Microsofts Vision Across Microsofts 2,500-employee-strong enterprise server unit, the .Net roadmap is the way forward a sign not only of the companys commitment to creating the platform of choice for service users and developers, but also of the opportunity that it sees in the corporate market. "The biggest problem customers have is integration," Microsofts Goffe said. "And as bad as solutions like enterprise middleware are inside the company, they completely suck when it comes to doing integration over the Internet.Last week, Gates announced that Visual Studio .Net, a rapid application development (RAD) tool for building Web applications and XML services on the .Net Framework, would ship soon. Gates also said that due to customer demand, a prerelease version of Microsofts XML Web services engine, .Net Framework beta 2, will be available for use in production environments. The .Net Framework will be downloadable for Windows 2000 Server products. .Net servers are due early next year. How customers will gain access to the software remains an open question. "We have no idea how much of our server software will be delivered as a service. We cant say how much revenue will shift when," Microsofts Krossa said. The goal is to make it ready to support services from any location. And ASPs may yet turn out to be an important channel. "ASPs are a part of our partnership community," Microsofts Rogoff said. "The potential is very high, though probably not what we thought two years ago." Microsoft has spread some cash around the industry, including a $50 million investment in USinternetworking in late 2000. With that investment, Microsoft became the default platform for USis application services and, perhaps more important, got a front-row seat on the enterprise ASP business. Microsoft has varying levels of ownership and partnership with numerous other ASPs as well; so far, hosted versions of its Exchange software represent the companys most successful entries into the marketplace. There have been false starts, with some partners asking for Office online in the early days. "They didnt see the huge deployments they expected, because customers already have Office," Krossa said. ASPs are just one group of partners upon which Microsoft will rely to build its services business. The .Net strategy is largely about getting partners to develop services that run best on the Microsoft platform, much as developers helped seal the dominance of Windows. "Its really about partnerships, not new pieces of software," Krossa said. Thats a sensible path to take, Gartners Pring said. "The No. 1 thing they have done well over all other companies is work the partner channel," he said. "Thats the honey pot around which so many bees buzz." Partners are also important to Microsofts new bCentral brand of applications for small businesses. "Theyre critical a majority of our sales may come through partners," said Erin Hiraoka, bCentrals director of marketing. BCentral delivers its services via an eponymous portal and at cobranded sites with partners including Compaq Computer; Office Depot, which is also selling the services in its stores; and Rivio. BCentral will use Microsofts Passport authentication service and other HailStorm services. A monopoly is a terrible thing to waste, and Microsofts strength on the desktop is a critical element for bCentral. "Our next phase is closer integration with Office," Hiraoka said. "With about 90 percent penetration in small businesses for Word and Outlook Express, the ability to attach to Office as a key client is huge." Hiraoka said there are about 60,000 paid users among the 1.6 million registered bCentral users; revenue from ad sales currently outpaces service revenue. About 300 people work under the bCentral rubric, with more than 200 of them building applications. Some services, such as ad buying, are billed as one-time transactions, while a financial management tool, for example, carries a monthly fee based on the number of users. Accounting applications from Great Plains Software, the services-savvy small-market vendor that Microsoft purchased earlier this year, will be available from bCentral in the future. Again, not everything has to be hosted. "An offline Great Plains product could be an integration point for data," Hiraoka said. "We see a huge opportunity for growth, not just in hosted, but in server-based business applications." Not everyone is convinced that desktop software will become Microsofts beachhead for services. And Pring emphasized that Microsofts dominance in the desktop era is a two-edged sword. "Nobody likes the idea of them being the gatekeeper or Big Brother, somehow managing to become the operating system of the new supernet," he said. On the other hand, the network effect and plain old herd instinct could work Microsofts way. "In the Web services war thats brewing now, its VHS vs. Betamax all over again," Pring said. "If you choose Microsoft over Sun, its a 10-year decision, so logically youd go with Microsoft just because of the safety in numbers. One area in which Microsoft has some definite market leadership is in software pricing. While most established software companies continue to sell licenses for their products, Microsoft is moving to a subscription model, not just for software delivered as a service, but for the client software as well. "Software as a service includes updates and fixes that may come from the cloud," Rogoff said. ASP customers are also being allowed to pay based on usage. The shift to service pricing could have a major financial impact on the company. "Their entire mission in life is to annuitize their business and get off the upgrade cycle roller-coaster," said Art Russell, senior technology analyst at Edward Jones in St. Louis. "Historically, theyve seen huge spikes in revenue on a new product release, and then it tails off. Smoothing out their business model is good from a financial standpoint."
"Our solution is XML Web services built on a stack of standards," including Simple Object Access Protocol, Web Services Definition Language and Universal Description, Discovery and Integration, he said. "Some standards are still missing, but this will allow people to remotely invoke data and applications as if they were another component locally."