Microsoft buys into the cloud

With its recent software-as-a-service announcement Microsoft shows that it's finally accepted the power and inevitability of the cloud. It also reveals just how big a threat Google really is.


This week, the world's biggest software company announced it would begin offering online software services to "businesses of all sizes".

The "software plus services" strategy, as Microsoft execs have called it, has been a long time coming, and it appears that it will be many months before the much-hyped vision becomes everyday reality for all corporate IT departments.

Still, however you look at it, the fact is that Microsoft is adding a cheaper software-as-a-service option that could cannibalise its on-premise software cash cow. Analysts such as Matthew Cain, a research VP at Gartner, say that this shift in strategy is "titanic". He declares, "There really isn't much bigger news than this."

Back in September 2007, Microsoft announced the "roadmap" for its software services strategy and introduced its Online Services offering for businesses with more than 5000 users. Cain notes in a recent Gartner report that while the SaaS model is in its infancy, it holds considerable appeal, particularly for SMEs.

"This is because it offers fixed monthly fees, freedom from most operational management, elimination of upgrade responsibilities and, in some cases, lower costs," he said.

Jeff Raikes, president of Microsoft's Business Division, kicked off the festivities in September by proclaiming that the "new era of connected computing is about empowering people and businesses to balance the power of the internet with the rich interactivity and high performance of client and server software".

This was a new and different Microsoft. This was also a scared Microsoft.

The Cloud Hanging Over Redmond Amid all of Microsoft’s recent rhetoric about giving enterprise customers more choice, it's critical to note the practical motives behind Microsoft's moves: responding to rising competitors.

"If Google didn't exist, Microsoft wouldn't be doing this," Cain says. "Why would Microsoft want to change a great thing? They would rather prefer to get revenues from their on-premise [software] model."

Ravi Agarwal, CEO of GroupSpark, a provider of hosted applications including Exchange, SharePoint and others, told Computerworld’s sister US publication that "it appears that this entire driven largely in response to competitive threats from Google's Gmail and Yahoo's Zimbra".

Clearly, Google and its new set of web-based applications have tapped into the controversial new world order in corporate computing. IT can't control everything on its systems anymore, and users have become resourceful and powerful.

Google's foray into applications is a "destabilising force" in corporate IT environments, Cain notes. "To Microsoft's credit, before Google has gotten a substantial market share, this was a way to respond."

So those in Redmond have had to hop on board the software-as-a-service train, before it left the station. Microsoft must realise its newly announced SaaS offering needs about 18 months to mature, Cain says. "Well, where is Google going to be in 18 months? Google has shown that it can innovate at a furious pace."

And Microsoft, seeing the long-term picture and the hefty stakes, realised that if Google had an offering that undercut the Microsoft on-premise solution, then where would that leave Microsoft? "In this, Microsoft is banking on the worst-case scenario and that's why they're reacting this way," notes Cain.

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