Microsoft Gets Hosted

Joe Wilcox News Analysis. AOL's subscription-based revenue model was Microsoft's envy in the 1990s. Today, the company moved closer to realizing its long-thwarted subscription dream.

But Microsoft is after more than just subscription pricing. The company also is looking to push low-cost Web-based applications away from its desktop turf.

During the SharePoint Conference later today, Chairman Bill Gates is expected to announce the beta availability of Microsoft Online Services services. Last autumn, Microsoft revealed plans to offer hosted server software to companies with 5,000 or more employees. With today's announcement, Online Services will be available to businesses of any size.

Starting today, U.S.-based businesses can sign up to participate in betas for Exchange Online and SharePoint Online, which are Microsoft-hosted versions of the server software.

The week is yet young: Microsoft's MIX08 opens on Wednesday, and I expect to see more services announcements coming from there. Microsoft's online business services strategy is slowly, but surely, becoming something real. On Thursday, the company also updated Office Live Workspace.

Circling back to Online Services, Microsoft plans to offer Communications Server 2007, Exchange Server 2007, Office Live Meeting and SharePoint Server 2007 as a hosted suite. It's Microsoft's bundling strategy on steroids—server software bulked up as a hosted subscription service.

The hosted services suite redefines the meaning of Microsoft's so-called "Interoperability Principles" that were announced about 10 days ago. Microsoft's information disclosure is confined to "major products," which Microsoft classifies as Office and Windows. But, increasingly, Microsoft's greater emphasis is the server and software and services extended from it. Where is the interoperability disclosure?

I see a number of obvious overlapping objectives in the Online Services strategy:

• Capture more recurring revenue—not just volume licensing fees, but subscription services, too. In July, I asked if Microsoft's software-plus-services strategy would be the equivalent of paying rent. I can now definitively answer yes. Many Web 2.0 platform companies offer low-cost or free services, recouping revenue elsewhere, such as advertising. Software plus services is where Microsoft volume licensing and subscription payments meet. The company even plans to offer subscription service discounts to existing volume-licensing subscribers.
• Beat back hosted alternatives to Microsoft software. Google already has put together the makings of low-cost, hosted alternatives to some Microsoft products, starting with Exchange. Last week, free wiki and SharePoint competitor Google Sites launched.
• Provide centralized and more secure server software. Hosted alternatives offer many advantages to Microsoft server software, starting with management. Microsoft or its services competitors can make updates and enhancements available to all end users at once. With distributed server software, enterprises typically run different platforms or versions. Security updates and functional enhancements take enterprises time to roll out. Microsoft can flip a switch, and all hosted customers have the updates.
• Meet businesses' increasingly anytime, anywhere needs. Many businesses, small or large, share two common, surprisingly related dilemmas: Too much confidential information leaves the corporate confines on laptops and other portable devices. More employees are mobile and need more informational access anytime, anywhere and on anything. Hosted business informational services can resolve both dilemmas by providing anytime, anywhere and on anything access from centralized data repositories offered as services.

Microsoft must really love its partners. The expanded Online Services offering screams channel conflict. It's one thing for Microsoft to offer direct, hosted services to larger businesses. It's something else to push into the small and midsize business markets, where Microsoft partners already offer hosted versions of Exchange and SharePoint.

I really am surprised to see Microsoft go after the market below 5,000 employees, because of partners. The channel conflict isn't just confined to hosted service providers. There are plenty of solutions providers that sell and service on-premises Microsoft server software.

Related Posts:

• Office Goes Live and Online, Microsoft Watch, Oct. 1, 2007
• Microsoft Software: Rent Me, Microsoft Watch, July 20, 2007
• Where Is Microsoft's Services Platform?, Microsoft Watch, March 1, 2007