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Microsoft gearing up for Web services

With Google in its crosshairs, Microsoft looks to capitalize on subscription and ad revenues as the pendulum swings back to delivering software as a service.

It's true that history repeats itself and Microsoft and others are ramping up once again for an on-demand world. Yet this time around many of the missing pieces from earlier in the decade that contributed to the undoing of upstart application service providers (ASPs) and hosted service providers, including Microsoft's own HailStorm initiative in 2001, are in place like bandwidth, Web services standards and improved back-end efficiencies. Plus, there are clearly Internet-based advertising revenues up for grabs now, too.

Companies like and Google have been successfully delivering software as a service over the Internet, and IBM has been pushing on-demand strategy for some time. A recent memo from Microsoft chairman Bill Gates to his top employees, the leadership direction coming from new chief technology officer Ray Ozzie, and the announced Windows Live and Office Live offerings have put the spotlight on Web-based services.

It doesn't make sense for people to continue to buy large software licenses, pay for everything up front, focus on the hardware and hope everything works out
Bob Brauer
CEO, President and Co-FounderStrikeIron Inc.

"Microsoft is ready to make another run at hosting Web-based services," said Rob Helm, director of research at analyst firm Directions on Microsoft in Kirkland, Wash. At the time of Microsoft's first foray into selling subscription-based services, "there wasn't a good enough connection, especially to the home and the Web services infrastructure. But now the market has changed."

The other change is Google.

"Google has shown you can deliver pretty substantial services supported by advertising," Helm said. "There is strong incentive to cut off Google's ad dollars before they use that money to compete in a more fundamental way [with Microsoft]. The concern is not what Google is now, but what it might become. [Google] could offer a set of services that did replace software, not just complement it."

According to Helm, "Microsoft has to make its online services vision fit with its own business. Google presents the same kind of threat Netscape did, marginalizing Windows as a platform and Microsoft products on the PC in favor of Web-based applications."

For a company like Jamcracker, which provides on-demand delivery and management software to independent software vendors (ISVs) and service providers, Microsoft's announced intention "is great validation for what we do; it says this is real, this is going to be the main consumption model going forward for software," said Brent Arslaner, vice president of marketing at Jamcracker Inc. in Santa Clara, Calif. "We have an array of customers using our software because Microsoft hasn't done a very good job in terms of architecting their solutions to be delivered in a hosted environment. They still have things they need to figure out."

Jamcracker recently announced the Jamcracker Services Delivery Network (JSDN). The JSDN is intended to be on on-demand ecosystem, providing a certified catalog of software and services that customers can consume directly or through the channel. "Today a lot of services are consumed in a silo. Taking a sales force automation tool and embedding Voice over Internet Protocol and Web conferencing, for example, is very powerful. We see interesting new combinations of services." In this new model, Arslaner said, differentiation will be achieved by "who has the most interesting [combination of services]."

Windows Live and Office Live are intended to capitalize on online subscriptions and advertising. Both are targeted at the consumer and small business user.

Microsoft's Office Live is about adding value to Office, Helm said. "You can use it without Office, but it does add value to Office, and they'd encourage Office upgrades. This is more the model Microsoft is pursuing, hosted services as a complement to software.

Arslaner said the biggest question with Microsoft's strategy is the role of the service provider. "There's a bunch of companies today that host Microsoft Exchange and SharePoint, but when you look at the press [around Microsoft's services push], you can't tell if Microsoft is going to become a service provider. They own an array of data center space in Redmond. Or will they lean on partners to deliver? Look at Google and Yahoo; it's clear they're service providers. Microsoft in the past relied more on the channel."

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Also in question is how Microsoft will transition to this new delivery model for software. "It doesn't make sense for people to continue to buy large software licenses, pay for everything up front, focus on the hardware and hope everything works out -- and if it doesn't you've already paid the bill," said Bob Brauer, CEO, president and co-founder of StrikeIron Inc., Research Triangle Park, N.C. StrikeIron offers a Web Services marketplace, and recently became a charter member of Jamcracker's Service Delivery Network. "[Microsoft] has a lot of legacy applications and a large installed customer base they have to continue to manage and support. They've got a lot of work to do, but they have the resources to do it."

Another challenge for Microsoft is that on-demand services loosen Microsoft's grip on all-Microsoft environments. "JSDN, for example, enables Jamcracker to be the point of login, then you have the ability to use multiple on-demand applications," Brauer said. "That's where eBay and Google want to be. Everyone wants to own the user ID and password."

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