Microsoft's controversial decision to restrict the channel for its Surface device still rankles with resellers and is prompting some clever – and conflicting – workarounds.
Only 14 resellers in Australia are currently allowed to sell the Surface Pro 3: Somerville, Staples, Stott & Hoare, ASI, Datacom, Data#3, e-Volve, Dimension Data, Brennan IT, Triforce, Trident, Insight, Ensyst and Learning with Technologies.
Earlier this month, Microsoft announced that a discount "Surface laptop replacement bundle" would be available through its authorised resellers, which reignited the debate over Microsoft's decision to leave the rest of the channel out in the cold.
Dennis Evans, owner of Dennis' Computers and Backup Service in Queensland, told CRN of a recent conversation with a Microsoft rep about a laptop replacement project for an education client.
"She asked me to push the Surface Pro 3, as we were replacing 120 notebooks. I explained to her that I was not allowed to sell the Surface Pro – and she said she could arrange for one of the 14 resellers to contact the school."
Evans said that he was "gobsmacked" by this suggestion and asked how his business could make a margin out of such an arrangement: "She said, 'You have to do what is right by the school.'"
"I promptly told her I [would supply] Toshiba notebooks, for which I can sell, support and supply the warranty," said Evans.
Sydney's NetCare IT is both a Microsoft and Apple partner, so when clients actively seek out the Surface, the company offers them the iPad instead.
"We often cross-sell them to the iPad, which as an approved Apple partner, we can provide and make a margin," said managing director Darryl McAllister.
"On occasion, for specific Windows-only application requirements, we've resorted to purchasing Surface tablets from Staples and then reselling them at no margin to our managed services clients.
"It is frustrating to me that as a long-term [Microsoft] partner with silver status that we cannot have resale access to the Surface tablet," he added.
Next: Partners can’t capitalise on Surface's success
Microsoft announced in its latest performance update that the Pro 3 model released in June has rejuvenated Surface's fortunes, with tablet sales hitting the A$1 billion mark in just the latest quarter.
However, the limited channel means resellers can't share in this success, and their disappointment was borne out by a CRN online poll, with 81 percent of the 325 respondents saying Microsoft was wrong to restrict the Surface reseller channel.
"I think the restriction of the channel has negatively affected Microsoft's numbers on Surface sales," said Glenn Nanda, director of Open Systems Technology, an Adelaide Microsoft partner. "While this model has worked for Apple, it hasn’t worked for Microsoft."
Nanda said that Apple is a "lifestyle brand", while Microsoft doesn't have the same cachet. "Apple's branding and followers will seek out the product however they can access it. Microsoft's reasoning to restrict access to number of select partners doesn't make a lot of sense."
OST refers so many budding Surface customers to retailers that "JB Hi-Fi and Myer should give us commission", joked Nanda.
"One of our local government clients cleaned out a couple JB Hi-Fi stores of their Surface stock recently," he said.
Sydney-based HubOne also refers Surface-seeking customers onto retail outlets currently, but founder and CTO Nick Beaugeard told CRN that this practice is under review.
"We 'shift' quite a lot of Surfaces – by sending our SMB clients to Harvey Norman or JB Hi-Fi," said Beaugeard. "It's such a fantastic product for our customers. [But] we may even be looking at selling a different tablet because of the restricted channel."
JB Hi-Fi's marketing director, Steve Browning, declined to reveal any figures around its Surface sales, claiming the data was "commercially sensitive".
"However, we have been delighted by the success of Surface 3," said Browning. "Sales are meeting our expectations [although] those expectations are ambitious."
For anyone scratching their head as to why Microsoft – a technology vendor with an unparalleled partner channel – would circumvent most of these resellers, theories abound.
There's suggestion that Microsoft doesn't want to sour relationships with its OEM partners, for which Microsoft's foray into hardware created a level of competition that didn’t previously exist.
It seems one of Microsoft's objective with Surface was to motivate these OEMs to innovate and improve Windows PC and tablet design.
During a panel discussion during World Partner Conference in May, Brendon Ford, chief operating officer of New Zealand-based partner Provoke, said: "After the Surface, we’re seeing great technology out of other OEM vendors."
A Microsoft Australia spokesperson told CRN this week that the vendor had sought to "expand commercial distribution for Surface in a thoughtful way".
He said that the "select ecosystem of established channel partners" was chosen on their ability to offer "Microsoft’s extended warranty and accidental damage" and value-add services like "asset tagging, custom imaging, on-site service and support and data protection".
Next: Authorised resellers seeing "explosive" demand
Staples Australia and New Zealand is one of the fortunate authorised resellers for the Surface range. The company's head of technology solutions, Karl Sice, confirmed that resellers outside the club of 14 have purchased units from Staples.
He added that he was delighted with the success of the tablet for Staples. "It's one of the most explosive products in recent memory – a very successful undertaking.
"I expected a much narrower market of attraction, but I've been proved wrong. Education, federal government, mining, all sorts of sectors are going for it.
"Microsoft has done an impressive job with the branding and the launch… We've even had number of meetings where customers have told us to put together other solutions married with the Surface," said Sice.
The gulf between his enthusiasm and the feeling among those locked out could not be greater.
In a comment posted on the CRN website, Queensland's Dennis Evans said: "While Microsoft continues to ostracise their smaller partners, their Surface Pro will never reach the heights as it would otherwise reach. When will Microsoft learn? It is the thousands of small resellers that push the sales of tablets and notebooks."
Greg Williams is another reseller with strong feelings about Microsoft's strategy. The owner of 30-year-old South Australian company Lincoln Computer Centre told CRN that he voiced his frustrations to high-level Microsoft executives.
"In my discussions with South Australia state director of Microsoft Brian Kealey, he suggested [the restricted channel] was because Microsoft wanted to 'control' the marketing of the Surface range," Williams said.
"I put it to Brian, and to the Australian managing director Pip Marlow, that Microsoft had built its business on the backs of traditional resellers and it seemed somewhat arrogant – not to mention unfair – to shut out its traditional reseller base."
Williams said he has made a conscious shift from a sales- to a services-dominated company due to the obstacles in reselling devices such as the Surface.
He told CRN that a Harvey Norman store is coming to town in March: "They will have the Surface Pro and we won't."
Williams is disenfranchised with the vendor.
"I don't trust Microsoft any more, give me Google any day – and I told both Brian and Pip this. They were a bit dismayed but then again they have never walked a mile in my shoes."
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