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Microsoft's cash haul dwarfed by $500 billion partner revenue

You think Microsoft rakes in some cash? The $66.7 billion in revenue taken in by Steve Ballmer and company is nothing compared to what Microsoft's partners earn.

An IDC study - sponsored by Microsoft - found that "Microsoft and its partners generated $580 billion in 2010." That was up from $537 billion revenue in 2009. Including 2007 and 2008, the IDC study puts total revenue for Microsoft and partners at more than $2 trillion over four years.

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At first glance, these are surprisingly high numbers given that IDC says worldwide IT spending was $1.4 trillion in 2009.

But IDC is counting lots of products that aren't strictly made by Microsoft. Applications that run on Windows, or work with Microsoft products, count toward the total. Since Windows is so widely used, most desktop applications have to work with the operating system.

"Most of the money is actually made selling products that run on or work with Microsoft products, including personal computers, applications running on Windows, and services for both Microsoft software and the software running on Microsoft software," IDC analyst John Gantz explained in an email. "It includes some channel revenue selling both Microsoft products and those products just mentioned."

Still, Microsoft's impact on the tech industry is vast, notes the IDC white paper titled "Partner Opportunity in the Microsoft Ecosystem."

IDC reports: "Accounting for 95% of Microsoft's revenues, Microsoft partners include companies that sell PCs, servers, storage, and smart handheld devices running Microsoft software; software vendors that write applications that run on Microsoft platforms; resellers that sell and distribute these products; and service firms that install and manage Microsoft-based solutions, train consumers and businesses on Microsoft products, and service customers for their own applications. Many companies do combinations of these functions."

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Partners make about $8 for each dollar earned by Microsoft. In calendar year 2010, Microsoft pulled in $66.7 billion in revenue, according to the vendor's earnings reports.

"The impact this ecosystem has on the global economy is significant," IDC said. "It accounts for 42% of all employees at IT companies or in IT departments at IT-using organizations. Those 15 million employees helped generate nearly $500 billion in taxes in 2009 alone. The impact and the importance of the Microsoft partner ecosystem probably can't be overstated. ... In 2009, 44% of the hardware sold (by value) and 56% of the software sold (by value) ran on Microsoft operating systems."

Microsoft partners also did business with each other, accounting for $10 billion in annual revenue.

Since Microsoft relies heavily on partners to sell its goods, Redmond officials occasionally have to dance around the question of whether it competes directly against those same partners. Microsoft's offering of Windows Server instances on the Azure cloud service, for example, has been called a threat to Windows Server hosting partners. (See also: Microsoft opens new competitive fronts with cloud-based Windows Server.)

Microsoft said it has worked on boosting its Partner Network to give partners the training, resources and support needed to improve sales. Microsoft also pitched new cloud-based technologies as an opportunity to sell more hosting services based on Microsoft technology.

"Cloud-based solutions offer Microsoft partners the opportunity to grow by extending their current businesses via cloud infrastructure-as-a-service (private and/or public), software-as-a-service (Microsoft Business Productivity Online Standard Suite and/or Office 365), platform-as-a-service (Windows Azure) or a hybrid combined with on-premise solutions," Microsoft said.

Follow Jon Brodkin on Twitter: www.twitter.com/jbrodkin

Read more about software in Network World's Software section.


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