Microsoft moves closer to a hosted solution
Published: 16 Mar 2005 11:45 GMT
One of the benefits for companies such as Microsoft is a consistent revenue stream. Since the late 1990s, Microsoft has been trying to get more of its sales to come from subscription-like contracts rather than through one-time licences.
"I don't think there is any question that Microsoft would love to get there," said Paul DeGroot, an analyst with market researcher Directions on Microsoft. "It's quite evident, particularly as product release cycles get longer."
DeGroot said Microsoft's historical method of getting paid for a one-time licence worked pretty well when major releases came every two to three years and customers moved comparatively quickly to update their software.
However, he said, many products are now getting updated more slowly, such as the company's SQL Server database and Windows operating system, which will have gone five years between major paid updates by the time the next versions are released.
"You may have a long dry spell there," DeGroot said. Microsoft has tried to fill that gap with various types of annuity pricing, such as its Software Assurance program. In such programs, Microsoft charges a portion of its original licence fee each year in exchange for enhanced support and the right to receive any upgrades that are released.
In a sense, Microsoft has been moving to servicelike pricing even though it's been delivering its software in pretty much the same old way.
The response, analysts say, has been lukewarm. DeGroot said many companies have been less than enthusiastic about renewing such support pacts when they find there's not been a significant upgrade during the term of the contract.
Though Wainewright said Internet-based software services are a challenge for parts of Microsoft's business, such as MBS, he sees a potentially expanded role coming for the company's mainstay Office program.
"Office has an opportunity to be a rich client for these applications," he said. Because Office is so widely employed, companies can use it as a familiar interface to connect to these online applications. Wainewright pointed specifically to one way Microsoft is already doing that internally. In the company's Project Elixir, Microsoft is using Outlook as a means to view data from its third-party customer relationship management software.
Perhaps equally important, Microsoft is reshaping the overall Windows environment to better work in a world in which software resides both on a company's PCs and at remote servers hosted by another company. In particular, Wainewright points to the Indigo communications system that Microsoft plans to debut next year, alongside the Longhorn upgrade to Windows. Indigo will be a layer within Windows that makes it easier for separate programs to exchange data using Web services protocols.
Such efforts are particularly important to counter the growing threat of browser-based applications, Wainewright said, highlighting Google's Gmail as an example of "quite a powerful browser-based interface."
In the end, Gates sees a world in which there is a mix of both hosted software and that which is run from company-owned PCs and servers.
"Clearly we want to accommodate both models and give people even the flexibility if they want to switch from one approach to the other approach," he said. "But we'll have more to say about that."
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