In response to the increasing adoption of Software as a Service (SaaS), Microsoft has announced its new hybrid business model strategy. The move is a careful step amid the software industry's shift in licensing and delivery models to meet growing desire for new ways of paying for services rather than software licenses.
In the recent years, SaaS is gaining more acceptance from customers, though still in limited scale. CIO Insight's survey indicated that 51% of its respondent said their companies used or would soon deploy SaaS. Half of those
deployments, however, are within specific business units, functions or
geographic regions; fewer are companywide. Most companies use SaaS and
application service providers on a case-by-case,
application-by-application basis. In addition, there is still significant concern regarding security and skepticism in the possibility of total cost reduction.
Microsoft is well aware of SaaS trend. Ray Ozzie, Microsoft’s chief software architect, has also accepted that “today the transformation toward services is the most significant one in the software industry.” However, Microsoft is still in a position not to believe that the trend will be big. They want to move into the new space while minimizing cannibalization of its existing cash-cow software market.
Anyhow, during its Microsoft's Worldwide Partner Conference on July 26, the software giant has "begun laying down a blueprint for its strategy, which involves eventually adapting all of its software to work in three different delivery models: traditional on-premise deployment, partner hosted, and hosted directly by Microsoft, as its forthcoming CRM Live service will be", according to the ChannelNet.
Microsoft's twist on SaaS is that pure on-demand "in the cloud" data services aren't the IT Holy Grail. In its view, customers will always need a blend of traditional software and on-demand applications, a need that its "Software plus a service" tries to address.
Microsoft's executives have been talking about this for a while. The main difference is for the first time, there is a clear time line and business models for partners. "Nearly every Microsoft software application will be transformed with the addition of a Web-services component within 3 to 10 years", said Steve Balmer, the company's CEO. The company also released a guideline for partners, which is can be downloaded here.
The hybrid model reflects a compromise rather than a preemptive move. Moreover, seems to be something that Microsoft has done several times on its history,
realizing this strategy is not that easy. Product development might adopt the
change faster, but aligning the huge company and its ecosystem around
3 competing business models is a huge effort. The company's
sales and distribution system, as well as the partner network is still
optimized for traditional software licensing and professional service model. More importantly,
the new ones require a shift in types of partners, in ways of thinking
and skill set.
The move serves as the starting point to change the mental model of the company, as well as that of its huge ecosystem. In the short run, Microsoft needs to do quite a few things at the same time. It needs to make its hosting model works, redevelop products, sort out its brand, shuffle the organization among others. After all, the company's online business still made up only 5% of revenue and made a loss in 2006. Meanwhile, its competitors led by Google, Salesforce.com and a slew of small companies mushrooming from everyday, are competing to gain market share and mind share. Ask yourself, when was the last time you heard about Windows Visa from a friend or colleague?
Microsoft's strategy is not surprising, nor very aggressive toward SaaS. However, it shows that software incumbents start to take SaaS seriously and try not to miss the boat if SaaS really gets big. The main question is still SaaS will go main stream or stay as a niche set of office and generic applications for some particular segments. This is why Microsoft still believe it's still early enough and safe to be on both camps, and many vendors and investors believe it's still too little to late.
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