Technology behemoth Microsoft’s approach to capital markets is strategically flawed and poorly executed, according to a sharply critical report from Aite Group. Microsoft responds that the report is error-prone – it talks about stock options which Microsoft dropped several years ago in favor of stock grants, and its estimate of Microsoft’s spending in capital markets is not accurate, says the company.

Microsoft’s strategy of relying on independent software vendors as partners leaves it lagging behind competitors such as Oracle and IBM, which are buying financial services-focused companies and bundling their applications into solutions, said Adam Honoré, senior analyst at Boston-based Aite and author of the study. A Microsoft spokesman says that the report misses the point that Microsoft is a platform company. It has no plan to provide vertical industry solutions for specific areas such as capital market but relies on partners to do just that.

“We have no intention of competing with our partners,” a spokesman says.

In its report, Aite found widespread dissatisfaction in discussions with 21 vendor partners and current and former Microsoft employees. 54% of partners in capital markets rate their satisfaction with Microsoft as mediocre or poor, and 80% think the Redmond, Wash. company’s capital markets team knows more about Microsoft than finance.

While Microsoft takes partner concerns seriously, says a spokesman, talking to just 21 partners out of the 500 independent software vendors Microsoft works with across capital markets leads to results that easily fall within the margin of error.

On the technology side, Honoré said, partners think highly of Microsoft. All of those who have used the Microsoft labs called the experience valuable.

Contrary to Aite’s evaluation, a Microsoft partner in London, Lab49, has strong praise for the company’s partnership program.”Microsoft is great at nurturing the partner community; other companies could learn from them,” says Vivake Gupta, managing director at Lab49, which has developed sophisticated visualisation tools using Microsoft’s Silverlight.

The Microsoft capital markets group continues to beat its sales targets, but as Wall Street consolidates, Honoré questioned whether that will last. He said that most of the people responsible for capital markets report to district managers rather than someone in financial services, often leaving partners with no clear idea of who is doing what. And Microsoft tends to go through an organizational restructuring every 18 to 24 months.
“It is difficult to keep people who build the industry knowledge in place long enough to make a difference,” said Honoré. “Partners complain that by the time they build a decent working relationship with an employee, their contact is gone and they have to start all over.”
Microsoft says that the company has been adding solution specialists with industry experience to its financial services group and has continued to invest in financial services well beyond the $500,000 financial services marketing budget cited by the Aite report.
The study says partners lauded Microsoft’s technical expertise. Vendors noted that the SQL Server database team is especially helpful, added Honoré, who considers access to Microsoft labs one of the key benefits of the program. Microsoft also received high marks for the way it helps vendor partners work with emerging technologies and deploy new or enhanced applications through its Technology Adoption Program.
Honoré sees a disconnect between Microsoft’s product orientation and the industry’s desire for solutions. About a year ago, Microsoft sat down with Aite staffers to explain why everyone in capital markets should be running Windows Vista, he recalled. “Capital markets firms were interested in electronic trading, operational efficiencies, data management and other enterprise projects that would have sold Excel and SQL Server licenses,” he said. “An enterprise desktop swap could not possibly have been farther from their minds.”

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