Microsoft Finally Stays on Message About Services
— -- The deadline Microsoft gave Yahoo for making a deal or facing a proxy fight came and went this weekend without a word from either party. But even if Microsoft doesn't succeed now in its bid for Yahoo, the company made clear last week, both in private meetings with reporters and in public comments, that it's determined -- come hell or high water -- to move forward with its services strategy.
In the thick of its battle for Yahoo, some Microsoft executives made time to host reporters at the Redmond, Washington, campus, and provided a snapshot of the company's strategy. A common thread woven through many of the meetings, which included discussions about Microsoft's evolving development platform, Windows Server, virtualization and security, was Microsoft's "software plus services" strategy.
Software plus services is Microsoft's twist on the strategy more commonly known as software-as-a-service (SaaS). The company has been promoting a combination of software plus services as a way to ease itself away from its packaged-software legacy and into the Web 2.0 future, and executives -- starting with Chief Operating Officer Kevin Turner -- stayed on message last week.
"When you think about Microsoft in the software plus services [market], we're going to offer customers a choice," Turner said, after outlining three business models he said Microsoft's customers want. Those models are: the option to install software on premise so customers can run it themselves; the option to have Microsoft host its software directly for customers to use in the cloud; or the ability to have third parties host Microsoft software.
"You will hear a lot from us over the next 12 months" about how "we will enable all of those business models," Turner said. "This is not some way out in the future [scenario]; this is where we are going to continue to evolve, purposefully and mindfully." However, he added that he has consciously slowed down Microsoft's move to hosted services so the company is clear about its plan and doesn't just blunder its way forward.
Tim O'Brien, senior director of platform strategy for Microsoft, echoed Turner's sentiment that the near-term future for Microsoft is its software-plus-services strategy when he discussed Microsoft's plans for its development platform.
O'Brien even said that Microsoft is in the process of rewriting many of its applications, as it did with the company's CRM (customer relationship management) offering, which it recently released as a hosted service, so they can be offered as services in the future.
"One big fallacy is that you can take an application architected for one-to-few delivery and call it one-to-many," he said. "We're not as far down the path of rearchitecting on the Exchange and SharePoint side, but that is directionally the way we're headed. We have a huge portfolio of applications that we'll over time take in this direction."
It's commendable that Microsoft seems to have finally found a consistent message about its software-plus-services strategy, which is heartening since even a year ago no one seemed to know what they were talking about.
Microsoft Chief Software Architect Ray Ozzie first mentioned the term "software-plus-services" at Microsoft TechEd conference in Boston in June 2006, but -- as is usually the case when the company first unveils a new business strategy -- he did not clearly outline what this would mean for the Microsoft customer.
Since then Microsoft has been trying to fine-tune its message, and last week it came through loud and clear that Microsoft will continue to move into hosted services to compete effectively with Web 2.0 pioneers Google and Salesforce.com, while also giving business customers dependent on its software legacy the option to buy software in a traditional packaged way. And because Microsoft has tens of thousands of business partners to which it also must cater, the company will give them the option to host Microsoft's software for their customers.
Still, even now that its strategy has crystalized, executives fail to acknowledge that it's not really the entire industry that needs to move in this way -- it's necessary only for Microsoft and perhaps other traditional software vendors. The company has been selling packaged software for more than 30 years and can't just begin offering hosted applications as easily as Google and Salesforce.com, which began their businesses on the Web.
So while Microsoft's strategy makes sense for the company and its customers -- who will be more hesitant than others to give complete control of their software over to a third party, even a trusted one -- the company shouldn't assume this is the best thing for the entire industry. Moreover, executives should stop insinuating that companies that have based their businesses on the Internet now will backtrack and start offering software.
"We have competitors on the consumer Web, Google for example, is fairly overt about its cloud-based ambitions, but they're pushing software to the client," O'Brien said last week, pointing out that Google and Salesforce.com have both created client software so customers can access their services while not connected to the Web.
While it's true those companies are doing that, it's only to give customers entrenched in the software legacy that Microsoft can't let go of a migration option to the services world. It's not like executives at Google and Salesforce.com really think software is the way to go.
If Salesforce.com customers in New York recently to promote the Force.com hosted application-development platform were any indication, no one wants to go back to a world of complex software if they don't have to.
Microsoft should focus on moving forward with its services strategy rather than trying to convince everyone it's their software-plus-services way or the highway. Yahoo's continued ability -- until now at least -- to stave off the company's advances should be proof enough that Microsoft doesn't have the influence it once had to bend the industry easily to its will.
(Nancy Gohring in Seattle contributed to this report.)