Microsoft SaaS plan has image problem

It must fight problems with ambiguity in customer targets, strategy and products

Microsoft Corp. plans to make expanding its software-as-a-service (SaaS) strategy a priority in the next 12 months, but the company continues to suffer an image problem as it struggles to prove that it can compete in this new market.

Earlier this week, Tim O'Brien, a director in Microsoft's Platform Strategy Group, defined the company'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 in Boston. 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 strategy to the IDG News Service, saying Microsoft will continue to move deeper in the hosted services space, but not at the expense of its extensive software platform. He said that even pure-play SaaS companies such as Inc. see the need for both software and services, citing that company's client-based offering that is designed to allow customers to 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, O'Brien said. One 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, he said.

Microsoft has for several years offered Exchange as messaging software on the back end that feeds to the Outlook client on PCs, but it has recently been expanding the capabilities of Exchange through both multiclient 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 e-mail filtering, archiving and antispam.

Other goals for its software-plus-services strategy are to give customers more ways to deliver their own hosted services and 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), O'Brien said.

Microsoft's hosted services plan is not new. Companies such as, Yahoo Inc. and Google Inc. 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, 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 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 something of a misnomer. According to Burton Group Research Director Peter O'Kelly, Office Live is not actually a hosted version of Microsoft's popular Office product but is 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 stand-alone 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, Gartner Inc. analyst David Mitchell Smith said.

"I think they have to figure out a better way to explain it," he said. "There is a story in there that makes sense, and there is some really good stuff that they're doing, but they are having a very hard time explaining what that is."

O'Brien's comments Monday did little to clarify the situation, especially since he would not go into 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 attempting to refine and clarify its image as it seeks to steal both services and advertising revenue from its younger and more nimble competitors.

Copyright © 2007 IDG Communications, Inc.

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