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 Channel Futures

MSP 501


Five Reasons Microsoft Will Get SaaS Right

  • Written by The VAR Guy 1
  • July 7, 2008

Is software as a service (SaaS) killing Microsoft? Hardly. Stephen Elop, president of the Microsoft Business Division, is expected to discuss SaaS during his July 8 keynote at the company’s Worldwide Partner Conference in Houston. But even before Elop takes the stage, here are five reasons why Microsoft won’t lose the SaaS wars.

1. Cash (and lots of it): During a recent quarter, Microsoft generated more than $50 million in net income per day. Do some quick math, and you’ll find that it takes Microsoft three hours to exceed Salesforce.com’s entire quarterly net income, according to The VAR Guy’s own analysis.

Microsoft can take those profits and plow them into SaaS R&D faster than nearly any company on the planet.

2. Exchange, Dynamics and SharePoint (oh my): From big companies like Ingram Micro Seismic to small managed service providers (MSPs) like Azaleos, many Microsoft partners are already hosting Exchange, Dynamics and SharePoint, and charging customers a monthly fee for those hosted services.

3. Partner Investments: Microsoft’s partners are buying one another in order to offer hosted Microsoft applications. Recent examples include Tribidge buying Productive Gap and mindSHIFT buying Collaboration Online. Those deals would never happen if partners thought Microsoft’s SaaS strategy will fail.

4. eBusiness All Over Again: Remember when eBusiness was the rage in the 1990s? Lots of pundits predicted eBusiness application start-ups would topple Oracle, SAP and Microsoft. But those three application providers eventually figured out the world of Internet applications. The same trend will repeat itself with SaaS.

5. Channel Sales: The vast majority of Microsoft’s sales occur through channel partners (PC makers, integrators, consultants, service providers, etc.). Microsoft will be tempted to sell many of its SaaS services directly to customers — eliminating channel partners in the process.

But ultimately, Microsoft will strike a balance with partners because Microsoft can’t afford to alienate the very people who have promoted its software for so long. That’s why Microsoft will give partners a piece of the SaaS action, notes TechTarget’s ChannelMarker blog.

Sure, Microsoft’s SaaS strategy will face plenty of threats. Most notably, a large portion of the SaaS industry is shifting to open source-based solutions, such as SugarCRM, MySQL and Linux.

Still, dismissing Microsoft in the SaaS market would be a foolish move. When Stephen Elop takes the stage at Microsoft’s Worldwide Partner Conference on July 8, we’ll see the next chapter in Microsoft’s SaaS strategy begin to unfold.

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7 comments

  1. Avatar Ken July 8, 2008 @ 4:31 pm
    Reply

    MSFT SAAS won’t happen overnight. I think we’re looking at a three to five year transition with a lot of pain for both microsoft and its partners. We’ll read about partners getting irate and microsoft taking some business direct. But time will sort this out. And microsoft will find common ground with msps.

  2. Avatar Nick Vossburg July 8, 2008 @ 4:46 pm
    Reply

    Joe,

    I agree with your post. I think Microsoft’s recent announcement as well as the forewarning about SaaS to partners at last year’s conference clearly shows Microsoft’s intentions to become a SaaS player or possibly even a ITaaS (IT As A Service) player.

    I don’t see how they can afford not to… Google’s intentions are very clear, in 3-5 years with continued development they should have a business productivity suite that is comparable to Office, maybe not as advanced but it will accomplish 95% of the daily requirements of an office worker.

    So that leads me to the question…what reason would a small business have to purchase and maintain their own infrastructure?

    Storage? Online storage is getting cheaper by the day, Google now offers up to 400GB for $500 per year. That’s 10 cents/GB per month!

    Email/Groupware? Easy argument to make that hosting your own email server doesn’t make a whole lot of sense compared to a hosted datacenter solution.

    Office Applications? Customer Industry/Vertical Apps? With Application Presentation and Streaming, why host apps on the desktop? You can achieve better control, security, and management of licensing and assets through virtualization, presentation, and SPLA. In addition, The vast majority of those Independent Software Vendors are developing or have plans to develop SaaS offerings of their products. Look at the MSP industry, ConnectWise, Autotask, N-Able all have web versions of their products.

    So what’s left? Clearly not much when it comes to the typical infrastructure requirements of a small business.

    The question every MSP must ask is how to stay ahead of the game. If your business’s focus is maintaining and supporting Microsoft networks, then be prepared for a market that may not exist in 10 years.

    That’s why you see the major MSPs, like Mindshift, making acquisitions of hosting providers NOT other MSPs. It’s all about hosting.

    If you’re worried about customers not understanding or embracing this model, I can tell you from personal experience that we were very surprised to see even our largest clients embracing this concept. But then again, it makes sense since our customers didn’t have a choice between hosting IT or building their own infrastructure. They were forced to, and most businesses want to get on with the business of their business, not IT.

    I believe, as an industry, we need to start having a conversation about what’s next and how WE can map out our future, rather than have our future dedicated to us by our former “partners”. I hope what you started here today Joe becomes the forum for that conversation.

  3. Avatar Joe Panettieri July 8, 2008 @ 6:29 pm
    Reply

    Hey Nick: You stole a little bit of my thunder (in a very good way).

    I think your line stating the following was right on the mark: “If your business’s focus is maintaining and supporting Microsoft networks, then be prepared for a market that may not exist in 10 years.”

    My advice would be for MSPs to follow the open source world very closely. I’m not referring to Red Hat or Novell. Rather, look at the application providers like OpenBravo, WordPress, SugarCRM and Digium. They will provide clues about how collaborative systems will evolve — and the types of components MSPs can snap together into managed solutions.

    Look at it this way: MSPmentor isn’t a managed service provider, but we are a small business. And we run our entire operation on open source solutions hosted in a data center.

    I’m not suggesting that open source is always better than closed source. But the pace of innovation accelerates when people are free to tinker with code on their own, then contribute back to community.

    Your point about MSPs acquiring hosting providers also is an interesting one. I think one of the biggest questions MSPs face is whether to build a data center, acquire one, or simply turn to a master MSP.

    As an industry observer, I sense that the small hosting providers will eventually get squeezed by the big boys and the big software companies themselves. But that’s pure speculation on my part.

    The good news in all this: Data continues to double every 12 to 18 months, which means SMB customers are going to have plenty of content headaches for MSPs to fix for years to come.

  4. Avatar Darren July 18, 2008 @ 1:56 am
    Reply

    All are valid points that you mentioned above. In particular, I think no.5 stands out the most.

    Microsoft has championed the partner sales channel and we’ve seen it time and time again; how they’ve leveraged their partners to leap frog the competition.

    Take for example: Internet Explorer.

    In this case, they’ll leverage their partners who have expertise in a specific vertical. These are the partners that have developed strong relationships with their customers and the industry and will ultimately convert many customers to Microsoft’s Online Services.

  5. Avatar Joe Panettieri July 18, 2008 @ 2:13 am
    Reply

    Darren: Agreed but isn’t going to be easy. This is going to be a multi-year journey where Microsoft discovers what works — and what doesn’t — with SaaS. The result will likely be some disgruntled partners over the short term. MSFT will need to learn fast, gather partner/customer feedback rapidly, and adjust accordingly to show it remains committed to partners.

  6. Avatar Tom August 5, 2008 @ 9:23 am
    Reply

    microsoft is creating an interesting new market – saas for big enterprises. its new offerings are not for the small businesses. they wouldnt have the expertise to deploy the “productivity suite”. solutions like hyperoffice which are ready to use, and have all relevant collaboration and messaging features for this segment are a better bet.

  7. Avatar Joe Panettieri August 5, 2008 @ 9:50 am
    Reply

    Tom: I’m not sure I agree that MSFT’s new SaaS offerings only target big business. Traditional MSFT software has long ruled small business. There’s no way MSFT’s SaaS team is going to overlook the SMB opportunity.

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