In-Depth

Putting the Right Brand on Hosted Messaging

With a new Ready to Go Campaign, Microsoft aims to help hosters and VARs sell full-featured e-mail services to small businesses. It's an appealing opportunity, but trust remains an issue.

• By Scott Bekker
• May 01, 2009

The RTG is called Microsoft Communication Services. RTG materials, such as marketing collateral and demo videos, were quietly made available on the Microsoft Partner Portal for U.S. partners in January.

In addition to creating another campaign using the popular RTG template, Microsoft officials think they've hit on a successful message with the Communication Services theme that could break through some of the challenges of positioning hosted messaging and collaboration services for small business customers.

"Using Microsoft Communication Services allows us to unify the branding, so we don't have to talk in abstract terms like hosted messaging," explains Greg Olsby, industry manager, Worldwide Software plus Services, Microsoft Communications Sector.

As many as 65 percent to 70 percent of U.S. SMB customers use Microsoft Outlook, according to Microsoft research, but most tend to use Outlook as a front-end for simple POP mail accounts. "From a messaging perspective, Exchange and SharePoint are very well-known in the enterprise space and among IT. The vast majority of SMBs don't have that same understanding. What we're trying to do is focus on the key pain points that they're feeling," Olsby says.

The new marketing materials focus on the capabilities that the hosted services provide, rather than the server-based technologies that enable those capabilities. A marketing diagram for Communication Services mentions Microsoft Office Outlook 2007, but no other Microsoft products. Instead, it shows the devices SMBs use -- a cell phone, a PC, a regular phone and a Web browser -- and then it shows the functions that Communication Services will allow. They include Outlook e-mail, Outlook fax, Outlook voice mail, contacts, appointment requests, tasks, document sharing and document search. One tagline promises to "Simplify Your Business Life." Another tagline offers: "Integrated Company Communications/Access on the Go/Professionally Delivered."

At a recent Microsoft Hosting Days event for Microsoft partners in Reston, Va., a Microsoft presenter told attendees, "We intend to use these terms on a global basis for many years to come."

The new approach has two audiences within the Microsoft channel community. The first audience, and the one which must adopt the new terminology and programs in order for them to take off, are the 2,000 hosting partners worldwide that offer hosted Exchange. The second Microsoft Partner Program audience is smaller VARs, some of which already resell hosted services offered by those hosting companies, and others who don't yet. A benefit of the new approach, as opposed to the Microsoft Business Productivity Online Suite that's also a through-partner S+S offering, is that the new RTG materials don't interfere with existing private-label approaches. Additionally, Microsoft is not involved in directly billing customers.

A Comcast Pilot Program
The term "Microsoft Communication Services" has been in use for more than a year. Microsoft piloted the approach with cable giant Comcast Corp., at the time the second-largest broadband provider in the United States with about 12.4 million high-speed Internet customers.

In announcing the partnership in November 2007, Comcast Business Services President Bill Stemper explained how Comcast would pitch the service, which was being bundled at no additional cost with its business Internet service. "Now, as part of their Comcast high-speed Internet service, [small business customers] can quickly schedule meetings, share a common address book, or easily share or review important documents, which benefits the entire business," Stemper explained. Added Microsoft Communications Sector General Manager Michael O'Hara: "Comcast is helping remove the traditional barriers that have kept SMBs from adopting these tools in a meaningful way."

Olsby declines to provide numbers on the progress of the Comcast pilot. "I can't share numbers, but it's been very effective," Olsby says. "That proof point is what emboldened us to move forward with a broader program."

'Tens of Millions'
Microsoft sees a huge market for hosted messaging services offered by SMB partners, and hopes the Communication Services messaging will crack that market wide open.

"Think of Communication Services as a marketing vehicle," Olsby explains. "This isn't a technology. These are marketing tools that will help those partners that have put together a solution based upon things like Exchange, SharePoint and Office Communications Server. They can reduce the cost on collateral and marketing campaigns. It will make it easy to communicate. And when a partner has a win, we'll make sure that we can leverage the learnings and the successes for the broader community," he adds.

Right now there are 2 million users of hosted Microsoft Exchange, using the full MAPI-based capabilities such as shared calendars and shared tasks. Microsoft estimates that there are 180 million to 200 million e-mail users in SMBs worldwide. "We ought to be targeting tens of millions of users, not millions," Olsby says.

Microsoft's understanding of the types of SMB companies that might be interested in a hosted solution is expanding, as well. Originally the sweet spot was companies with fewer than 100 seats. But more and more customers with up to 250 seats, and some with up to 1,000 seats, are interested in getting out of the Exchange Server management business.

Olsby expects to have about half a dozen U.S.-based hosting partners using Communication Services by the WPC launch. "We've seen interest at every level. If we could get 100 hosting partners over the next five years, I'd be very happy," Olsby says.

If some larger hosting partners are among the participants, the math of the addressable market grows pretty large pretty quickly. Many of the hosters in the top tier, as defined by size, already reach the SMB market through value-added resellers, who resell private-label messaging solutions.

"Eventually, we'll find that more resellers are using this Ready to Go campaign than hosters, just because of the multiplier effect," Olsby predicts.

Olsby is aware that driving customers toward the cloud cannibalizes other parts of Microsoft's business. "Will it have an impact on Small Business Server? I think that Software as a Service and Software plus Services will have an impact on all of our server products," Olsby says. "That's why we're putting so much effort on the cloud."

He also acknowledges that some customers will want to buy directly from Microsoft, but says that it's usually in Microsoft's interest to go through partners to reach SMB customers.

"Our research indicates that the likelihood of a customer buying hosted Exchange or SharePoint is considerably higher when they buy from a partner and when they're aware that Microsoft technology is involved. Very few SMB customers actually buy directly from us," Olsby notes.

The reaction of an executive at one large hosting company, which is not yet involved in the program, suggests that Microsoft will face some challenges in trust both from hosting partners and from VARs. The challenge stems not from the merits of the new program, but instead from Microsoft's announcement last July of the Business Productivity Online Suite, its related direct-billing of customers and its messaging packages that were hosted in Microsoft's data centers.

"Not only did Microsoft alienate some of the hosting providers by saying 'We're going to compete with you,' but they also alienated a significant number of VARs by saying, 'We're now going to compete against you with an alternative SaaS model,'" says Doug Howard, president of USA.NET, a Gold Certified Partner based in Milford, Conn. "It confused the marketplace and really upset a lot of the VAR channel."

GroupSPARK, a Burlington, Mass.-based hosting company offering private-label SaaS both direct and through its reseller channel, will take advantage of bits and pieces of the RTG campaign, says Senior Executive Officer Bill Flynn.

"I think, in general, it's a great program," Flynn says. "Obviously the might of Microsoft and the resources they have to do some research and bring that to a hosting provider has a great value.We would take a lot of that information, and customize it to our own messaging that we've crafted."

Flynn adds that the demo videos Microsoft has created as part of the campaign are of great value to his company. While groupSPARK is one of the largest Microsoft partners doing hosted Exchange, SharePoint and Dynamics CRM, the company's resources for creating high-end videos are no match for what Microsoft can do. "People are moving toward a visual representation of things. They like to see how the products work together," he says. The Microsoft videos could be especially helpful for the less technically savvy customers who have been showing a growing interest in SaaS solutions lately, he adds.

With a channel of private-label VARs, groupSPARK is exactly the kind of hosting company that Microsoft has in mind when it describes the RTG campaign as a benefit for both hosters and their VARs. But Flynn isn't sure yet that it makes sense for groupSPARK to push the Microsoft materials out to his channel. "My inclination is we would use it for ourselves. There are some of our partners today that are also Microsoft partners that are aware of this, and we may talk to them," Flynn said. "But it is a very Microsoft-focused message. We certainly leverage a lot of Microsoft products, but we don't only leverage Microsoft products. We want the marketing to be about [our partners and] groupSPARK."