Microsoft Plays Catch-Up with Nimble On-Demand Rivals

Microsoft has walked into a swarm of nimble on-demand rivals as it makes its first tentative steps into the realm of on-demand application services.

Executives who head a variety of software-as-a-service businesses say that Microsoft Corp. has no choice but to move deeper into the on-demand software business or possibly face being outmaneuvered by a host of smaller, more nimble competitors.

Microsofts introduction this week of Windows Live and Office Live is just the first tentative step that the company is making in response to the competitive challenge posed by on-demand software, the executives said.

Microsoft cant afford to be late responding to the challenge of on-demand software services like it was with Netscape Inc.s Internet browser technology or Google Inc.s search engine, said Keith McCall, chief technology officer with Azaleos, a Microsoft partner and the provider of an Exchange 2003 e-mail application management service based in Redmond, Wash.

"I think that Microsoft will have to shift its model from one that just provides software products to one that provides both software products and software as a service," McCall said.

Microsofts initial service offerings "may be sketchy right now, but I think that theyre going to play very, very seriously in this space," McCall said.

Shifting to a combination of on-premises licensing and on-demand subscription licensing will be "key to continuing Microsofts revenue growth" because customers are interested in acquiring software and services through this model, he said.

/zimages/4/28571.gifClick here to read Mary Jo Foleys commentary on why the Microsoft "Live" services announcement didnt include a lot of significant new deliverables.

Microsoft has "to step up to provide value-added services for the IT organizations out there" or it will "run the risk of being out-competed by smaller, more nimble, more agile partners," McCall said.

But it isnt going to happen overnight, he said. "I dont believe that Microsoft yet has the assets in-house to be able to deliver line-of-business applications such as customer relationship management, sales force automation or even hosted Exchange e-mail applications" through the on-demand model, McCall said.

On Tuesday Microsoft announced Windows Live, which Microsoft Chairman Bill Gates described as an Internet-based personal services similar to its widely used MSN Web portal. It also announced Office Live, a suite of online messaging, presence, automation and collaboration applications designed to supplement the Microsoft Office suite and targeted at small to midsize businesses.

Giving customers the choice of moving seamlessly between client/server applications and on-demand services is the vision of both Gates and Chief Technology Officer Ray Ozzie, who has been given the job of formulating Microsofts services strategy, McCall said.

Microsoft has reportedly hinted that future service offerings might include a hosted CRM service similar to Salesforce.coms model or enterprise versions of the Windows OneCare hosted security services.

/zimages/4/28571.gifTo read Mary Jo Foleys commentary on why Microsoft was wise not to emphasize any connection to Web 2.0 technology in its "Live" Web services, click here.

But the assets needed to build major line of business applications would have to come either from the acquisition of existing on-demand service companies "or significant investment internally. And I think they arent there yet," said McCall. "If they are serious about the live market they will buy" the assets that they need, he said.

However, Bill Heil, president of online conferencing and collaboration company WebEx Communications Inc., of Santa Clara, Calif., said he believes Microsoft isnt constitutionally capable of successfully turning itself into an on-demand services company.

The "Live" services introduced this week show that "Microsoft is way too late to the game and focused on a very small piece of the puzzle" for on-demand software services, Heil said.

Companies such as WebEx and "are built from the ground up as on-demand software companies, and we think that is the way to be successful," he said.

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...