Special Report: Microsoft goes Live with hosting, but no CRM....yet!

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Microsoft lurched one step closer to hosting its own CRM applications with the announcement of a new strategy that lets customers go online for e-mail, business automation tasks, and other software services.

The new offerings, dubbed Windows Live and Office Live, were unveiled in San Francisco by its chairman and chief software architect, Bill Gates, and its new chief technology officer, Ray Ozzie, who created Lotus Notes and formerly headaed up collaboration software maker Groove Networks.

The new Internet-based services, some of which supplant current Microsoft products, will range from instant messaging to computer-based phone calling on the consumer side, and from managing business tasks to collaborating with partners on the enterprise side.

With the new Microsoft tools, small businesses will be able to build an online presence and manage projects over the Internet, and consumers will be able to share digital photos and other files that can be accessed from home, the office, or on the road. The consumer services will be supported mostly by advertising, while the business services will be ad-supported and sold through subscriptions.

"It's a revolution in how we think about software," said Gates. "This kind of software that we are building here will be very dramatic. This is a big change for everybody, not just users but also developers, business partners and every part of the ecosystem. This is the Live era."

Windows Live, which the company is testing now, will combine a Web site that features a search engine, E-mail, instant-messaging software, online maps, an Internet phone, and other applications that can follow users around by automatically updating files and preferences across the various PCs, PDAs, and cell phones they interact with on a daily basis. Microsoft will build a new client-side layer of software that developers can program to so their apps can take advantage of Windows Live features. Windows Live will also let PC users share files over the Internet by dropping them into a special desktop folder. Microsoft plans to make Windows Live functions available free and sell ads on the site.

Office Live, which Microsoft plans to start testing early next year, will be available in free, ad-supported, and paid versions. It's primarily aimed at small businesses. Microsoft demonstrated the ability for users to collaborate over the Internet on a spreadsheet, for example. Both products will be funded by new advertising software called AdSense that Microsoft is testing in France and Singapore.

While attention on this occasion was focused on desktop applications, over time, virtually every piece of Microsoft's software lineup - including CRM - will be offered as a server or a service, according to Gates. Microsoft has told partners to expect a hosted CRM implementation. With the next release of its CRM product, Microsoft plans to launch Service Provider Licensing Agreements (SPLAs) to ease host licensing. Currently, the only other Microsoft ERP product to be offered via SPLA is Axapta.

The wider strategy has been triggered by pressure on Microsoft from two fronts. Google has made inroads into Microsoft's desktop homeland through its Web-based consumer applications, such as Google desktop search, while on the business front, the software-as-service model of Salesforce.com and NetSuite has caught the attention of small and mid-size companies.

The announcement inevitably stirs memories of Gate’s famous Pearl Harbour day email to all Microsoft employees a decade ago when he announced overnight that all efforts were to be redirected to the internet after previously dismissing its potential. Microsoft went on effectively to wipe out the then dominant Netscape browser which was encroaching on the dominance of Windows.

"Microsoft has taken the path of trying to build a stronger web presence as an end in itself," commented David Bradshaw of analyst firm Ovum. "There are prongs to this attack and the first (Windows Live) is aimed squarely at Google. In particular, it is an attempt to displace Google as the near-default homepage for a growing portion of home and enterprise desktops. What's the betting that it will be the default homepage for Internet Explorer - legislators permitting?

"The second prong is to provide some web-hosting facilities - but how will this help Microsoft? Well, there are some vague words about linking the paid-for versions to Microsoft Office products, in particular Live Meeting and Office Small Business Edition, but no specifics. We think Microsoft has a serious long-term risk of being moved off the corporate desk, replaced by 'webtops' and web-based substitutes (not direct replacements) for its Office suite. These announcements do nothing to address that long-term risk."

Robert Bois of AMR Research argued: "Although the two new services primarily address consumers and small businesses with 10 or fewer employees, the news still marks Microsoft’s largest entrance to date into the growing SaaS market.

"Web-based tools from companies like Google and Yahoo, as well as lower-cost alternatives to Office, such as Sun’s StarOffice, are increasingly threatening Microsoft’s hold on the market And Microsoft is also facing increased competition on the business applications front from rising stars such as salesforce.com, RightNow, and NetSuite for CRM applications.

"While the two new services don’t directly address this second threat, they demonstrate that Microsoft is serious about Software as a Service (SaaS), and that it will embrace the Web as a viable alternative to traditional desktop or client-server application deployments.

"As more details unravel about the upcoming Microsoft CRM 3.0 release, expect the company to outline a SaaS strategy for CRM and other business applications targeting larger businesses. Given that Office integration ranks near the top of functional requirements for CRM applications, Microsoft stands to capitalize on a large existing customer base, whether through traditional licensed software or SaaS."

Industry rivals were predictably unimpressed by Microsoft’s conversion. "It’s the Day of the Dead, a holiday that honors the lives of departed loved ones," mocked Salesforce.com CEO Marc Benioff. Microsoft is having its own quite secular version today. Bill Gates and Ray Ozzie announced a series of "internet-based software services" with "Live" appended to some familiar names: Windows Live, Microsoft Office Live, Windows Live Messenger and so on... The clear implication is that their current product line should be renamed with similar zeal: Windows Dead, Microsoft Office Dead, and Windows Live Messenger Dead.

"Ten years after his Pearl Harbour Day speech, Gates is still is still trying to prove Microsoft’s relevance in the age of the Internet. The real innovators on the Internet: Amazon, eBay, Google, Salesforce.com - have all succeeded because Microsoft has let us down on innovation. Where are Word Live, Excel Live, Outlook Live? The answer is that they are already here: Writely, NumSum, Zimbra, and a generation of others are stepping up to meet the demand where Microsoft has failed to deliver."

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