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Microsoft's Hosted Services: A Turning Point for Partners?

Microsoft at WPC today unveiled its hosted service offerings and pricing -- something that has been deferred, to partner unease, for about two years.

Microsoft's partner community got new marching orders today as Microsoft unveiled its hosted service offerings and pricing -- something that has been deferred, to partner unease, for about two years or so. The new model, based on Microsoft Online Services, was disclosed on Tuesday at Microsoft's Worldwide Partner Conference, currently ongoing in Houston.

The new hosted services plan describes two Microsoft solutions offerings to be delivered to customers via software-as-a-service, or over the Internet. In this scenario, partners aren't necessarily involved in installing Microsoft software behind the customer's firewall. The model can have the effect of reducing Microsoft's dependency on its traditional mainstay and money-makers -- its vast partner community. Indeed, partners may not be wholly pleased by the new Microsoft Online Services plan.

Redmond Channel Partner's Senior Editor, Lee Pender, reporting on Microsoft's software plus services plan from the event, cited concerns. For starters, Microsoft could undercut the pricing of its partners. Microsoft also will have direct access to its partners' customers, and that may remove partners from future up-sell opportunities. That kind of talk can spook partners, something that was not lost on Stephen Elop, the new president of the Microsoft Business Division, who delivered a pep talk to the partner crowd at the event.

The two new hosted packages available through Microsoft Online Solutions include a Deskless Worker Suite and a Business Productivity Online Suite. Both deliver customer access to Microsoft solutions running on Microsoft's own servers.

The Deskless Worker Suite provides e-mail, calendars and other office collaboration tools for people who need occasional access to computers. The offering, priced at $3 per user per month, uses Exchange Online Deskless Worker and SharePoint Online Desktop Worker applications.

The Business Productivity Online Suite is a little more robust, priced at $15 per user per month. It uses Exchange Online, Office SharePoint Online, Office Communications Online and Office Live Meeting.

With both suites, customers have an option to subscribe to individual services, according to a Microsoft announcement.

Partners that sell the suites, or components of them, get compensated at 12 percent of the contract price during the first year. After that time, if the subscription continues, partners are compensated at six percent of the subscription fee annually.

This Worldwide Partner Conference announcement represented perhaps the clearest statement to date from Microsoft about how its sees partners getting paid in the new software plus services world. Back in 2006, Microsoft CEO Steve Ballmer announced at the Worldwide Partner Conference that Microsoft still hadn't quite figured out the model. However, some partners forged ahead without a specific plan nonetheless.

One such company is Honolulu-based Phase2 International, a Microsoft Gold Certified Partner that has been offering hosted and customized Microsoft solutions to small-to-medium businesses using its own network of servers. The company has built applications for particular vertical markets, such as the architecture and construction market with its ShareCAD Pro solution. It has been so successful of late that it increased its development team and data centers, and opened a new office in Chicago.

Phase2 is still figuring out what the Microsoft Online Services model means in terms of their operations. However, the company has invested in its infrastructure to reach customers around the world and it doesn't plan to be locked into a single vendor, according to Adam Smith, Phase2's director of marketing, in an e-mail.

"We have rounded out our suite of applications with other vendors' products and software that we write internally," he explained.

Microsoft's 12 percent/six percent pricing scheme wasn't initially impressive, according to Smith.

"This may affect our partners, but we offer better margins than that," Smith wrote.

As for the idea that Microsoft may end up competing with its partners as it rolls out Microsoft Online Services, Smith offered some guarded optimism.

"We do understand that this new strategy will enable many other providers to resell their products," he wrote. "I'm sure if that's the case then we will probably see a drop-off initially on the number of partners signing up with us to private-label services. Eventually, we feel like after working with Microsoft directly, that they will see the value in partnering with a provider that can give them more individual attention."

Microsoft's announcement of the pricing details omitted some key details, Smith noted, plus Phase2's solutions extend "well beyond what Microsoft is currently offering," he added.

"Our pricing includes setup, training, customization and support," he said. "Without knowing any details, I assume these will all be add-ons for the Microsoft plan. We will have to take a closer look at pricing."

Microsoft initiated a new "Quickstart for Microsoft Online Services" effort that helps partners enroll and deliver hosted services, which can be accessed here.

There's also a beta signup for U.S.-based companies wanting to get hosted applications via Microsoft Online Services, which can be accessed here.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.

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