Google's ascendance also has something to do with another piece of the new Microsoft – its $44 billion (£22 billion) bid for Yahoo. While Yahoo's board and management have rejected Microsoft's advances so far, it's clear that Microsoft executives realise that they can't sit back and feast on their on-premise software margins for much longer.
At the annual SharePoint conference this week, Microsoft Chairman Bill Gates dismissed Google's competitive threat. "They really don't have the richness and responsiveness," Gates noted." He went on to suggest that Google usually creates a "big buzz" when it introduces a new service but fails to maintain that buzz. "To be frank," he quipped, "the day they announce them [services] is their best day."
What It Means for Corporate IT Gartner's Cain calls Microsoft's new strategy a "wakeup call for CIOs". CIOs and their IT staffs "need to become aware of Google's presence" and figure out how and where Google's applications and other online applications like it may fit inside their organisations. "This challenges the fundamental assertion that running software on-premise and having large staffs to operate the software is the only way to go," Cain says.
Before anyone, whether it be Microsoft, Google or someone else, changes the face of corporate computing, however, web-based products need to mature, Cain points out.
For Microsoft, the challenges in providing large-scale SaaS services for business "requires significant expertise in high availability, security, multi-tenant architectures, network topologies and problem resolution", Cain writes in the Gartner report.
Furthermore, Microsoft is retrofitting its existing software to the multi-tenant server model. So, says Cain, it won't be until the next version of Exchange (due in 2011) that its core products will be better designed to run in a multi-tenant SaaS model.
Google's number-one priority is to overcome the perception that its suite of applications isn't secure or robust enough for the corporate environment.
But just how would Microsoft's new offering and the presence of a viable Google apps offering affect internal IT operations? Cain says that there are going to be some dramatic workforce changes as a result of the shift. For example, running corporate email systems is "drudgery," Cain says, even though you need talented people to manage the system.
If a company uses Microsoft to host its Exchange Server 2007, for example, then "one could contend that those staffers could focus on things that add much more value to their companies," Cain says.
In the final analysis, though, if the market-leading Microsoft is able to eventually add applications such as Office to its SaaS suite, its endeavour will probably prove the sports truism that "the best offence is a good defence".
"Microsoft's SaaS investment is both an offensive move to capture operational revenue in addition to the licence fees it now collects," Cain writes, "and a defensive measure to combat potential incursions from suppliers such as Google."