Today, at a launch event in San Francisco, Stephen Elop, president of the Microsoft Business Division at Microsoft Corp., was joined by customers and partners to announce the availability of Microsoft Exchange Online and Microsoft SharePoint Online for businesses of all sizes in the United States. These subscription services offer businesses a new way to purchase, deploy and manage the industry-leading e-mail and calendaring solution, and the industry-leading solution for portals and collaboration.
Businesses can buy or try the new services at http://www.microsoft.com/online. As part of the Microsoft Online Services product family, Exchange Online and SharePoint Online are available separately or as a suite together with Office Live Meeting for conferencing, Microsoft Exchange Hosted Services and Microsoft Office Communications Online for instant messaging and presence.
A growing number of companies, from small businesses to large enterprises, are adopting Microsoft Online Services. In just the past year, Microsoft has sold more than a half million seats for Microsoft Online Services, including Exchange Online, SharePoint Online and Office Communications Online. New customers include Pitney Bowes Inc.; CG Healthcare Solutions LLC, an affiliate of Cowan, Gunteski & Co., P.A.; Clean Power Research LLC; Corefino Inc.; and Fair Isaac Corp.
In case it is not clear, these Microsoft Online Services offerings are merely managed hosting (aka remote outsourcing) by Microsoft of Exchange and SharePoint. They allow enterprises to run full fledged Microsoft server software without the expense of a full IT department complete with hardware. There’s nothing the matter with that and it is likely good business for all concerned except the Microsoft partners who used to provide similar managed hosting before the 800 pound gorilla entered the market. The partners do get the table scraps however:
Since July 2008, more than 1,500 companies have enrolled in the Microsoft Partner Program for Microsoft Online Services, with 100 more joining every week. These companies are realizing a wide range of revenue opportunity that spans reselling, migration, customization, consulting, training, support and application development, and integration services.
However, one downside for Microsoft is that the managed hosting business tends to be high in capital outlay and low on margins unlike Microsoft’s core software business. Apparently they are proudly undeterred:
Microsoft also outlined its plans to offer new solutions as a part of Microsoft Online Services in the next year. In addition to Office Communications Online, Microsoft is planning to offer a Microsoft Online Services solution that will provide IT management and security capabilities for businesses, enabling IT managers to secure and manage desktops using a Web-based subscription service. These online services will be based on components from existing systems management, identity and security offerings, and will complement Microsoft’s on-premise solutions, as customers begin to adopt cloud-based computing to address specific needs.
Despite the "c" word in the above nebulous description this future vision sounds like more managed hosting and not cloud computing.
Microsoft today unveiled two new Microsoft Online Services offerings, Exchange Online Deskless Worker and SharePoint Online Deskless Worker as well as a Deskless Worker Suite that combines the two. The target market is enterprises with workers who don’t spend their day in front of a computer or perhaps not even at a desk, but still occasionally need typical information worker computer services:
A Deskless Worker Suite, including Exchange Online Deskless Worker and SharePoint Online Deskless Worker, will be available for $3 (U.S.) per user, per month. Customers can also subscribe to each service independently. Exchange Online Deskless Worker will provide e-mail, calendars, global address lists, anti-virus and anti-spam filters, as well as Outlook Web Access Light for access to company e-mail. SharePoint Online Deskless Worker will provide easy access to SharePoint portal and team sites and search functionality, giving employees read-only access to important information such as company policies, training and benefits.
Microsoft is also targeting traditional information workers via an offering apparently named the Microsoft Business Productivity Online Suite:
For information workers, businesses can provide an online business productivity suite of Microsoft’s enterprise-class communication and collaboration software as a subscription service. The suite includes the following:
- Exchange Online for desktop and mobile e-mail and calendars with Outlook Web Access and full Office Outlook integration
- Office SharePoint Online for portals, collaboration, search and customized team sites
- Office Communications Online for instant messaging and presence
- Office Live Meeting for Web conferencing and videoconferencing
The suite will be available for $15 per user, per month (U.S.). Customers can also subscribe to each service independently.
As I have observed before, this (except for Live Meeting) is merely managed hosting of Microsoft server software and Microsoft’s venture into this market has always had the problem of undercutting partners who were offering equivalent hosting services before Microsoft Online Services was even a gleam in Microsoft’s eye (e.g. hosted Exchange). An obvious salve for the wound is to cut partners in on the deals and in that regard Microsoft also revealed some partner commission terms:
Microsoft Online Services creates a new opportunity for Microsoft partners to win new customers, increase revenue and boost sales velocity. Partners are seeing new opportunity to migrate, combine and customize Microsoft Online Services. In addition, partners that sell Microsoft Online Services will receive a recurring revenue stream for as long as their customer subscribes to the services.
Partners that sell the Microsoft Business Productivity Online Suite, Deskless Worker Suite or any of their components receive 12 percent of the first-year contract price and 6 percent of the subscription fee ongoing. This can translate into 18 percent of the subscription value in the first year of the partner’s relationship with the customer.
While not wildly lucrative, it is certainly better than nothing, and it allows the partners to focus on their particular value-adds while leaving the high-capital outlay/low profit margin managed hosting business to Microsoft. Who says Microsoft isn’t their partners’ pal? Presumably Microsoft’s fear of Web app providers and their perceived ability to defeat Microsoft managed hosting partners in the marketplace is what is driving Microsoft to make what seems like an unneeded and not particularly rewarding investment in Microsoft Online Services.
One final note – as far as I can tell, all of the Microsoft Online Services discussed above except for Office Live Meeting are still in beta although you have to read the fine print to discover that.
Update: Elsa Wenzel at CNET has a nice chart of the various offerings and their prices, and observes:
Exchange Online and Office SharePoint Online remain in beta, with final availability set for sometime in the second half of 2008, when Office Communications Online beta is also due. Microsoft plans for international availability in 2009.
Reuters’ Daisuke Wakabayashi snagged an interview with Chris Capossela (the Microsoft SVP in charge of Office) who delivers some startling prognostications about the future of Microsoft’s Exchange mail server:
"In five years, 50 percent of our Exchange mailboxes will be Exchange Online," said Capossela, who expects a portion of Exchange Online customers to come from customers switching from International Business Machines’ Lotus Domino system.
In case you aren’t familiar with it, Exchange Online is Microsoft’s not yet generally available offering of hosted Exchange to customers who would prefer to outsource the provisioning, maintenance, and operation of their Exchange servers. As I observed when the Microsoft Online Services nomenclature was announced, "this is just good old fashioned managed hosting," and Microsoft partners have been offering the equivalent of Exchange Online for years and are continuing to offer it despite Microsoft clearly having set their sights on the market. There’s probably room for some partners to survive alongside Microsoft, but not very much.
However, Microsoft’s venture into managed hosting carries with it the financial burden of all the players in the outsourcing game: high costs yielding stable high revenues but with low margins.
In a services business, the customer will pay Microsoft a larger fee, since Microsoft also runs and maintains all the hardware. But Microsoft’s profit margins may not be "as high," Capossela said, even though revenue may be more consistent.
The key for Microsoft will be to run its computers systems as efficiently as possible to reduce hardware costs.
"That’s where we make the business model work," said Capossela, 38, who worked in his earlier years at the company as a speech writing assistant for co-founder Bill Gates.
Spoken like a good outsourcer, but the question remains why Microsoft felt the need to get into this low margin business and squeeze out their partners who were already providing an equivalent service. The answer has to be fear of the Web app vendors like Google with whom they are already in competition and Microsoft’s inclination to do things themselves that they consider important instead of leaving them to partners. The canonical example of this is the tossing of the PlaysForSure partners under the Zune train.
Finally, Capossela refers to Exchange Online as "cloud computing" which was duly echoed by the punditry. While I concede that definitions of cloud computing are befittingly nebulous, most require that the computing resource be dynamically adaptive to changing demands and it is hard to see how outsourcing your Exchange Server to Microsoft really qualifies. On the other hand, if your prefer a big tent definition, then the Microsoft partners who will see their Exchange hosting revenues stagnate or dry up in the face of Exchange Online can extract cold comfort from the thought that they beat Microsoft by years in putting Exchange in the cloud.
While the last bullet isn’t a Web app, SQL Server Data Services is obviously a building block for constructing Web apps and could fill up some of the data centers that were also part of the rumors. The beta will be available in 3 to 4 weeks with a launch by the end of the year. Note that SSDS isn’t a full fledged hosted SQL Server or just a raw data store like Amazon’s S3. It fits in between as a simplified structured database service with the closest analog being Amazon’s simpleDB. It is early days yet, but one can’t help but wonder whether other major database vendors have the will (and the wherewithal) to join the party.
Finally, while they aren’t Web apps either, earlier last week Microsoft announced some more data center filler with the extension of their Microsoft Online Services offering of hosted versions of Exchange and SharePoint to small and mid-sized businesses.
Predictably, the press release is effusive in describing the opportunities for Microsoft partners, even those whose Exchange hosting services have been neatly undercut. The theory is that they can now sell Microsoft’s hosted service with a bunch of their own embellishments. Less happy are ISV’s who sell SharePoint add-ons that won’t appear in the Microsoft offering. There’s surely a pony in Microsoft hosting their own server applications, but it’s a low margin, capital intensive business compared to selling software.