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Microsoft Updates its Software as a Service (SaaS) Strategy
Microsoft Updates its Software as a Service (SaaS) Strategy
Microsoft Updates its Software as a Service (SaaS) Strategy
Microsoft Updates its Software as a Service (SaaS) Strategy
Microsoft Updates its Software as a Service (SaaS) Strategy
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Microsoft Updates its Software as a Service (SaaS) Strategy


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  • 1. Focus Point Microsoft Updates its Software as a Service (SaaS) Authors Balaka Baruah Aggarwal & Michael Barnes Strategy Date May 15, 2008 Springboard Perspective INTRODUCTION This Springboard Research document presents insights, observations and analyses gained rd th from Microsoft’s Asia Pacific Analyst Summit, held in Singapore on April 23 and 24 , 2008. The basis for the insights expressed within this document – beyond our continuous tracking of Microsoft’s business activities – includes information obtained from interviewing senior Microsoft executives at the event. KEY OBSERVATIONS  Microsoft has crystallized its SaaS strategy, (which the company calls software plus services), with the announcement of two service offerings: Windows Live and Microsoft Business Productivity Online Services, also known as Microsoft Online. The aim is to tap new customers with the former and upsell to existing customers with the latter by allowing customers to blend their online software with on premise software.  Windows Live is targeted at retail consumers, Small Office Home Office, and SMBs. It is ad-driven and free. Microsoft Online is targeted at larger corporates. It offers applications with more functionality and is subscription based.  Microsoft’s ‘Live’ services, (which include Windows Live as well as non-Windows branded offerings such as Office Live Workspace), are available across the entire Asia Pacific region while Microsoft Online is currently only available in Australia through selected partners. Wider regional distribution is contingent on Microsoft selecting local partners.  Microsoft will actively encourage existing customers to blend their on premise products with online applications. Dynamic CRM version 4.0 supports a single multi- 1
  • 2. tenant code base to deliver on premise and on-demand deployments. Microsoft has also announced plans to similarly rearchitect other products. THE ANNOUNCEMENT Microsoft announced plans to offer SaaS solutions targeting retail consumers, SMBs and enterprise customers with two variations. The enterprise edition of Microsoft Online is its more serious attempt to offer applications as a service. Initially the enterprise edition was targeted at organizations with over 5,000 users but has now been extended to smaller enterprises. Microsoft’s immediate go-to-market strategy is to continue working with hosting partners in the region, specifically to help support hosted implementations of Microsoft Exchange Server, Microsoft Office SharePoint Server and Microsoft Office Communication Server. Microsoft announced plans to offer Microsoft Online branded services hosted from its servers during the first half of 2009. Microsoft Business Productivity Online Services includes Exchange Online, SharePoint Online and Office Communications Online, all of which complement Microsoft Office. Business customers can balance deployments of Office servers across on-premise and Online instances. Microsoft Dynamics CRM is offered as an application and a platform upon which Microsoft’s customers and partners may develop new applications. Its latest version, Dynamic CRM 4.0, launched in December 2007, supports multi-tenant architecture that allows both Microsoft and hosting partners to host CRM in much higher volumes. Microsoft has also announced plans to rearchitect SharePoint and Exchange servers but no release dates were announced. THE SIGNIFICANCE Springboard Research believes that these announcements mark Microsoft’s acknowledgement that its software business cannot remain primarily Windows desktop- centric and must evolve to incorporate both software and services, with the latter being delivered through online/web channels in the form of SaaS. So far, Microsoft’s reluctance to enter the SaaS market is understandable given that its entire business has been built around software products. But the realities of the market, as well as a need to help customers leverage existing MSFT-related software investments, have forced it to adopt a more pragmatic middle path by positioning its offerings as “software plus services”, as opposed to the software-as-a service (SaaS) positioning of net-native companies like, RightNow, NetSuite, and Google. Ironically, Microsoft’s pragmatic focus on a blend of on-premise and off-premise computing will ultimately prove to be the most likely scenario for most large and mid-size 2
  • 3. companies. Organizations will likey seek a mix of options when it comes to software hosting: at the customer’s premise run by the customer; hosted by Microsoft and accessed via the internet; or hosted by a third party. Even the most vocal SaaS providers, Google and Salesforce, have tacitly acknowledged that online presence is not possible for users at all times and have begun delivering offline variants of their applications. In Microsoft’s vision, the customer can consume its application as a product, service, or some combination of the two. The company’s strategy is to actively encourage customers through its pricing to blend the on presmise products and hosted applications for which it will rearchitect existing products. FOCUS POINT Microsoft’s software plus services strategy reflects its attempts to play catch-up in the SaaS market while simultaneously leveraging its massive software installed base as a competitive advantage. It is one thing to acknowledge that SaaS as an approach is critical to Microsoft’s software strategy, yet another to translate that realization into a consistent, executable vision by aligning network-centric software ‘services’ with its product strategy. Still in its beta stage, Microsoft acknowledges its online services strategy requires fine-tuning. Springboard Research believes Microsoft’s software plus services strategy remains a work in progress. The primary challenge Microsoft must address is pricing. The company must lure customers to its hosted applications (in part to blunt the growth of competitors) while not cannibalising its on-premise applications – still Microsoft’s cash cow. At the same, Microsoft must finalize a pricing strategy for its partners, who will be keen to ramp up sales and marketing activity as soon as possible. MARKET IMPLICATIONS As our previous forecasts and market reviews have shown, the SaaS market in Asia Pacific is experiencing a rapid phase of growth and gaining acceptance quickly. We expect SaaS applications to continue gaining share at the expense of on-premise software over the next five years at a minimum. Microsoft’s entry into the SaaS marketplace is a further validation of the SaaS market’s potential and viability. Although Microsoft is still finalizing its SaaS strategy and offerings (which the company continues to insist on calling ‘software plus services’), we expect Microsoft’s entry will trigger a rippling effect. This is especially true given some core Microsoft strengths: Microsoft’s enormous base of customers to whom it can upsell, huge 3
  • 4. mindshare among the developer community and a strong base of channel partners. As Microsoft’s SaaS strategy gets fleshed out further, the company’s strengths will help Microsoft compete effectively with net-native players, most of whom continue struggling to set up a channel strategy and establish their presence amongst the ISV community. CONCLUSION Microsoft’s software plus services strategy is a work in progress. However, the company appears committed to embracing the internet (and cloud-based computing) as a complementary software delivery approach. We expect Microsoft to struggle to reconcile its SaaS offerings and approach relative to its traditional, PC-based world view. With its recent announcement, Microsoft appears to have accelerated its presence in managed services. However, the company is still fighting a defensive battle relative to net- native upstarts (Google chief among them). Microsoft’s challenge is to execute a fine balancing act between it’s traditional PC-based revenue stream (and the massive margins that stream provides) and the market demands for more flexible, internet-based software design and delivery options. Its ability to manage this balancing act could very well determine the future of Microsoft itself. 4
  • 5. E-MAIL Sales/Marketing: Research: Careers: CONTACTS AUSTRALIA Level 12 1 Pacific Highway North Sydney, NSW 2060 Australia Tel: 61-2-9959-1926 INDIA NSCI Bhawan, STP Extension 2nd Floor, Okhla Industrial Estate New Delhi 110020 India Tel: 91-11-4051-8181 JAPAN Level 6, Gloria Building, 3-6-15 Kasumigaseki, Chiyoda-ku, Tokyo 100-0013 Japan Tel: 81-3-5251-3032 MOROCCO 219 Boulevard Kerktoni- 1er étage Résidence El Bardai Casablanca 20100 Morocco Tel: 212 22-36-15-56 PAKISTAN 4th Floor, Software Technology Park 5-A, Constitution Avenue, Islamabad Pakistan Tel: 92-51-282-8668 SINGAPORE 45 Club Street Singapore 069422 Tel: 65-6325-9716 U.S.A. 5201 Great America Parkway Suite 320 Santa Clara, CA 95054 U.S.A Tel: 408-730-2680 CHINA 3/F, North Tower, No.1 Guang Hua Road, Chaoyang District, Beijing 100020 China 86-10-6599-7916 Contacts