Directions

New Wisdom for Old Services

As Microsoft moves into the online hosting space, partners need to pay close attention to not only what the company is saying, but what it's actually doing as well.

• By Paul DeGroot
• May 01, 2008

Never say never. Watch what they do, not what they say.

The first is explicit Microsoft policy, stated more than once by senior executives when partners ask Microsoft just how far it will extend its business. In the pre-Internet (and pre-U.S. Department of Justice antitrust trial) days, a Microsoft executive was once asked how much of the desktop-application market the company wanted. The answer: "100 percent." Pretty clear, isn't it?

More recently, the answer to that same question has been along the lines of "there's nothing that we'll say that we won't do." That doesn't necessarily mean that Microsoft executives plan on doing everything -- but if they don't, they're not telling.

The second proverb -- about paying more attention to action than to words -- comes to mind as I watch Microsoft move steadily into the online hosting space.

It initially cracked open the door by offering "experimental" managed services with Energizer and a few other companies that Steve Ballmer said might go to, oh, say, a half-dozen customers.

Last fall, it knocked down the door, saying the services would be available to any customer with more than 5,000 seats. And in February, it stormed through the doorway, saying that two levels of service would be available to customers of any size.

We probably won't know for awhile about the critical financial details, such as how much Microsoft will charge for the service or how much of a cut, if any, partners will get. At this point, those details are still on the drawing board -- but when I suggested that Microsoft might charge $30 a month for the service (hosted Exchange, SharePoint and Communications Server bundled as the "Business Productivity Online Suite"), I was told by someone up at Redmond that my number was "way too high."

There's also uncertainty about how well the online-hosting service will work. A beta is available now, but Microsoft won't launch the service until next fall, and the instant-message functionality won't be available for the low-end level of the service until 2009.

Here's why I think all this spells trouble for partners -- for hosters in the short term, and possibly for other partners in the longer term:

First, Microsoft has frequently used its immense cash reserves to suck the air out of a market that it wants to dominate. This company, which literally makes more money than it knows what to do with (shareholders, schmareholders), can easily afford to take a product that other people sell and make it free. Microsoft doesn't make money when it does that, of course -- but when the dust clears, Microsoft is the last business standing. That was part of the Netscape strategy and the RealNetworks strategy and, barring interference from nosy antitrust regulators, would be part of other strategies as well. Current antitrust agreements don't cover online services, so the company has a free hand, and the goal is to make sure that if its current customers move to online apps and servers, they move to Microsoft online apps and servers.

Second, we've all known for a long time that online services could disintermediate the channel. It's possible to have an online business and a channel to sell it; but if you're as large and diverse as Microsoft, with a well-known brand, it's probably not necessary.

Third, the delay in announcing details on Microsoft Online doesn't necessarily mean that Microsoft is spending a lot of time working out a method that will give partners a big cut of the revenue. It's just as likely that it's working on a nice way to say, "Here's why we can't give you as much money as you need." In some moral sense, there's nothing wrong with that: We're in a paradigm shift in IT and Microsoft must adapt. The company's executives don't need to apologize for that, although I'd hope they'll be straight with partners about it.

That shift is likely to cause both Microsoft and current partners a lot of pain. To survive, partners may need to make room for elephants in their companies -- or look for entirely new business models. There's still too much uncertainty to say where the opportunities will be -- but never say never, and watch what they do.