Microsoft introduces new business services

Nearly two years after Microsoft embarked on a companywide transition to a new delivery model for software, its vast and highly profitable Business Division is fleshing out its piece of the puzzle.

The broad strategy being outlined today is based on the idea that software will be used in a variety of settings, spanning applications running on a desktop or server to those delivered to users remotely through the Internet. Microsoft calls it "software plus services."

Microsoft is already marketing several services for consumers and small businesses under its "Live" brand, such as Xbox Live, Windows Live and Office Live.

Now it is introducing new services for businesses under that brand and a new moniker, "Microsoft Online."

These services will make use of the same data centers and technologies Microsoft is building to manage the consumer-focused services, and they could offer the company a more stable source of revenue.

One new service, Office Live Workspace, will let workers remotely store, share and access documents created in Word, Excel and other powerhouse applications.

"It's part of what I would call the fast-follower strategy," said David Smith, an analyst with Gartner. "They can't afford to be too far behind where the leaders in the cloud space are going. ... The one that comes to mind is Google."

Google Apps lets users do the same sorts of things with documents.

Both Office Live Workspace and Google Apps are in testing but open to anyone. They are free to the end user and supported by advertising.

For large businesses, Microsoft will begin aggressively marketing some of its server-software products, such as Exchange, as an online service. That means instead of buying and maintaining the servers and the software to run a corporate e-mail system, companies could choose to pay Microsoft an annual per-user fee to host Exchange in one of its data centers, such as the one in Quincy, Grant County.

At first, only businesses with at least 5,000 users will be offered software via this model.

Other products include online versions of Microsoft's SharePoint and Communications servers, for collaboration and corporate instant messaging and communications, respectively.

The new model could mean Microsoft sees a more regular stream of subscription revenue from these services, as opposed to customers paying for software once and then having to be persuaded to upgrade when the next version is released.

It's unlikely to be a dramatic change, however, because Microsoft has shifted many of its larger-business customers to licensing agreements that have them pay for software regularly, said Eron Kelly, director of product management in the company's Business Online Services Group.

Microsoft Online will also encompass other offerings for businesses of varying sizes.

Subscribing to Office Live Meeting, for example, will enable a business to immediately hold Web conferences, making use of Microsoft's data centers.

Another set of "attached services" is designed to enhance the functions of software a company runs on its own servers. For example, an attached service hosted by Microsoft or one of its partners could help a company with spam filtering or e-mail archiving.

"Online services is for organizations and larger businesses that are interested in more advanced capabilities," Kelly said.

He added that the company has no plans to push its customers toward any one model, whether it be services provided by Microsoft or one of its partners, or traditional on-premise software.

"We're responding to customer desire and customer demand," he said.

Competitors at this end of the market are less obvious.

"IBM has a very big business in hosted applications, but not in on-demand," said John Rymer, an analyst with Forrester Research. "There's a difference. You can basically pay IBM to run your application in their data center. That's hosting."

On-demand is offering an application as a service, paid on a subscription basis.

Microsoft is also continuing to move its business-process applications online. More than 100 customers are using a new on-demand version of the company's Dynamics customer-relationship management software.

This service — based on the same code base as the on-premise version of the software — competes with Salesforce.com and NetSuite.

Analysts weren't surprised to see Microsoft articulate its software as a service strategy for business. But some said they need more detail to assess whether the new offerings will be good for customers.

"Frankly, I wish they'd be a little more open so we could see more what to expect," said Rymer, who attended a dinner in Seattle last week with other analysts, journalists and Microsoft executives, including Business Division President Jeff Raikes to discuss the strategy.

And the actual demand from businesses for services is still to be determined.

"It's not a slam dunk just yet," Rymer said. "There's a lot of people that aren't interested in this. They worry about security. They worry about losing control of their data. So they're on the sidelines until they can sort that out."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com