If Microsoft wants to succeed in becoming a services company it will have to undergo a major transformation in its corporate culture, business model, and partner and customer relationships.
It's a seismic shift Microsoft itself recognises, and one that many say will determine whether the software giant can turn itself from a packaged-software company into a provider of what it calls "software plus services". And it will determine whether corporate users view Microsoft as a trusted provider of Web-based computing resources.
At its recent Worldwide Partner Conference, CEO, Steve Ballmer, laid out the most complete picture yet of his company's enterprise future, detailing the ways it planned to deliver software and services. While on-premises software won't go away, Ballmer said services hosted by a partner or hosted by Microsoft itself - or a combination of those two - would lead a revolution that combined today's technology with new service models.
Microsoft sees an intersection between its fledgling Microsoft Managed Services business and the acceptance by smaller companies of pure online services, such as Microsoft's Dynamics CRM Live. Ballmer envisions a world of various client devices talking to a managed services-based infrastructure that delivers all the capabilities offered in Microsoft's packaged software, such as Windows Server, Active Directory and Systems Center Operations Manager.
"Priority No. 1 in terms of our long-term outlook is this transformation," he said. "It is an ambitious project for us, but it is very important."
An ambitious aim
Ambitious is a word many outside of Microsoft are also using. "This is a huge cultural shift for Microsoft," president of Acumen Management Group, Ken Thoreson, said. The company led a conference session on the skills needed by managed-service providers.
"It's ok to make products, test them, quality-assure them and send them out to someone else; but when you are on the other end of the phone talking to a business, the sensitivity level changes [especially] on the support side," he said.
The front line of defence becomes a critical issue when hosting services for large numbers of customers, Thoreson said. Microsoft had to learn that skill, and the partners that come along on the services bandwagon must also have it. Microsoft will also have to change in other ways including redesigning software to work in a services model, according to those already in the services trenches. That means adding multi-tenant capabilities, which let multiple companies use a single application. Microsoft will release its first multi-tenant software later this year when Dynamics CRM Live is launched.
The multi-tenant approach reduces the overhead of hosting applications by ensuring there's one version of the software, one hardware platform and one application to patch and upgrade.
"It is easy to understand the benefits of software-as-a-service; what is not easy to understand is how you get from where you are today and delivering that in a services model," director of product management for Computer Sciences Corp, Robert Krygowski, said. It launched a software-as-a-service program in February to go along with its established outsourcing, hosting, system integration and consulting services.
Microsoft will also have to change the way it interacts with customers, who will not disappear into their corporate networks once a purchase is completed. "Microsoft will have to answer questions about what a service does, not how the software is built," Krygowski said. "It has to get its arms around security, availability, bandwidth and power consumption; and combine service delivery with tier-one support."
The game plan
For its part, Microsoft is approaching the challenges with its usual bravado, but the software giant is not starting from round zero: It provides email, instant messaging and other services to hundreds of millions of users via Windows Live.
On the enterprise side, Microsoft Managed Services - an application-hosting service for companies with at least 5000 users that was launched three years ago - is an incubator providing services to Energizer, XL Capital and two companies as yet unnamed. They are buying managed services around Exchange, SharePoint Server, Live Communications Server and desktop management.
Microsoft also has a number of datacenters around the globe. On the programming side, it is adapting its .Net Framework for the services model and creating new client tools, such as the Silverlight browser plug-in that supports rich multimedia application development. Microsoft also plans later this year to launch Version 1 of a 12- to 24-month project to create Windows Live Cloud Infrastructure Services, Web-based services such as directory, identity and storage.
The operating system services target companies and developers, who will wrap them around their applications, such as tapping an online directory service to generate a Kerberos ticket that a user would present to gain access to an on-premises or service-based application.
Friend or foe?
Partners see promise in the model but also realise Microsoft could become a competitor.
"I think there is an opportunity to make the services side a key to our back end," product development manager for professional Computer Systems, Dan Kock, said. The company offers accounting and billing for electric companies, and already uses Web services and an industry-specific integration specification called MultiSpeak.
Kock said his software was delivered now via Terminal Services but he could envision giving users a rich client with connections to various backend services for reporting, application mashups or customer service in the software-plus services model.
That also could be the start of new business opportunities, he said. Kock liked Microsoft's services push and didn't see it as a competitive threat. While others see the chance for a head-on collision, they are looking for ways to adapt and go beyond what Microsoft may offer.
"Microsoft's strategy to provide choice for procuring functionality is correct," CEO of Teneros, which offers a disaster-recovery appliance for Exchange, Steve Lewis, said. "But doing what we do is hard. Microsoft lives in a world that allows you the flexibility to do what you want, but the minute you do that as a service it does not work."
Teneros recently introduced its appliance as a service and sees overlap with Microsoft's Forefront security offerings. Lewis welcomed the competition. "Microsoft has to build within itself a profoundly different organisation. They have to get the services culture right, because what changes is everything - policy, procedures, control systems, it all changes," he said.
They are changes that Microsoft said would come sooner rather than later. "In many regards Microsoft has proven an ability to evolve with markets," president of OpSource, which supports software-as-a-service deployments, Ray Solnik, said. "But there are definitely challenges to overcome, such as figuring out where they draw the line between what their partners are going to do and what they are going to do."