Microsoft is prioritising software as a service (SaaS) over the next 12 months, but it must overcome an image problem to prove it can compete in this emerging market.
Tim O'Brien, a director in Microsoft's platform strategy group, defined Microsoft's plan for the SaaS market as a "move to the middle", something that was outlined in detail last June by Microsoft chief software architect Ray Ozzie at the company's TechEd conference. At the show, Ozzie said Microsoft's plan to roll out services - many branded with the "Live" moniker – will complement its existing software portfolio rather than be purely an SaaS play.
O'Brien reiterated that Microsoft will continue to move deeper into the hosted services space, but not at the expense of its extensive software platform. Even pure-play SaaS companies such as Salesforce.com see the need for both software and services, he said, citing that Salesforce.com customers can access information from their hosted customer relationship management (CRM) service even when they are offline.
"It's not an either/or world," O'Brien said. "That's where we see things headed and that's where we're headed with platform capabilities."
Microsoft plans to add services across its entire software portfolio to achieve several goals, said O'Brien. One goal is to enable its existing software to run on different clients but provide a similar user experience, something it has already begun to do with products such as Exchange Server.
Microsoft has offered Exchange as messaging software on the back end that feeds to the Outlook client on PCs for several years, but recently it has been expanding the capabilities of Exchange through both multi-client capabilities and hosted services. Users now can access services running on Exchange through the web and on mobile devices.
Microsoft also hosts Exchange Server for companies that don't want to purchase and install the software themselves, and offers its own hosted services based on Exchange such as email filtering, archiving and anti-spam.
Other goals for its software-plus-services strategy are to give customers more ways to deliver their own hosted services. It wants to enable them to build custom services that combine pieces of different applications both inside and outside the firewall, a scenario known as a service-oriented architecture (SOA).
Microsoft's hosted services plan is not new. Companies such as Salesforce.com, Yahoo and Google, have built their businesses on the hosted services they offer and are promoting their products as platforms on which third parties can build their own services.
While those companies have taken full advantage of the web, Microsoft has consistently had trouble defining its strategy to expand beyond server and desktop software to truly offer hosted services. Though Microsoft has been making significant investments in services and actually has an extensive SaaS portfolio under its belt, it is not considered the leader in the SaaS market.
One problem is that when Microsoft introduced its Live services in November 2005, it seemed mostly like a consumer play. The company rebranded some of its existing MSN properties – such as MSN Search and MSN Messenger – with the "Windows Live" name, and also added new services.
But now it's becoming clear that Microsoft plans to brand both consumer and business services under the "Live" moniker. For example, offerings such as Windows Live Search and Xbox Live online gaming community are directed at consumers, while CRM Live and Office Live are aimed at business customers.
At the same time, the company offered Office Live, which is somewhat of a misnomer. Office Live is not actually a hosted version of Microsoft's popular Office product, but, according to Burton Group research director Peter O'Kelly, it's a hosted version of Microsoft's Sharepoint collaboration software bundled with some hosted small-business applications.
"That can be confusing," he said, especially because Microsoft now considers Sharepoint, once a standalone product, part of its Office software suite.
Furthermore, Microsoft has given similar names to other hosted business services, which also doesn't help present a clear big picture for its services plan. The company offers both Hosted Exchange and Exchange Hosted Services, which are business products that do two different things.
The different names used by Microsoft's array of Exchange hosted services will only add to the confusion, O'Kelly said.
The fundamental problem with all of this is that Microsoft is trying to identify a varied strategy under one "software-plus-services" umbrella, and it's really not that simple.
O'Brien's comments do little to clarify the situation, especially as there are few specifics about exactly how Microsoft plans to expand its software and services strategy in the next year. But it's likely the company will continue to refine and attempt to clarify its image as it seeks to steal both services and advertising revenue from its younger and more nimble competitors.
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