Ann: DTL wins Whole of Australian Government Microsoft Contract, page-18

Funny I see this differently - also some experience with large government contracts and with IT. In the past with these large MS contracts the reseller (DTL) would frequently recognize the full revenue (a big number) and then recognize their margin (a very small number). Resellers often had to change their sales comp plans for these deals as the commission, if at all revenue based, could exceed the margin $!!! For a public company this could be unfortunate having a large slug of low quality revenue. And if they "lost" the contract they could look forward to 12 months of YOY potentially material revenue drops as compares. But almost no impact on profitability. I won't even mention the terms of the contracts with both the gov't and with MS... you can guess who carries the risk...

But then MS changed their programs so that most of them the reseller now recognizes only the margin $. In other words if DTL sell $50,000,000 worth of MS products at 1% margin then they have $500k in revenue and $500k in margin. So the impact on the optics of the pnl can be very different as a small revenue stream is there at 100% effective margin. Don't forget those contracts usually require DTL to employ some expensive support skillsets.

I have not seen an IT company get rich, over time, in reselling MS products. And service companies with really strong consulting skills, and well managed, usually win software consulting business whether they have the underlying SW contract or not. In my experience having the contract makes it easier, however having the skills is the key in terms of winning and maintaining high margins on software services.

I would be happier to hear that DTL are winning in terms of acquiring new customers in their services sweet spots, and can continue to steadily grow overall revenue and margin in the core business... and see the MS deal as a nit in terms of the pnl.