth their effort to support.

Of course, in the background, is the threat posed to Microsoft's business by open source. The open source challenge to Microsoft originally manifested itself in the form of Linux, however open source is now moving further up the software stack into middleware and applications. Open source represents a new, and untried business opportunity for adventurous ISVs - hence the emergence of companies like SugarCRM, MedSphere and EnterpriseDB.

For years, Microsoft won developers and retained partners by spoon-feeding them with new code, tools and go-to-market channel strategies. Open source, though, provides a low-cost, low-barrier-to-entry for developers that means they no longer need rely on the Microsoft drip feed to become a successful business.

Microsoft is unlikely to stop developers moving to Linux and open source so its best hope lies in articulating a strategy of co-existence to limit the "damage" to its business. Rather than berate open source, Microsoft should perhaps try to persuade waveres to use open source where appropriate but to also use Windows.

The threat to Microsoft's partner network should not be overstated. For many ISVs, who have limited engineering and marketing resources, Windows still represents the best chance for reaching as many customers as possible.

Microsoft, though, cannot assume it will be preaching to the converted in Minneapolis during the next few days. Changing market dynamics combined with execution problems mean that the company will have to work hard at proving the business case for the Windows operating system and family of applications.®

Related stories

Microsoft Business Solutions gets new UK head
Ballmer has seen the future, and it s Danish
Now Microsoft 'decouples' Longhorn from .NET
Microsoft sharpens Longhorn for SMEs
New Microsoft Longhorn chief is indigestion expert
Microsoft software partner finds Microsoft software cheaper than Linux

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