5 Reasons Microsoft Will Get SaaS Right

Is software-as-a-service (SaaS) killing Microsoft (MSFT)? Hardly. Stephen Elop, president of the Microsoft Business Division, is expected to discuss SaaS during his July 8 keynote at the company’s Worldwide Partner Conference in Houston. But even before Elop takes the stage, here are five reasons why Microsoft won’t lose the SaaS wars.

1. Cash (and lots of it): During a recent quarter, Microsoft generated more than $50 million in net income per day. Do some quick math, and you’ll find that it takes Microsoft three hours to exceed Salesforce.com’s (CRM) entire quarterly net income, according to my January 2008 analysis.

Microsoft can take those profits and plow them into SaaS R&D faster than nearly any company on the planet. And remember: Most SaaS companies are taking a beating this year. The SaaS 20 Stock Index is down roughly 20 percent since January.

2. Exchange, Dynamics and SharePoint: From big companies like Ingram Micro Seismic to small managed service providers (MSPs) like Azaleos, many Microsoft partners are already hosting Microsoft applications like Exchange, Dynamics and SharePoint, and charging customers a monthly fee for those hosted services.

3. Partner Investments: Microsoft’s partners are buying one another in order to offer hosted Microsoft applications. Recent examples include Tribidge buying Productive Gap and mindSHIFT buying Collaboration Online. Those deals would never happen if partners thought Microsoft’s SaaS strategy will fail.

4. eBusiness All Over Again: Remember when eBusiness was the rage in the 1990s? Lots of pundits predicted eBusiness application start-ups would topple Oracle, SAP and Microsoft. But those three application providers eventually figured out the world of Internet applications. The same trend will repeat itself with SaaS.

5. Channel Sales: The vast majority of Microsoft’s sales occur through channel partners (PC makers, integrators, consultants, service providers, etc.).

Microsoft will be tempted to sell many of its SaaS services directly to customers — eliminating some channel partners in the process.

But ultimately, Microsoft will strike a balance with partners because Microsoft can’t afford to alienate the very people who have promoted its software for so long.

Sure, Microsoft’s SaaS strategy will face plenty of threats. Most notably, a large portion of the SaaS industry is shifting to open source-based solutions, such as SugarCRM, MySQL and Linux.

Still, dismissing Microsoft in the SaaS market would be a foolish move. When Stephen Elop takes the stage at Microsoft’s Worldwide Partner Conference on July 8, we’ll see the next chapter in Microsoft’s SaaS strategy begin to unfold.

Disclosure: none

Comments

[IT@SmallBiz:]

SaaS alone will definitely not topple Microsoft, and I do think they will eventually figure it out to some extent. However, I do think they are showing several very large weaknesses right now. The major weakness they are currently showing is the fact that they have apparently forgotten to listen to their market and customers ignoring the pleas to keep XP around and attempting to force people to Vista. So, the biggest question that we will find out fairly soon is how much will that move hurt them. Apart from that, the next biggest question is how deep into the company is this disregard for the market/customer imbedded? They have no chance in the SaaS market if they take this attitude there as well.

2008 Jul 08 08:37 AM

[Tom B:]

"many Microsoft partners are already hosting Microsoft applications like Exchange, Dynamics and SharePoint,"

It's almost like an intelligence test-- any company deploying Sharepoint in this 21st century is surely run by cretins.

2008 Jul 08 11:00 AM

[Zomack:]

Don't forget the huge advantage offered by the inertia of their monopoly-ish installed base(eg Windows, Office) that makes up the primary "software" component of their their Software+Services strategy. This base(whether eroding or not it's still currently huge) plus their cash plus their talent/attitude(like them or not, there are some smart people at MSFT who don't want to be second place), and their sales/partner network and they'll certainly be a presence for a long time.

2008 Jul 08 11:14 AM

[Randall Arnold:]

Tom said, "It's almost like an intelligence test-- any company deploying Sharepoint in this 21st century is surely run by cretins."

Unless your alternative is Lotus Notes. Sharepoint deployers look like geniuses in contrast.

2008 Jul 09 11:46 AM