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Microsoft was on the sidelines today as Apple launched their iPhone 3G around the world and the associated iPhone 2.0 software update, but Microsoft’s Adam Glick reminded everyone where the iPhone will be calling for numerous business users:
If you’ve not heard; Apple released iPhone 2.0 today which includes a software update to the existing iPhones in the market (yes, we mentioned it when it was announced as well). We’re thrilled to add them to the family of Exchange ActiveSync licensees that enable all sorts of devices to connect to Exchange Server. For those of you that manage Exchange Servers this means you may see some new devices connecting and we wanted to give you a few notes about what to expect.
Follow the link for details, but it is no surprise as it was announced back in March and it is still good business for both parties.
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.
Today Apple announced the iPhone 2.0 software beta with a variety of business-use features including support for Microsoft Exchange email users. Terry Myerson, Microsoft’s corporate vice president for Exchange explains:
We’re happy that Apple is adding the iPhone to the growing number of mobile devices that connect with Exchange Server. As part of a business agreement with Microsoft, Apple will build Microsoft Exchange ActiveSync into the iPhone – making it possible for iPhone owners to access Exchange and take advantage of its secure mobile communications features.
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The Apple iPhone is one of those popular devices that now join the long list of smartphones able to connect to Exchange. This is one of those win-win propositions in that it helps us serve iPhone users, and it helps Apple serve the needs of the enterprise.
Myerson takes pains to explain how Apple and Microsoft can both cooperate on Exchange access and compete in other areas simultaneously, but it isn’t a surprise - both are big enough with enough breadth of product that it is inevitable.
Last Thursday, Microsoft released Service Pack1 for Exchange Server 2007. Aside from the usual fix roll-up, there are a variety of enhancements including:
Paul McDougall reports at InformationWeek that the government of the State of California is examining a move to hosted email and calendaring for state employees and it’s a Google vs Microsoft faceoff for the business:
California is looking at moving its e-mail, messaging, and calendaring systems to a hosted service … and the contract could land in the lap of either Google (NSDQ: GOOG) or Microsoft (NSDQ: MSFT), InformationWeek has learned.
It’s a choice that could affect a quarter of a million state workers and create a multimillion dollar revenue windfall for one of two major technology vendors. The state already has formed a working group to weigh the possibility of shifting to an online software service and how that would be handled either by Google or Microsoft.
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Documents generated by the working group show that California would expect to pay Google about $4.17 per user, per month, for basic e-mail hosting, messaging, and calendaring services with no setup fees. Exchange Online, by contrast, would cost the state a one-time setup fee of $17.65 per user, and an ongoing, per-user fee of $8.59 per month.
Ellison called the figures “ballpark” numbers. “We haven’t done any serious negotiating yet” with Google or Microsoft, he said, noting that about 250,000 California state workers are regular e-mail users. “We’d expect very competitive prices if we go forward,” said Ellison.
John Ellison, technology officer for the California Resources Agency and chairman of the working group also indicated that the current in-house Microsoft Exchange systems are comparable in cost to the hosted Microsoft Exchange offering, but inferior is some ways.
There will inevitably be jousting over features, but I think it is clear that Microsoft will not be able to maintain a price differential like that described as more and more of these head to head competitions with Google crop up. That means that Microsoft’s server software revenues just sprang a slow leak. And, of course, once Google gets its nose in the tent can Google Docs and a Microsoft Office revenue hit be far behind?
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