Microsoft Maps Shift To In-The-Cloud Software

Pushing forward in its drive to transform its business model and compete with hosted-software companies like Salesforce.com, Microsoft on Tuesday provided the first detailed road map for its new "software-plus-services" business model.

In a series of keynotes at the company's Worldwide Partner Conference in Denver, Microsoft executives including CEO Steve Ballmer and COO Kevin Turner outlined a strategy in which Microsoft will continue to derive the lion's share of its revenue in the next few years from traditional, licensed software on PCs and laptop computers, but will move more toward a services model in which the software resides in the Internet cloud and is delivered over high-speed connections.

"This fundamental transformation to software and service is upon us," said Ballmer in a typically rousing speech to the overflow crowd at the Colorado Convention Center. "It will affect us all, and I guarantee you Microsoft will lead in driving this next generation of computing and user-interface models just as we have the last couple of generations."

Turner also announced that the general release of Windows Server 2008, once expected for late this year, has been pushed to February, when it will join SQL Server 2008 and Visual Studio 2008 in one of the biggest combined product launches in Microsoft history. Windows Server 2008 will be "released to manufacturing," i.e., provided to hardware manufacturers, before Jan. 1, according to a Microsoft spokesperson.

Several years in gestation, Microsoft's transition to a provider of hybrid software both on-site and over the Web represents a major competitive threat to established "software-as-a-service" companies such as Salesforce and Oracle's PeopleSoft and Siebel Systems units. To this rapidly growing market, Microsoft brings its huge base of existing customers for traditional customer-premises software, its tight integration with Windows and Exchange, and its worldwide network of 600,000 resellers, systems integrators, and other partners.

Turner got a laugh out of the Denver crowd during a product demo of the new Dynamics Live CRM service, when he asked the demonstrator, Brian Wilson, "Who will this compete with?"

Hearing the reply, Turner said, "Salesforce? Siebel? Really? And there's an opportunity there?"

Turner also offered for the first time pricing on Dynamics Live CRM, which will be sold for $59 per month per user for the Enterprise version and $44 per month per user for the Professional edition.

Ballmer and Turner both stressed that the transition from traditional PC software to an on-demand model will not happen overnight. "Client-based software is not going to go away," Turner asserted, "but the customer is going to want the choice." The shift is inevitable, Turner said, addressing the partners in the audience who have not yet embraced the concept of offering software applications online. "My message to you is, 'Look, this is gonna happen.' The opportunity is here, and we need to build the door and go through it and reach that opportunity."

The company is clearly driven not to underestimate or miscalculate the timing of this latest IT development, after Ballmer and co-founder Bill Gates were widely criticized for missing the Internet revolution. Thus under the new hybrid model, Microsoft will offer business productivity applications in different forms, from 100% client-based to 100% hosted, and in combinations of the two.

Office Live, Ballmer said, will be repositioned as two suites of offerings, one for small businesses and another for personal use. Since it isn't anything like a hosted version of Office, but rather a set of services designed to extend Office and increase workplace productivity, Office Live already is a stumbling block for businesses in thinking about Microsoft's software-plus-services strategy. Breaking Office Live into two product lines could further confuse matters.

Microsoft is building an Internet architecture, a "cloud platform" otherwise known as Windows Live Core, designed to equate to Windows on the desktop, Windows Server in the enterprise, or Windows Mobile on mobile devices. Ballmer described a set of Windows Live Cloud Infrastructure Services, the first versions of which he said would become available later this year.

The new model, Ballmer stated, must unite the strengths of four different user experiences: the desktop (offering a rich user interface and offline access to critical applications), enterprise IT (with the ability to control and manage policies, particularly security), online (providing the ability to click on and run programs over any site, with powerful collaboration and social-networking tools), and new devices (accessing content anywhere in any form, whether on a big-screen TV or a mobile phone).

The idea that the world will move away from PCs and entirely to thin clients is "nonsense," Ballmer claimed, saying that, if anything, demand for powerful multifeatured devices is increasing, not decreasing. "Ironically, this is one area where we and Apple would agree," said Ballmer, citing the wildly popular release of the iPhone. "The world is not moving to a thin browser."

To facilitate this transition, Microsoft says it invested $7 billion in R&D last year and will increase that figure in 2007.