Corporate DNA Tests

By John Pallatto  |  Posted 2005-11-04 Print this article Print

For Heil, success or failure in the on-demand market is a matter of corporate DNA. Microsofts DNA is that of a company that has always been structured toward building and selling client/server software. "I think it is really hard to take a company with the DNA of a software company and turn it into a company with the DNA of a services company," Heil said.
Microsoft has been trying to get into the on-demand services business for years with less than stellar success, Heil said.
He noted that Microsoft launched its LiveMeeting collaboration service nearly eight years ago, and it hasnt come close to knocking WebEx from its dominant position in the collaboration market, where it holds a 64 percent market share compared with Microsofts share of under 20 percent, he said. The fact that Microsoft is starting to move into the on-demand software field is perhaps the strongest market validation this business model could have, noted Louis Waters, CEO of Simdesk Technologies Inc., of Houston, which markets a suite of on-demand desktop messaging, file management and collaboration services. The actual announcements may be less than market sharking, Waters said, and is perhaps in keeping with an oft-repeated tactic of "laying claim to the space before they are quite ready for it," he said. But "they have signaled a clear commitment there, and theyre gearing up very quickly," he said. "Clearly with the money they spend they can deliver services whenever they want," Waters said. "But they have a huge challenge to move from the infrastructure company that they really are to a true on-demand model, which is really about eliminating infrastructure," Waters said. The entire companys business model is geared toward maintaining a massive flow of revenue and profits generated from selling on-premises software licenses. Its difficult to see how Microsoft can adjust to the shift of even a portion of its business to on-demand where the goal is aimed in part at giving customers a way to reduce their commitment to an expensive software infrastructure, he said. "Our whole position is that on-demand is going to change the economics of computing in a fundamental way and that the people who now spend thousands of dollars per person per year on IT should end up spending somewhere on the order of hundreds of dollars per user per year on IT," said Waters. Microsoft has no choice but to make at least a partial transition to on-demand computing, but that transition has the potential to shake the company to its foundation, said Eric Larkin, chief technology officer with Arena Solutions Inc., of Menlo Park, Calif., which markets on-demand product lifecycle management (PLM) applications mainly for the manufacturing industry. Click here to read why the competitive challenge posed by Google lent urgency to the formulation of Microsofts "Live" service offerings. Larkin suggested that Microsofts position is somewhat akin to the Eastman Kodak Co. when it realized back in the 1990s that digital cameras were going to sharply cut into the demand for photographic supplies. Kodak has seen its business growth stunted even as it moved aggressively to market digital photography products, he said. Microsoft is still in the early stages of making the transition to an on-demand business model, he said. "They still havent—at least not publicly—made the conceptual leap that what they are ultimately providing is a service not just the operation of software widgetry," Larkin said. Just the same, "it will only be good for our business to have a major player like Microsoft touting the benefits of software as a service," he said. Better yet, Larkin noted, at this point Microsoft poses no significant competitive threat to Arena Solutions on-demand PLM business. Check out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.

John Pallatto John Pallatto is's Managing Editor News/West Coast. He directs eWEEK's news coverage in Silicon Valley and throughout the West Coast region. He has more than 35 years of experience as a professional journalist, which began as a report with the Hartford Courant daily newspaper in Connecticut. He was also a member of the founding staff of PC Week in March 1984. Pallatto was PC Week's West Coast bureau chief, a senior editor at Ziff Davis' Internet Computing magazine and the West Coast bureau chief at Internet World magazine.

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