Sitting on the Sidelines

By John Pallatto  |  Posted 2005-11-05 Print this article Print

Wise executives dont meddle with success by making radical moves to a bifurcated business model that gives customers the option of paying subscription fees for hosted applications or continue to buy licenses to install application and server software on their premises. That raises the question of whether Microsoft could offer a hosting service at prices that would be attractive to customers without seriously cutting into its huge revenue streams from on-premise software.
Microsoft has apparently decided that the safer move, at least for the short term, would be to leave it to the little guys to play their on-demand game. Microsoft will protect its riches.
To read why executives at major on-demand application service companies believe that Microsoft is playing catch-up with their business plans, click here. Thats the kind of move that one would expect from a rich and long-established company. But not from a far-seeing company that would recognize the long-term potential competitive threat those little on-demand software companies pose to its markets. They might not be much of a challenge now, but if on-demand software subscriptions continue to grow in popularity, in time they might start cutting into the revenue of Microsoft and other large software companies. And its not just the little companies that are getting into on-demand software. Siebel was building its own on-demand business model to complement sales of licensed software. Oracle officials have indicated they will continue Siebels on-demand sales model if it gets federal clearance to close its proposed $5.85 billion Siebel buyout. Saying that it is content to give partners the opportunity to resell Microsoft CRM as a hosted service is a remarkable cop out. The software industry landscape is littered with the wreckage of companies that failed trying to resell client-server business applications as hosted services. It didnt work in the late 1990s, and there is no reason to believe it will work now. The companies that are making a go of it today are mostly offering applications that were built from the ground up as hosted, on-demand services with features and performance that are optimized for access over the Web. Even Microsoft itself would stand a good chance of failure if it just offered a hosted version of CRM 3.0 out of the box. But Microsoft is merely postponing an inevitable move to hosted business applications. By staying out of the game, Microsoft is giving its competitors more time to prove the value of the concept. It cant sit on the sidelines forever, because the day when competing on-demand software and services start cutting into its bottom line will come sooner than it expects. John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at 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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