When Microsoft announced in March it would be marketing its own hosting services for Exchange and SharePoint, some wondered how the company could successfully compete with itself? Today, it provided the answer.
One under-appreciated facet of Microsoft's business is the amount of software that it sells to registered partners, who then resell that software to their clients. We're not talking about the Office suite or Visual Studio, but rather Windows installations, along with the services installed on Windows-based servers that can be licensed per user. Businesses that keep their employees connected through SharePoint sites and Exchange services often get their software through these partners.
Historically, SharePoint and Exchange have been sold to businesses through a mix of licensing schemes that involve both per-server seating and per-user client access licenses (CAL). That mix can easily become a maze, as Microsoft's own licensing page illustrates. For instance, with SharePoint Server 2007, you have the standard server license, plus one class of CAL for using the server's "standard" features, and another class for the "enterprise" features -- for two, or perhaps more, CALs per user.
Last March, Microsoft announced what it's calling its Business Productivity Online Suite (BPOS); and though that's not a very descriptive brand, what it truly represents is Microsoft hosting Exchange and SharePoint services on its own servers -- in "the cloud" -- on behalf of business clients. But the problem with this product has to do with selling it, because Microsoft's partners make a substantial share of their revenue from reselling server software suites -- the very class of products which BPOS would render unnecessary.
At its Worldwide Partner Conference in Houston this morning, Microsoft addressed this problem by attempting to build some kind of incentive whereby partners can profitably resell its BPOS online hosting services.
The new plan works like this: First, Microsoft builds a new brand around an entry-level tier of its online services. For now, the company calls this brand Deskless Worker (in the vein of "paperless office"). This tier will include what it currently calls Exchange Online Deskless Worker and SharePoint Online Deskless Worker, and can be resold at a price of $3 per month per user for both components, or $2 per month for each component separately.
"What the Deskless Worker suite is designed for, is a class of user in an organization that today doesn't enjoy the benefits of communication and collaboration technology," Microsoft's online services director Eron Kelly told reporters this morning. "Based on some of our research, we found that almost 50% of employees in the world today are considered 'deskless workers' who don't have access to a PC on a regular basis. Yet companies are increasingly interested in using e-mail and other Web-based technologies to communicate and collaborate with these types of employees."
Next, the company will build an enterprise-class tier of services that are essentially on par with what its licensed server software already provides -- direct counterparts of Exchange, SharePoint, and other services, only hosted by Microsoft. Partners can resell this tier on a subscription basis for $15 per user per month as a suite, or on an a la carte scale. Office Communications Online, Dynamics CRM Online, and Live Meeting 2007 are also part of this suite.
The functionality differences between the two tiers could be considerable. From the user's vantage point, Kelly told reporters today, the Exchange e-mail hosting feature will appear as something he described as "Outlook Web Access Lite."
"The version that most information workers use is the full-featured version of Outlook Web Access that really mirrors Outlook. It has the reading pane, and a lot of flexibility on how you view e-mail -- conversation view, subject view, time view. It allows you to look at your calendar across multiple days and weeks...Outlook Web Access Lite is a very simplified view of e-mail; it just creates e-mail in a simple list. Your calendar is a one day-at-a-time calendar, and the experience is very simplified, which is exactly what a deskless worker really needs. They're not going through hundreds of e-mails a day; they're going through a couple. This is your factory floor worker, or a nurse in a hospital -- someone who's going to use e-mail to just get simple communications from the corporation, not a core tool that they'll use every day."
Similarly, he added, the SharePoint service for the Deskless Worker suite will be read-only access to SharePoint intranet sites, rather than the two-way collaboration that the enterprise class provides.
As Kelly pointed out, partners may also be able to pick up some extra revenue by capitalizing on the fact that their clients will need to migrate to these BPOS services. "Now partners can help customers do mailbox migrations, synchronizing the Active Directory with the customer's environment into our environment, and then building out SharePoint sites and doing SharePoint customization -- much like many of our partners do today. When they're doing all those tasks, they're able to charge customers for professional services, much like they do today. So really what happens with this move to online services, is partners have a new tool in their toolbox where we will be compensating them for driving business, and they will be able to continue to make money on top of those engagements, like they do today in a very traditional fashion."
How much will partners be able to earn? "Partners will make 12% of the Year 1 subscription value, as well as 6% of the ongoing subscription value -- which translates into 18% of the Year 1 value, and 6% ongoing...It means that partners are creating an ongoing, recurring revenue foundation that they can use to build a business on top of."
A precise, time-specific agenda for the rollout of these services was not laid out, although existing and prospective partners were invited today to sign up for what Microsoft is describing as a beta of "Online Services Momentum." In this campaign, partners distribute betas of BPOS (though it's notable that the beta site itself refers to the product as "Microsoft Online Services (MOS)" ) to their clients, some of which may be given promotional consideration by Microsoft.
