Recognizing Net Reality

Hosting partners live on the edge as Microsoft plays in their cloud.

If you want to live on the edge these days, you should be a Microsoft hosting partner.

You make a big investment in a data center and the expertise to run it -- and the company that makes the software you sell is going direct, to compete against you.

I've long advocated for the partners here on these grounds: If Microsoft is serious about its partners, it can't expect them to spearhead desperate adventures that face adverse market winds (for example, forays into consumer electronics against the iPod or selling Microsoft search products and advertising against the Google juggernaut) while competing with them on the profitable, easy-to-sell stuff.

But it's time to recognize, as Microsoft itself does, that the doors are closing on fat client software and onsite servers. While the new cloud computing paradigm can't compete in many ways with what Microsoft offers today, it's already better in other respects. To name just a few: The cloud can handle massive volumes of network traffic, it's accessible from anywhere over standard, platform-independent network protocols, it can reach massive audiences and it quickly coalesces around one or a few standards, ensuring wide interoperability.

Microsoft won't ignore this space. Its Business Productivity Online Suite, a collection of hosted Exchange, SharePoint and Communications Server capabilities scheduled to start rolling out this fall, is designed specifically for Microsoft's current business model, for example; documents and e-mail are still created and edited in fat clients. But there's likely much more to come.

The clue about what's ahead is in Microsoft's intriguing decision to sell a low-cost version of Windows XP for what used to be called "ultra-low-cost" PCs, but which Intel now calls "netbooks" and "nettops." These are memory- and storage-constrained portables and desktops, respectively. With flash storage and no more than 512MB of memory, they can't run Windows Vista, but as their names suggest, they're perfect for people whose real desktop interface is the browser. Microsoft is making this significant concession partly because much of its growth is coming from emerging markets where Vista machines are too costly, and because it doesn't want to cede the low end of the PC market, typically the largest PC category, to Linux.

However, these devices have a crippling limitation for Microsoft: They're woefully underpowered not only for Vista, but for Office 2007 as well. So how are people who use these computers going to compose and edit documents? They'll go online, where, among other options, they'll find Adobe Buzzword, Google Apps, Zimbra and Zoho -- but not Microsoft.

Is Microsoft really endorsing, and even giving a discount to, a computing platform that will be used primarily with Microsoft Office competitors? Yes. For how long? I'd guess that in the next 24 months, Microsoft will come up with a serious Internet-based Office version, particularly if these devices capture 10 percent of the market by 2011, as Intel expects them to do. With 100 million active users out there who can't use Office, plus perhaps another 100 million PC users who supplement Office with collaboration and storage services on the Internet, these services will attract up to 50 percent of Office's current installed base.

That doesn't spell the end for partners. With the Internet as their default file system (Microsoft's Live Mesh is one option here), customers are likely to have far more choices than they ever have before. But the common underlying platform, protocols and formats will provide more opportunities for mixing and matching.

Meanwhile, customers will need partners to advise them on the best choices, build and provision the services, provide skilled integration and customize generic platforms to meet specific requirements. Microsoft will be one of the players, although probably not as dominant as it is today, a prospect that could make Microsoft a better company and a better partner.

About the Author

Paul DeGroot is principle consultant with Pica Communications, which provides consulting services for customers with complex Microsoft licensing issues.