Microsoft is stepping up its efforts to push its .Net strategy through ASPs and is starting to negotiate licensing deals that allow service providers to charge for software on a pay-as-you-go basis, as opposed to a monthly fee.
That licensing scheme, which basically charges for software usage the way utilities currently charge for electricity and gas, is akin to the time-sharing pricing model of the 1970s. The big difference is that now it will be done over the Internet, rather than on a host-based system, and customers get built-in security, storage and network management capabilities that often exceed what they have in-house.
"Microsoft has become very friendly to service providers recently," says Tom Kieffer, president of Agiliti, an ASP. "In the past, they paid us lip service. Now theyve gotten more serious. In licensing Exchange 2000, they now support multiple post offices. That means you can create a robust e-mail system on a clustered server farm. Before, you needed discrete boxes to run it. Now you can put multiple customers into a clustered environment."
Kieffer says Microsoft also is getting far more granular in the way it prices its software, and its starting to allow customers to pay for a mailbox as it is used, rather than a flat monthly fee.
TeleComputing also has witnessed a significant shift in Microsofts relationship with the service provider market. The Norway-based ASP and ASP facilitator, which is now making a push into North America, has been working behind the scenes with Microsoft to corral telcos into selling Microsoft applications via the ASP model, and it has built .Net technology into its own management tool set for ASPs.
"The telcos will be the touch point to the customer, and ISVs will be providing the applications," says Jason Donahue, CEO of TeleComputing. "But its the people in the middle who are going to make it work."
Those people in the middle are largely integrators and consultants who have customer relationships that telcos lack and who can craft solutions that determine which pieces should stay in-house and which should be outsourced. So far, ASPs say the application that most customers are outsourcing is messaging, and Microsoft Exchange is the key player.
That plays nicely into Microsofts hands, because .Net is something of a Trojan horse. It allows Microsoft to get inside the enterprise to add other services that can be built on Exchange. Those other services could include everything from Office, Commerce Server and Great Plains accounting packages, to vertical apps.
ASPs also present another opportunity for Microsoft. Large corporations and some of the larger midsize corporations are realizing that outsourcing pilot applications can save money and time. Most pilot applications can be up within 45 days.
"One of our customers calls this an application hatchery," says Kieffer. "When you consider the switches, big IP routers and directory services necessary to run some of the applications, its attractive that we can turn it on in a test environment."
Microsofts .Net strategy—and similar offerings by other vendors including Hewlett-Packard, IBM and Sun Microsystems—play into that market. With little risk and more efficient implementation, many ASPs expect this to become a hotbed of activity in coming months.
Seeing an upside in this arena should come as no surprise to Microsoft. The company has been investing in ASPs to figure out how best to utilize this model. In January 2000, Microsoft invested $10 million in Corio, a company funded by Sun co-founder and KPCB partner Vinod Khosla. Corio offers applications from BroadVision, Commerce One and Siebel. Corio and Microsoft agreed to co- marketing and joint development.
Last November, Microsoft also pledged $50 million to USinternetworking, just a few weeks before it reorganized and laid off employees. USi pledged a couple of years ago to deliver Office and BackOffice as hosted services.
FutureLink also has a long relationship with Microsoft and even stole a few Microsoft executives. Microsoft invested $10 million in June 2000 in the company.
Whether those particular investments pay off or not, most vendors say sales are picking up in outsourcing.