Microsoft Online Services Aims to Maintain Business Customers

Now that Microsoft (MSFT) has shown how online productivity applications and communications/groupware should be properly packaged, we can enter the new era of worker choice.

It's not that different from the choices developers have been making for years: Do you want the convenience of neat packaging (at the cost of flexibility and choice) or do you want to pick a-la-carte components that may best meet your needs and avoid lock-in?

Microsoft Online Services [MOS] was launched for the U.S. Monday by Bill Gates at the annual Microsoft Office SharePoint Conference. The bevy of applications is designed to appeal to many kinds of users, and businesses of most sizes and character. A limited beta has been set up, with general availability during the second half of this year.

Core services will include Web-based e-mail, calendaring, contacts, shared workspaces, and webconferencing and videoconferencing over the Web. Microsoft is characterizing the services as part of its "software plus services" drive, so it's hard to tell how much of the "software" (that stuff installed on the PC or server) you'll need to use MOS.

Microsoft says these services will be "managed through a single Web-based interface," which sounds like a portal you'll need to log in to to add or manage users. "IT professionals can monitor the performance of the services, add and configure users, submit and track support requests, and manage users and licenses," says Microsoft.

As in development, some shops like a nice big package, with per developer seat licenses. Others give their developers more choice on tools, utilities, desktop OS, frameworks. They seem more interested in the work the developers do, than in how they do it.

We could see a similar breakdown among more general computing users, given the MOS versus Google (GOOG) services offerings so far. This is more than a matter of style or taste, one model is born of and imbued with client/server, and the other is of and imbued with the Web. You know which is which.

So, in effect, Microsoft is placing a Web shell on its old model, just like it put a GUI shell on DOS with DOS 5, and another shell on that with Windows 95.

Of course on costs, the beauty and/or devil is in the details. This is a subscription service, designed for businesses. Those businesses will pay on a per-user subscription basis. Those Microsoft shops, existing customers with Software Assurance on their Microsoft Client Access Licenses (CALs) will get a discount.

So there are two big issues here: Total cost, and convenience. And those will break down differently if you're a Microsoft "Assurance"-level user or a non-Microsoft user. We don't know the numbers yet, but it's going to be the real nut in this.

Microsoft will need to skate delicately on thin ice to make the total cost close enough to the way assurance users pay to prevent them from moving too quickly. But, the total cost will need to be low enough so that the Microsoft way to online SaaS will be marginally competitive against Google and other providers of online productivity applications and communications/groupware as services.

And they way this is set up, it's almost as if Microsoft has given up on competing for individuals, students, SOHOs, and perhaps businesses of less than 50 people. It's almost as if they don't think they can compete with Google there -- at least not for the foreseeable future.

This is, then, about maintaining the base of the small businesses and department-level buyers of Microsoft products. In essence, this is defense. It is designed to make it confusing or economically difficult to calibrate total costs, given the complexity of factoring installations, older apps, licenses, and the entire 20-year-old hairball.

And what Microsoft must do, in addition to making the true cost-benefits analysis murky, is to absolutely win on packaging and convenience. And this is where Google is vulnerable. Google has still to show, aside from costs, how businesses of all sorts can adopt their services and approach in an easy to manage way, that packages things up neatly for the IT folks, and that make a transition from the hairball easy, convenient, and well-understood.

And so Google continues the march into businesses via the organic, user-generated interest and convenience level. Google takes the early lead on the individuals and younger, greenfield companies.

And Microsoft places a bulwark around its empire. This could be a long slog.