News

Microsoft and Google Square Off for Long-Term SaaS Battle

• By Kurt Mackie
• March 04, 2008

First, Microsoft rolled out betas of its Exchange Online and SharePoint Online Web services, which are part of the Microsoft Online Services offering. Organizations of all sizes will now be able to access these services. Prior to this announcement, Microsoft had just provided them to organizations with 5,000 users plus. Now, the company is signaling its interest in supporting hosted services for the small-to-medium business (SMB) market.

The second announcement was the full beta rollout of Microsoft Office Live Workspace (OLW), an online suite of tools enabling collaboration.

Microsoft OLW is frequently cast as a competitor to Google Apps, since both solutions offer online e-mail and workspace storage, plus collaboration using less-than-full-featured word processors and spreadsheets. Competition at the level of the cloud-based productivity suite is still in its early stages, and other players, such as ThinkFree and Zoho, offer alternative hosted solutions, but Microsoft and Google tend to get the attention.

However, whether enterprises will widely adopt online productivity suites, such as Microsoft OLW or Google Apps, still remains to be seen.

"Adoption of Google in the enterprise has been sparse to date," stated Rob Koplowitz, principal analyst at Forrester, in an e-mail. "They continue to build out functionality and address enterprise concerns regarding stronger security and authentication. Microsoft’s announcement regarding SharePoint and Exchange on-line certainly validates the model of delivering business functionality in the cloud."

The battle rages on, however. Last week, Google release Google Sites, a wiki based on the company's Jotspot acquisition that is now part of Google Apps. According to a TechCrunch article, "Google’s Management Director of Enterprise Matthew Glotzbach called the combined products under Google Apps a 'Microsoft Sharepoint killer'.”

Business Model
Microsoft's revenue stream largely depends on its business customers, although there's some money to be made from advertising on the consumer side, explained Mark Levitt, an analyst with research firm IDC. Levitt described Google, with its free online apps, as more of a long-term threat to Microsoft.

"Microsoft's business model is based on charging for value," Levitt said. "So they are not going to follow Google's example entirely and say software should be free and we will essentially give away all of our intellectual property as a competitive hammer against Google."

Software as a service (SaaS) appeals to companies that don't want to run their own software, which entails maintaining a support structure. And it's not just smaller companies that could benefit from hosted solutions.

"Software as a service, when it first came out, people assumed it would be most appealing to small businesses because small businesses don't have the IT resources to run their own datacenters," Levitt explained. "It turns out that most of the early software-as-a-service customers were actually groups within large enterprises. They couldn't wait for their IT departments to deploy the solutions they needed, so they went outside their organization to software as a service."

Software as a service will gain inroads into the SMB market, particularly with regard to e-mail provisioning, according to Matthew Cain of Gartner.

"We believe that 20% of enterprise e-mail seats will use a SaaS provisioning model by 2012, compared with 1% in 2007," stated Cain in news analysis, "Microsoft Matches Google With SaaS for E-Mail/SharePoint."

Partner Involvement
Many of Microsoft's partners already offer hosted Microsoft applications to their customers, and Microsoft provided some case studies with its announcement. Yet partners are still somewhat at pioneering stages when it comes to monetizing Microsoft's Software Plus Services initiatives.

"We believe that the partners that can do this [Software Plus Services] successfully will be the ones that survive in the long run," stated Kevin Doherty in an e-mail. Doherty is the CEO of Phase 2 International, a provider of customized solutions to SMBs and a Microsoft Gold Certified Partner.

"If you are simply offering out-of-the-box software and reselling it, you can expect to be a commodity in the near future," he added.

Phase 2 has taken a number of steps to customize Microsoft's products for its clients, including developing a SharePoint plug-in that helps customers manage their AutoCAD files.

"We continue to believe that by offering a suite of applications, training, customization and a single contact for support is what the average customer is looking for," Doherty said.

IDC analyst Levitt viewed Microsoft's move toward supporting small-to-medium customers with Exchange Online and SharePoint Online as a long-term branding and competitive issue.

"This is a perfect example where they don't have to be doing this," Levitt said. "They could be relying on their partners more to be successful. But they are recognizing that to beat Google in the long term, there needs to be a Microsoft brand associated with this in a way that's more direct than just relying on hosting partners."