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Software as a Question Mark (Saa?)

The mystery is what how Microsoft plans to handle the online counterparts to its service offerings.

• By Paul DeGroot
• December 01, 2007

Microsoft Online provides hosted versions of Communications Server, Exchange and SharePoint, and it will be limited to enterprise customers with 5,000 seats or more. Microsoft says its online servers are the "same great technology" that customers will find in the 2007 on-premise versions of these programs.

Really?

The Microsoft Online services are what my colleagues and I ironically call "plus" versions, after a version of an MSN client, called MSN Plus, which had fewer features than other versions. In this case, the most notable features offered by the 2007 on-premise versions of these programs aren't available in the online versions.

For example, the big new feature of Exchange 2007 is the unified inbox, with e-mail, fax and voice mail stored in one place. But it's not in the online version. How about the voice over IP features of Communications Server? AWOL. SharePoint's hosted spreadsheets, enterprise search, and access to back-end business data through the Business Data Catalog? Nope.

To be fair, many of the missing technologies would be difficult to implement online. Services such as VoIP or enterprise search will work far better with local servers sitting in a data center on a gigabit network than they will if they're multiple hops away over a WAN.

Although some 2007 features are available online, for most practical purposes these are functionally the previous versions of Exchange, Communications Server and SharePoint. One obvious motive is that the online services are less likely to cannibalize on-premise license sales if they don't offer the full feature set.

A second mystery is why Microsoft calls this a step on the road to S+S. As far as I can tell, this is basically hosted Exchange, Communications Server and SharePoint, of the type that any Microsoft partner who signs a Service Provider's License Agreement (SPLA) can do at any time.

In the canonical version of S+S, a service accessible over the Internet complements local clients and servers. Office Live Workspaces, announced at the same time as Microsoft Online, is a decent exampleÑyou collaborate on documents stored on the Internet, using Microsoft Office. It is neither original nor the best, but it is undeniably a "service" that makes "software" more useful. In contrast, Microsoft Online simply takes your servers and puts them in a remote data center. We've been there, done that.

What it really tells us is that Microsoft is still struggling to define how it's going to make the transition from local, licensed products to remote subscription services.

Third, I haven't figured out the market for this product. Microsoft says that it's pitching the service at enterprises with 5,000 or more seats, but the Microsoft Managed Services beta of this service attracted only a handful of clients. The sweet spot for most Microsoft hosting partners is the company with 50 to 2,000 employees. I have a feeling that they don't do many 5,000-seat customers not because they can't, but because there aren't that many customers of that size who find it more efficient to outsource messaging than to do it themselves.

I do think Microsoft Online should make partners nervous, precisely because it's very close to the services that partners provide and even includes BlackBerry support, something that many Exchange hosters didn't expect from Microsoft.

But Microsoft Online raises so many questions, I'd deduce that we're not seeing what Microsoft will ultimately deliver in this space. Until then, partners can contemplate what could be a genuine opportunityÑfilling the holes in the services that Microsoft Online offers.