Microsoft has reemphasized its commitment to delivering software as a service (SaaS) and has outlined bold plans for a partner program as well as explaining why the hosted model need not be bad news for its traditional channel.
The Seattle software giant last year ring-fenced US$6 billion of funding for
With its 'Partnering for the Future' initiative, Microsoft is looking to increase the skill sets of its extended family in order to meet the challenges of a rapidly changing software market which has moved well beyond Microsoft's traditional comfort zone of selling packaged software.
Karl Noakes, director of the partner development group at Microsoft, said: "We need to make sure Microsoft is developing in keeping with the trends and demands of this web 2.0 age."
Through the growth and increased support of its SaaS Incubation and SaaS on-ramp programs, both launched in November 2006, Microsoft hopes to bring innovative ISVs into the fold and help them move from their own traditional model of shifting boxes to delivering services on-demand, said Noakes.
Robert Redgate, consulting manager at analyst house IDC, said: "Every ISV and every software developer should look at whether SaaS can deliver value for them."
Redgate said traditional software sales are currently seeing only around a third of the rate of growth in the SaaS market which is enjoying 21 per cent growth.
He said: "This is because it has dawned on a lot of people, from large enterprises to small businesses, that the cost of owning software is high. Value is a fundamental driver for SaaS." He added that while cost remains a significant driver he doesn't expect to see a slowing in the growth of SaaS implementations.
Although Microsoft has been late to the on-demand table, Noakes claims the company's newfound fondness for SaaS owes everything to the market conditions Redgate described and nothing to a U-turn or any admission Microsoft was wrong in the past to dismiss SaaS.
Noakes said: "The timing's right in terms of the market and the size of the market opportunity. We're still seeing double-digit growth in all areas and our SaaS offering will be complementary to the very healthy and vibrant business we already have."
Noakes said Microsoft will always offer a hybrid model of on-demand and on-premise software. "There is no such thing as one-size fits all," he added.
However, Microsoft's announcements are likely to raise some eyebrows in the pure-play on-demand market, especially at salesforce.com who last year took the wraps off its AppExchange, which was launched in spring 2006 as the company's own way of bringing innovative ISV developments to the mainstream SaaS market.
However, David da Silva, principal consultant at Microsoft partner Conchango, said: "Of course there are other things out there but where do you put your money and where do you bet the farm? I don't think there is another vendor out there who can offer the breadth of technology and the skills that Microsoft does."
Noakes added Microsoft expects the size of its partner community to be unrivalled.
Speaking prior to Microsoft's announcement today, Lindsey Armstrong, EMEA president of salesforce.com, told silicon.com she welcomes Microsoft with open arms.
She said: "We love Microsoft. A few years ago Bill Gates was telling everybody that software as a service wouldn't work and now look what Microsoft is doing."
A further question which hangs over Microsoft's repositioning is what impact its move into the SaaS market will have on its resellers.
Noakes is understandably keen not to disenfranchise any of them.
He said: "We've spent many years building the world's most capable channel and 98 or 99 per cent of Microsoft revenue comes from that channel. We're now working with our existing channel in order to make sure they understand the opportunities which exist with software as a service, on-demand and web 2.0."
One message of encouragement Noakes offered resellers who fear diminished revenues from the onset of SaaS is that it could open doors for businesses who see it as a 'try before you buy' scenario--especially in the SMB sector where they eventually move to an on-premise offering.