Confirmed: Microsoft Cuts SaaS Pricing
The VAR Guy’s sources were right. Microsoft’s Business Productivity Online Suite (BPOS) team has cut SaaS (software as a service) prices on multiple applications — including Microsoft Exchange Online, Microsoft SharePoint Online and Microsoft Office Communications Online. Some pundits suggest it’s the start of a SaaS price war with Google Apps. Here’s the scoop, and the implications for channel partners.
First, some background. The VAR Guy heard rumors in recent days that Microsoft was planning a SaaS price cut in response to heightened competition from Google Apps.
Microsoft has now confirmed the SaaS price cuts. According to a Microsoft spokesman:
“Thanks to rapid customer adoption, global scale and improved efficiencies from new software such as Exchange Server 2010, Microsoft is reducing the price of the Business Productivity Online Suite from $15 to $10 (U.S.) per user per month. This price reduction includes Microsoft Exchange Online, Microsoft SharePoint Online and Microsoft Office Communications Online.”
Time for all VARs — not just Microsoft channel partners — to take a deep breath and consider the following: Has a SaaS price war started with Google Apps? And if so, will channel partners feel their own SaaS margins squeezed?
Microsoft’s Position
Microsoft is quick to note that more than 7,000 channel partners back Microsoft’s SaaS offerings — including Microsoft Online Services and BPOS. No doubt, some early BPOS partners say they’re profiting from BPOS. And other Microsoft channel partners say they’re embracing Windows Azure, Microsoft’s Windows-based cloud system.
But did the rules of the SaaS game just change? “If you’re a reseller agent for BPOS, your price-per-user is going down so your potential profit dollars per user also look like they’re falling,” says one BPOS channel partner. “I can’t help but think this is the start of a price war with Google, and partners like me are going to get squeezed.”
The VAR Guy has an email into Microsoft requesting an update on the BPOS commission model for VARs and channel partners. Our resident blogger has also reached out to he Google Apps team for comment.
Also of note: The VAR Guy wonders if or how Microsoft plans to adjust SaaS pricing to service provider partners like Apptix, Intermedia, mindSHIFT, Rackspace Hosting and SherWeb Inc. — which cooperate and compete with Microsoft’s BPOS offerings.
Tricky Spot
In Microsoft’s defense, the company is in a tricky situation.
On the one hand, Microsoft must price its SaaS services aggressively in order to gain mind share and market share against startups like Zoho, giants like Google Apps, disrupters like Yahoo’s Zimbra open source email, and a growing list of virtualized applications moving into public clouds like Amazon Elastic Compute Cloud and RackSpace Cloud.
But on the other hand, Microsoft is striving to remain loyal to thousands of channel partners that made Windows desktops and servers corporate standards in the 1990s.
The big question: Can Microsoft sell SaaS direct and indirect while helping VARs to remain profitable?
Going Global
As channel partners consider the situation closely, Microsoft is expanding its SaaS strategy globally.
Later this week, Microsoft says, the company will expand the availability of the Business Productivity Online Suite, including commercial availability in Singapore and trials in Brazil, Chile, Colombia, Czech Republic, Greece, Hong Kong, Hungary, Israel, Malaysia, Mexico, Poland, Puerto Rico, Romania and Taiwan; commercial availability in India is also expected later this year.
According to a Microsoft press statement:
This will bring availability to a total of 36 countries and regions, making this the only cloud-based solution that is truly ready for global business.
The VAR Guy will continue to watch the situation closely. And he’s working hard to keep an open mind: If you’re a BPOS or Windows Azure partner that wants to describe your business momentum, The VAR Guy is all ears.
In the meantime, The VAR Guy thinks Microsoft just fired the first shot in a potential SaaS price war.
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VAR Guy, a tip of the hat. You were all over this one.
Microsoft is desperately trying to keep Google from eating its corporate lunch, and MS’s partners are merely collateral damage. What theyve done is bad for the industry: commoditized a key product, killed their partners’ ability to survive and forced partners to become a mere sales outlet for MS products and services. No credible VAR would touch this offering.
gt; … consider the following: Has a SaaS price war started
gt; with Google Apps? And if so, will channel partners feel
gt; their own SaaS margins squeezed?
Microsoft and Google may price-war each other, but they have plenty of fat on their service as (IMHO) their support is thin on the ground. They make a one-product-fits-all-or-you-can-go-away service.
Smaller SaaS players provide much better support as every single customer really does matter. There’s little-to-no fat to cut there, so I wouldn’t expect a price-war that pinches channel partners.
MSPs onselling SaaS solutions from the big end of town will be squeezed as the giants go to war, but there is and always will be profits to be made from smaller SaaS providers. MSPs, like any business, need to make sure they have eggs in more than one basket. Make sure your customers have other services that can cover the margin squeeze from the big boys.
Frankie: Thanks for the note.
Mark: The VAR Guy will withhold judgment until Microsoft has a chance to discuss its margin strategy for resellers under the new pricing model.
Rick: Keep The VAR Guy posted as you consider which baskets to put your eggs in.
Hey VAR Guy, make sure you discuss with Microsoft the relationship between the upgraded margins on the BPOS versus the unchanged price on the SPLA and Open license side. It’s no just BPOS Then versus Now discussion–MS is hoping that you’d limit your analysis to Then versus Now, rather than dig into the issue.
Mark: The VAR Guy has been trading email with Microsoft today and plans to post an update by Wednesday (if not sooner). The VAR Guy will try to raise some of the questions you mentioned.
Another great insight reading your article – is the point on WHEN Microsoft will move Azure into the battle of vCloud and Amazon. Announce that and you probably have a winning lotto ticket…
Jacob: You’re on the mark. If Microsoft gets a critical mass of ISVs on Windows Azure, it would be quite a cloud story worth watching…
MS is making a big mistake, dropping prices in almost half says to me the BPOS and MS online program is not working for them. With MS if it doesnt make a crap load of money quickly its a bust, so the price drop is dead on about this. When you squeeze out VARs, MSPs, and companies that resell hosted exchange – you bit the hand that feeds you!! I highly doubt google apps AKA Gmail for enterprises! LOL is why they did this, its only GREED my friends AKA Bernie Madoff
This makes no sense to me. If greater efficiences actually exist, why not plow the extra money back into the product or channel? Selling a SaaS product on price is a scary prospect for an enterprise offering. MS has thousands of successful installations globally of the licensed versions. If the SaaS offering has value, it seems to me the point of a service is to sell on value delivered, not price. If the service is not delivering, look at the value to the end user and figure out what will make it more valuable.
Honestly, the price is already low. The per user cost is less than three cheap lunches a month. Is the productivity in these products not orders of magnitude greater than that? As the price is lowered, what is happening to the installed base? Is this eating a paid for cash cow in the long run? Will the adoption curve really meet the licensed profitability in a positive way? or are we just guessing with a whole lot of partners key assets?
To me this does not bode well for MS in the cloud/SaaS market. If they are valuing numbers of adopters more than their lifetime value as subscribers, they have missed the point. If users are not satisfied, MS and VARS will never recover their cost of customer acquisition. Customers will move to whatever they perceive to be the better value, nevermind the price.
The barriers are orders of magnitude smaller than we’re used to in the licensed market.
Just my two cents.
MSreseller@9, Mike Dunham@10: Thanks for weighing in. Most of the email The VAR Guy has received from readers indicates growing SaaS concern among Microsoft’s channel base. But a few readers have sent The VAR Guy notes that defend Microsoft.
Our resident blogger will try to deliver a balanced follow-up later this week. In the meantime, thanks for the continued comments.
-TVG
As I have previously commented about reseller programs for cloud services:
“The primary benefit to this approach is the minimized investment needed to get to market. The primary risk to this approach is vendor or technology lock-in, which over time may dictate how a VAR does business.”
It sure looks like this risk is manifesting sooner than later for VARs in the case of BPOS.
I don’t think MS partners need to be particularly worried. BPOS is the kind of product that needs implementation and other support, and a lot of people will be looking MS partners to provide this support. If this price cut pushes up enterprise demand, MS partners may also see increased demand for their services.
We did the following features/cost comparison of BPOS and Google Apps from an SMB perspective – http://www.hyperoffice.com/google-apps-vs-microsoft-bpos/