Microsoft and Software as a Service: Boom or Doom for MSPs?

I've been a big critic of Windows Vista. I've complained that Microsoft's products are too bloated for the Web 2.0 world. But as Microsoft pushes deeper into Software as a Service (SaaS) and managed services, I'm amazed by all the Microsoft partners who are expressing fear, uncertainty and doubt (FUD) about the effort.

Here's how I expect Microsoft's SaaS strategy to evolve, and here's the potential impact for managed service providers.

I guess it's natural for Microsoft partners to worry they'll be cut out of the sales and revenue process as Microsoft launches hosted applications. But let's be clear: Microsoft is not going to abandon its most important customer base. (Hint: That's you.)

Forget CIOs, business owners and consumers for a moment. Those audiences are not Microsoft's primary customers. The software giant's real customers are independent software developers (ISVs) and channel partners.

For more than three decades, Microsoft has used a tried-and-true strategy to build its business:

  1. Don't be first to market. Instead, "embrace and extend" third-party innovations.
  2. Focus primarily on independent software developers (ISVs) and channel partners first. Turn them into true believers, and you'll eventually connect with end-customers (consumers and businesses).
  3. Ship software that is "good enough" for now, and always share your long-term vision and road map for where your products are going next.
  4. Return to step 1 and repeat the entire process as you enter new markets.
Now, how will Microsoft's strategy evolve in the age of managed services and software as a service? Not much, I suspect.

Yes, the company will host Exchange Server, SharePoint, Dynamics and other applications as part of the Microsoft Online Services push. And some of those sales will surely involve direct engagements with customers. Some partners are nervous about this, points out CRN.

But overall, Microsoft will still need thousands of partners to add value to its platforms, even in the age of SaaS and managed services. That's why the company just inked a partnership with N-able, the managed service platform provider. And that's why Microsoft is working overtime to help partners host applications like Dynamics on their own.

In short, Microsoft cannot succeed against small, nimble SaaS companies (, NetSuite, SugarCRM, etc.) without the aid of partners. This will also be true in the managed services space, where VARs will implement a range of tools to monitor and optimize online applications.

Yes, there is going to be considerable pain for some Microsoft partners in the years ahead. Some Microsoft business is going to involve direct sales. Get used to it. And start finding ways to add value on top of Microsoft's hosted platforms.
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