Microsoft Adopts SaaS-y Licensing Models

Microsoft seems serious about SaaS. If so, SaaS -- often seen as a disruptive technology -- might ultimately become a major disruptive market force.

You know that a new technology or trend has arrived when Microsoft Corp. commits substantial resources to it. Consider the company's recent move with virtualization (and its Hyper V technology), for example.

Now, Microsoft might be on the cusp of a software-as-a-service (SaaS) moment. If so, SaaS -- which has so far amounted to a disruptive technology -- might ultimately comprise a hugely disruptive market force.

Earlier this month, Microsoft announced new SaaS-like pricing and distribution terms for two of its biggest -- and eminently SaaS-able -- enterprise products: its Exchange messaging and collaboration platform and its SharePoint portal and collaboration environment.

According to experts, this is a "very big deal" because SaaS -- on its own terms -- has long constituted an explicit threat to Microsoft's hugely lucrative on-premises dominance. By announcing SaaS-like versions of two of its most popular enterprise software packages, Redmond will help facilitate -- industry seer Gartner Inc. prefers the term "accelerate" -- a move away from the use (and longstanding hegemony) of on-premises collaboration software.

"Microsoft's newly announced collaboration SaaS pricing is likely to generate substantial interest from enterprises seeking to cut costs or move away from premises-based collaboration deployments," write Gartner analysts Matthew Cain and Francis O'Brien, in a research newsflash.

For starters, they note, Microsoft's SaaS-ification seems more than a token gesture. Some organizations will realize substantial cost savings when they make the switch from on-premises to SaaS-based licensing models. For example, Microsoft outlined a $10-per-user-per month for Exchange SaaS with a default 1 GB store. SharePoint SaaS is even less costly at $7.25 per month. Exchange customers who want to forgo the bloat of the on-the-desktop Outlook client (for which Microsoft plans to charge them extra, in any event), can pony up $2 for Outlook Web Access SaaS.

The upshot, Cain and O'Brien write, is that small- and mid-sized enterprise (SME) customers can probably realize substantial savings -- as much as 33 percent, for a full-on Exchange and SharePoint bundle -- by opting for SaaS over traditional on-premises software licensing models.

"The economics will be most appealing to small enterprises [i.e., those with fewer than 1,000 employees], which have the highest operational unit cost and generally can't provide the BPOS suite services internally for less than $15 per user per month," the duo writes.

Shops that have only just renegotiated on-premises licensing agreements aren't out of luck, either: they can exchange these licenses for SaaS discounts that Microsoft promises will be commensurate with their value.

For SME customers, Microsoft's move seems like an unalloyed good. For large customers, however, it basically amounts to a wash on costs.

"Enterprises with 20,000 or more employees are unlikely to experience cost savings, but may be looking to move to a SaaS model for other reasons," Cain and O'Brien write. "Microsoft's inclusion of a strong channel model for SaaS distribution will ensure broad market coverage and should keep government regulators at bay."

There's a lesson here, of course. Microsoft didn't suddenly get SaaS-y. Consider Redmond's reversal of course in the virtualization arena. It didn't simply happen. The success of VMWare Inc., Citrix Systems Inc., and other players -- more than a desire to innovate -- helped in Redmond's sudden about-face (see

Ditto for Microsoft's reversal on the SaaS front, which the Gartner duo says is due to pressure from Google Inc. and its nascent Google Apps push.

"Microsoft likely is being forced into aggressive support for collaboration SaaS by Google Apps, which is priced at $4 per user per month," they point out. "While the e-mail portion of Google Apps has yet to reach critical mass in market share, it is maturing rapidly and is likely to give Microsoft significant competition during the next several years."

If Gartner doesn't quite envision a slippery slope of soon-and-inevitably-to-be-SaaS-ified software segments, it also doesn't dismiss such a situation as completely far-fetched.

Today, Microsoft is fending off Google in the collaboration segment; tomorrow, Gartner argues, Microsoft must blunt Google's incursion into its most lucrative market segment: the personal productivity space, which is dominated by Microsoft's Office productivity suite. "Personal productivity applications will likely be the next area in which the two companies compete, as Microsoft races to offer a cost-effective SaaS version of Office before Google's personal productivity suite attains maturity," they write.

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