FACE TO FACE - MS

The date is 2078 and the first Microsoft certified baby is born intoat Microsoft UK, has been peddling the Microsoft word for nearly a decade. With 95 per cent of desktop PCs using its software, is he part of a plan for world domination? The truth is out there ... a brave new world. Thanks to scientists at the vendor's top-secret life science laboratory deep in the heart of Redmond, baby 1.x is already part-certified as a Microsoft Certified Solution Provider. By the time he is four years old, he will have designed his own Website. By the age of seven, he will be able to re-engineer Windows NT. Imagine the hell that will break loose when he hits puberty.

Bill Gates, cryogenically entombed for more than 40 years, awakens - his plan to conquer the world is in its final throes. With an army of genetically-modified infants, nobody can stop him. This is the moment he has been waiting for. Welcome to nightmare on Microsoft Street.

Listen to Microsoft's competitors for too long and they'll have everyone believing that such a fantastic script could become reality. But listen to Microsoft and, quite predictably, a different picture of the future emerges.

'Once you're at the top of the tree you're there to be shot at,' says Andrew Lees, director of organisational and internet customer units at Microsoft UK. 'The competition gunning for Microsoft is likely to fail.

What they need to be doing is going after the customer and focusing on their needs.'

That may be so, but this is the age of conspiracy theorists. And when talk turns to incorporating Microsoft certification courses into school syllabuses, tongues start to wag. Is the world's most powerful software vendor trying to turn our academic centres into a training ground for prospective employees?

Err ... no. 'But it could work like this,' Lees says. 'Students studying computer science learn about OS architectures. But why are they learning about something that isn't popular? Why don't they learn about something that people actually use in business? Why not include part of the MCP training programme into a college course? There are already a number of pilot projects running that enable a student to become two-thirds qualified.

The channel can take these people on as soon as they finish their education.'

Is there a degree of caution towards this from the colleges? Is Microsoft trying to lock them into its own architecture? 'If you're talking about one way of doing it and it happens to be the Windows NT way, why not talk specifically rather than generally?' Lees argues.

But that's a long-term approach, he adds. Increasing the penetration of computing into schools is a more immediate ambition and the government's investment in the computers-for-all initiative unveiled in last month's Budget could provide the necessary impetus.

'The way children use technology to learn hasn't really changed very much and computers have the ability to make that experience better,' Lees says. 'There are enough computers used in business that people are finding better ways of trading using computers. In education, we have yet to reach that critical mass, but it is rising. If you have a phone system with three people on it, it's useless. If you have a phone system with two-thirds of the planet on it then all of a sudden you can use it for all sorts of things.'

Inevitably, a lucrative slice of the Chancellor's #500 million investment will end up on Microsoft's balance sheet. But it will make an impression on many other companies' bottom line, too. It's all very well talking about raising computer literacy, but unless you're a charity, you want to make money. It just so happens that Microsoft makes more than most, Lees concludes.

'I'm more passionate about enabling more people to harness the power of computers. The internet, for example, can be used to change the way business is being done completely.'

As a result, channel strategies are changing, he says. 'The channel has been through several phases. The first was to do with procurement, fulfilment and reselling. The second was, and still is to some extent, about taking components and adding services around that. The third phase, which is the one we are heading for, is all about packages - how you can take computing and services and build systems. It's hard for margin to exist in the pure reselling model.'

Microsoft estimates there are 40,000 small resellers in the UK. Out of that number, Lees says only about a third physically touch product.

What the majority of them do is help businesses solve their computing needs. As a result, Microsoft often makes a sale indirectly.

'Our business model is to stick to our core competency - building software.

But we encourage different elements from within our channel and development communities to really provide the extra things, over and above Microsoft's components, to build packages. The channel can add an awful lot of value by reaching and meeting customer requirements.'

Lees' brief is to manage customer companies outside the top 600, excluding developers. Microsoft employs account managers who talk directly with the top layer of customers. 'We will never do the sale direct but we are keen to have face-to-face relationships with those top-tier customers,' he says.

Since Steve Ballmer filled Bill Gates' boots as president and chief operating officer of Microsoft last year, he has been working around the clock to change the way the software giant deals with its customers. Just last week, Microsoft unveiled its long-awaited restructure. Frequent complaints about a lack of customer focus is rumoured to be the call to arms.

Lees says: 'We ought to be very close to customers. But with the model we have, it is possible not to touch them enough. Sometimes when we talk to IT professionals and ask them what they think about Microsoft, they say "Well, we read a lot in the press". What we really want is for them to hear it straight from the horse's mouth.

'We are actually targeting three main segments. The first is the IT professional and we want this to be a dialogue not a monologue. We want them to get it straight from us - more information about our products and details on where we are going. It's not really a selling exercise - it's more of an information exchange.

'Secondly, there are developers that are effectively betting their business on using our technology. The third segment is the Var. There are 2.9 million small businesses in the UK and most of them are not interested in the ins and outs of technology. Most go to their Vars, which are effectively the outsourced IT department for several small businesses at once.'

However, the accreditation those channel players have to meet, as set out by Microsoft, has changed but not without mumblings of disquiet. 'In defence, what customers want is to be able to go to their dealer with confidence, knowing the person they are talking to has a certain level of expertise,' says Lees. 'That's what the accreditation programme is aiming to do. So we can say to our customers, "Yes, if you go to this set of channel partners they will be skilled."

'The demands of the customer are increasing. They want their dealer to have cross-product skills. Historically, they were happy to get somebody who was just skilled in one product, such as Windows NT Server. Now they want somebody who knows about NT Server plus Exchange plus Sequel Server because they want to build a system across them. Also, we are seeing the channel investing more in skills. As they are becoming more skilled, they too are raising the bar.'

Lees adds: 'If a channel player is not raising their own bar then they should be worried about what their long-term product is going to be to customers. What Microsoft is doing, in some respects, is forcing that by raising the bar for them. If we just said "Here's the bar before and here's the new bar and you had better be there by tomorrow", it would be unfair and they would have every right to complain.

'But what we are actually saying is, "You have this level of skill and customers need you to be higher". We are investing an inordinate amount of money in raising skills, which is a strange thing to do. Skills are indirect to product revenue. We make money on product revenue, so why are we spending so much money? It's a risk, but if there are more skilled people out there it benefits everyone. The skills three years ago were embarrassing. What we have today is not bad in terms of the way in which the channel is saying "Yes, we are working closely with you, you are best in terms of partnering".'

One of the main challenges Lees sees is how to get the industry moving in the same direction. Part of his brief is making sure the vendor has the right combination of partner types.

'I'm making sure our partners not only tie up with Microsoft but tie up with the other people that Microsoft ties up with,' he says. 'If you take ERP or accounting vendors, for example, they have a channel and we have a channel. We need to make sure the two are common because the accounting firms and ERP vendors will hopefully be building on Windows NT and Sequel Server.'

Microsoft clearly realises that the future is all about multi-vendor computing and the strategic alliances it makes are as important as the strategy it adopts to tackle its competitors. But the industry is also being pushed in another direction - e-commerce and the internet will change the way we all do business and, in doing so, will affect the way the channel operates. So what should it be doing to prepare for the electronic era?

'Businesses engaging in corporate procurement over the Net make up a relatively small number,' Lees says. 'Even the number of resellers buying across the Web from distributors is relatively small, as are the numbers of corporates and small businesses ordering from resellers electronically.

But it will become the norm. Inside Microsoft, if I want to buy a PC we have a Website that we buy everything from. At the back-end it just pipes out directly to whoever we are buying the goods from - there is no human interaction as long as it has the right level of approval internally. The gates open and the order goes out,' says Lees.

So we can look forward to a channel in which all ordering, payment and procurement is done automatically. Won't this fundamentally change the role of the distributor, whose main asset is its logistical capabilities?

'It already is changing,' Lees argues. 'If you look at people such as direct marketeers, they are already doing virtual warehousing where you have a reseller that gradually uses up the stock inside the distributor.

Its value add is, in some respects, the relationship the reseller has as a result of the distributor's Website.'

'If you look at Amazon.com, it doesn't hold that much stock. It brings all of the stock from different wholesalers together and puts it in one place. The value add it gives is the profile information it has about you on the Website.'

He adds: 'If you take corporate procurement forward, then I can say that, on average, you buy one printer toner per month, but don't bother ordering it. I will deliver it on a system where it will be when you need it. What I should perhaps do is dial into your system and watch that printer. I will deliver the toner the day before it runs out. I'll hold the stock and do it as a service for you.'

So distributors need to implement online processing facilities as the industry moves into an electronic ordering environment. How, in turn, will this affect Vars and the way they do business?

'The middle layer - infrastructure services - is where there is a large amount of total cost of ownership for companies,' says Lees. 'If you get a new copy of MS Office, somebody needs to walk around the office and type set-up 100 times. A lot of that sort of thing is going to become automated. All the services are going to move to the third phase, which is all about packages. That's where people are creatively taking building blocks from ISVs and Microsoft to build systems for customers. The transaction margin will increase and decrease on the reselling side.'

Lees also believes that the big five consultancy firms should be included as part of the channel. 'Today, we don't consider them to be there but they will be because they can talk about business design, which will be affected by computing. Andersen already has a big IT department. Should a channel player compete by doing the management consultancy as well?

Or should they partner? In the middle space we are seeing people vying to deliver different sets of services.

'I'd say if you're going to stay in infrastructure, get electronic, automatic and digital. If you're in the middle, improve on technical and sales skills.

Think about what you are going to do as far as providing management consultancy for the way in which business works.'

Will the role of the distributor be completely marginalised in this model?

'No. Exactly the opposite,' Lees says. 'Taking Amazon again, it still needs its wholesalers. The question will be if the distributor also wants to be the Amazon - if it does there is some level of risk because it only has its own logistics to operate this and it may alienate people it works with.'

Lees has seen a lot of changes during his nine years at Microsoft. When he joined, Excel had a seven per cent market share, Windows 3.x hadn't been launched and Windows NT was still on the drawing board. The channel was all about doing deals and everything was up for negotiation. In another nine years, who knows? Will Gates rule the world? Maybe, maybe not. In the meantime, you'll have to make up your own storyboard.

FIVE YEARS IN THE LIFE OF MS

1994: Revenue: $4.6 billion. Employees: 15,257

Microsoft Windows 95 revealed as official name for the next version of Windows 1995: Revenue: $5.9 billion. Employees: 17,801

Microsoft and DreamWorks SKG form a software firm Microsoft Windows 95 released

Seven million Windows 95 units purchased Microsoft Network enrolls more than 525,000 members in its first three months of service Internet Explorer 2 ships

1996: Revenue: $8.6 billion. Employees: 20,561

Interactive Media Division created Microsoft realigns platforms group Microsoft ships SQL Server 6.5 1997: Revenue: $11.3 billion. Employees: 22,276 Immediate availability of Office 97 announced

Apple and Microsoft unveil a broad collaboration Internet Explorer 4 launches Justice Department files action against Microsoft 1998: Revenue: $14.4 billion. Employees: 27,320

Windows 98 launches worldwide Office 98 for the Macintosh released

EVERYBODY SAY EH-OH

Andrew Lees

Director of organisational and internet customer units, Microsoft UK

What was your ever job?

Paperboy

What would be your five desert island discs?

Dire Straits: Telegraph Road and Romeo & Juliette; George Michael: They won't go when I go; Frankie Goes To Hollywood: Welcome to the Pleasure Dome; Vivaldi: Four Seasons

What has been your best ever birthday present and why?

Surprise holiday port tasting in Portugal for my 30th birthday

What non-IT job would you like to do and why?

Saloon car racing driver - great fun where the difference is the driver not the car

Worst habit?

Chocoholic - I just can't resist anything chocolatey

Who do you admire and why?

Teletubbies, for making my daughter smile and stopping her crying in the middle of the night

Most embarrassing moment?

Getting locked in the fire escape of a top Paris hotel while trying to find the stairs.