Microsoft targets Google with its latest Online Service announcement

The news out of Redmond this morning that Microsoft will expand its online offerings to companies with under 5,000 seats may indicate that the sleeping giant is almost fully awake and ready to really compete in the new world of online applications. Matt Cain, research vice president at Gartner referred to today’s announcement as "titanic," mainly because the Redmond giant is moving from hosting its online servic

The news out of Redmond this morning that Microsoft will expand its online offerings to companies with under 5,000 seats may indicate that the sleeping giant is almost fully awake and ready to really compete in the new world of online applications.

Matt Cain, research vice president at Gartner referred to today’s announcement as "titanic," mainly because the Redmond giant is moving from hosting its online services on a dedicated server model targeted at large enterprises to hosting on a multi-tenant server model that targets SMBs with under 5,000 Microsoft seats.

As Cain sees it today's announcement is Microsoft's answer to Google Applications, a suite of free online productivity apps.

It is true that Microsoft hasn’t had substantial competition in the productivity market for a long time--not since the likes of WordPerfect, Lotus 1-2-3, et al.

However, until we know whether or not Microsoft has had a change of heart concerning how much of their productivity suite they are willing to offer online and the pricing model we will not know if Microsoft strategy is just meant to maintain the status quo.

For the moment Microsoft is offering Exchange Server as a hosted service for calendar, email, and contacts, plus shared workspace, web conferencing and video conferencing.

There has been only speculation that the full Microsoft Office suite, including Word, Excel and PowerPoint will be offered in the future.

While Cain called today’s announcement titanic, Dana Gardner, principal analyst with Interarbor Solutions said of the announcement, "it’s more like rearranging the deck chairs on the Titantic."

Gardner believes we still have to wait for the other shoe to drop, mainly how aggressive pricing will be for non-Microsoft licensees.

As to the promised discount to current licensees Gardner points out that Microsoft is only offering a discount to those who are deploying into the Microsoft model for on premise licensed software. Microsoft is trying to give those customers a way onto the Web while still paying Microsoft in the same old way, said Gardner.

"It strikes me as playing defense to protect its existing business model rather than really embracing the full Web experience," Gardner said.

While it is true that hosted solutions are not part of Microsoft’s traditional business model or as we like to say part of its DNA, Cain says Gates and company received a much needed shot of DNA "courtesy of Google."

"It [today's announcement] never would have happened without Google," says Cain.

Nevertheless, while Cain points to Google as the competition, he also says if you are a new vendor that wants to crack a market the best way to do it is to enter as a SaaS delivery model. In this case, Cain is lumping Google’s free model with the SaaS model which is a pay-as-you-go model, but pay indeed.

We have to distinguish between two different models.

The free model is actually the old publishing model updated for the Web which says give them the software for nothing and it will attract so many users you can sell advertising against it.

Whether readers realize it or not, most print publications lose money on every issue due to the high distribution and product costs, including the price of paper and postage. Advertising is what keeps them solvent.

The second online model is SaaS software. In this model, users are charged on a per user, per month basis most typically. This is mainly the domain of backend applications like CRM and ERP.

The point is although they are both hosted they are not the same so that Microsoft, and other on premise solution providers, have to compete against each differently.

Just because you go SaaS doesn’t mean you go free and supported.

Therefore, on the backend Microsoft has its SaaS CRM and ERP Dynamics solutions. Dynamics competes with Salesforce, NetSuite and others.

But on the front end, desktop productivity applications, Microsoft must compete with Google Apps, OpenOffice and to a lesser degree StarOffice and other free applications.

The question is how can Microsoft give away what has been a large part of its revenue?

The answer is they may not have to give it away. And yet they still can be competitive with the likes of Google.

Gardner believes the Microsoft’s strength is in their ability to package up applications and services which he says they do in a "masterful" way.

"They can package these things together and a manager will say I want the whole suite for my end user and I will pay Microsoft to manage it," Gardner suggests.

So in the final cost benefit analysis administrators may decide they are better off paying Microsoft for the convenience of a one-stop shop with no fat client and no support fees.

This puts the ball back in Google’s court. They have to be able to package up their productivity applications if they want to appeal to directors and managers. Otherwise, as Gardner says, so-called free applications to the enterprise are "free like a puppy."

The answer will come from the enterprise.

As is the case with software development, companies can decide to standardize on Visual Studio and get the benefits of a fully integrated, packaged development environment or they can let their developers use whatever they wish as long as they remain productive.

"What we don’t know is if the developer model applies to productivity workers as well and to what degree workers will have a choice," Gardner said.

Copyright © 2008 IDG Communications, Inc.

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