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Microsoft Opens Online Services to Small, Medium Companies

Posted on: Tuesday, 4 March 2008, 00:00 CST

Microsoft, facing a threat from Google, IBM and other rivals, is ramping up its online services, which are hosted applications that manage such things as e-mail, calendars and video conferencing.

Monday, the company opened up its online services to small and medium-size businesses. Such companies can now test the applications. Microsoft expects to release a full version of the services -- and charge a subscription fee for it -- in the second half of this year.

The move follows the software giant's move last fall to begin testing similar services with companies with more than 5,000 employees.

"It's a pretty big deal for Microsoft to be doing this," said Matt Rosoff, an analyst at Directions on Microsoft, a consulting firm. "They've talked about (online) services for many years. They're really finally serious about delivering (them)."

The services are essentially online versions of Microsoft software such as Exchange and SharePoint that companies typically run on their internal server computers. In the new services, Microsoft will host the software underlying the online services on its computers and manage them.

Such a system could appeal to companies interested in outsourcing some of their technology operations. Companies using hosted software don't have to worry about hardware failures or making sure their software is up to date with the latest patches, Rosoff noted.

Already, companies such as Coca-Cola, Ceridian and Blockbuster are

testing out Microsoft's online services.

Microsoft has long dominated office productivity software. But companies such as Google, Salesforce.com and others -- including Microsoft acquisition target Yahoo -- have seen an opportunity to compete with Microsoft by offering similar software that's hosted online. Microsoft's move is seen as a response to the potential threat of those offerings.

But the companies most affected by Microsoft's move could be the company's partners who are already hosting Exchange or SharePoint servers for other companies, analysts noted. Such partners may be able to compete with Microsoft by offering customized applications to clients, they said.

"That's one of the details that they need to work out," said Kathy Quirk, a research manager at consulting firm IDC.

Microsoft hopes to appeal to customers by offering them the flexibility of running its software in the traditional way on their own IT systems, by tapping into Microsoft's new online offerings, or some combination of the two.

"In the future, customers and partners should expect to see this kind of choice and flexibility for all of Microsoft's software and server products," Gates said in a statement.

Despite the appeal of hosted applications, Microsoft's traditional packaged software will probably continue to constitute the bulk of its sales for the foreseeable future, analysts said. Many companies want more control over their data and may worry about the reliability and availability of the hosted software, they said.

"If there's a problem in your data center, you know how to fix it. If it's in Microsoft's, it might take a little longer," Rosoff said.

Source: San Jose Mercury News

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