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Despite Challenges, Microsoft Expects Broad Adoption Of Online Software Services

Microsoft expects half of all Exchange e-mail customers to subscribe to a software-as-a-service version within five years.

The company will cut prices for customers if they subscribe to the entire suite of its collaboration services (Exchange Online, SharePoint Online, Office Communications Server Online and Live Meeting) to encourage customers to subscribe to all of them. The company also plans to have two levels of service, one for "deskless" workers who need less functionality and another for information workers who might like more.

Despite lower margins, Microsoft anticipates it can eventually use services as a way to increase market size and share. "Because it's easier for a customer to use the software, you can actually sell more services," Markezich said. "There's a huge number of workers that are unserved by technology, and this gives an opportunity to do that."

For example, he said Microsoft estimates only 60% of all employees have a corporate e-mail address, and services could allow all of them to have one because the barrier to entry is lower. He added that software delivered as a service rather than in a downloadable package or a CD acts as a strong piracy deterrent, and that could increase sales figures as well.

Microsoft will offer a dedicated service for larger customers who want to have more control over whether their software gets upgraded and a better sense of security in that no other companies will be accessing the servers they use. It also will offer a multi-tenant service that will be cheaper.

Striking the right balance of customizability and consistency is important even for multi-tenant customers, according to Capossela. "Regardless of whether you're running it yourself or someone else is running it, there are things you're going to want to configure," he said. "You don't want to essentially have to tell every employee, okay, go to and sign up for e-mail." In fact, Microsoft briefly tried that in pilots before launching Exchange Online. Customers will need to be able to integrate Active Directory, set policies to add disclaimers to the bottom of e-mails, or set up walls so that certain employees can't e-mail one another.

Another major challenge for Microsoft, especially in an increasingly global technology market, will be regulatory interference. "The rules weren't written for online services, and some countries are going to be left behind," Markezich said. For example, telecom laws in some countries make it impossible for Microsoft to sell Live Meeting there. That's one of many reasons Microsoft will keep its on-premise products as options for the foreseeable future.

Microsoft plans to announce more a more detailed business services roadmap at its Professional Developers Conference later this year. Eventually, as the company moves forward with its plans, Markezich's group, which used to oversee sales, operations, engineering and support for all Microsoft Online services, will slowly fade away as those teams merge with various product groups.

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