By David Sims
[email protected]
The news as of the first coffee this morning, and the music
is a good ol’ Tom Waits-a-Thon on the CD changer – Mule Variations, Rain Dogs,
Swordfishtrombones, Used Songs 1973-1980, oh, a veritable
cornucopia. Note to self: Must download Nighthawks
At the Diner to replace copy on “permanent loan” to forgotten beneficiary:
After almost missing the Internet train, Bill Gates
is determined not to let Microsoft miss what he calls the latest “sea
change,” the migration to online services.
As the Associated
Press reports, “Bill Gates wrote to top-level
executives in a memo aimed at rallying his troops against the new competitive
threats the company faces.” That threat would be the technology industry shift’s
to Internet-based software and services.
“In an e-mail to top executives, dated Oct. 30 and obtained
late Tuesday by The Associated Press, Gates urged company leaders to ‘act
quickly and decisively’ to move further into the field of offering such
services, in order to best formidable competitors.”
Of course this isn’t the first time Microsoft has
acknowledged the importance of delivering technology online, First CoffeeSM’s
reminded of Steve Ballmer’s threat that Microsoft was going to give
salesforce.com “a run for its money” in the online hosted CRM space.
“This coming ‘services wave’ will be very disruptive,” the
AP reports Gates writing. “We have competitors who will seize on these
approaches and challenge us – still, the opportunity to lead is very clear.”
While Gates’s memo ten years ago titled “The Internet Tidal
Wave,” prompted “a massive shift at Microsoft toward Internet-based technology,”
the new memo includes a “memo from Ray Ozzie, one of Microsoft’s three chief
technical officers, which outlined ideas for broad companywide changes that can
address the growing competitive threat.”
Ozzie’s memo points out the plain fact that Microsoft “faces
intense competition from companies like Google Inc.,” the AP says. Ozzie recommends
Microsoft “focus on key tenets of the new model, including a shift toward
offering free, advertising-supported offerings and more sophisticated,
Internet-based methods of delivering products.”
Do they have a chance? More to the point, should they be
thinking about competing in this area?
Industry observer Ina Fried
thinks Microsoft has to be careful not to mess with what’s profitable for them
right now. She quotes Gartner research fellow Tom Bittman, who remarked that
for Microsoft the question isn’t so much how can they beat Google, but “it’s
more about how you are going to beat the Google model. Microsoft is going to be
forced to compete with Google, forced to compete with its own business model.”
Therefore, Bittman and others fear, according to Fried, “that
any online offerings from Microsoft could potentially cannibalize sales of the
company’s shrink-wrapped software, like Windows and Office, which make up the
bulk of the company’s profits.”
Those already in the online software delivery space dismiss
Microsoft’s efforts as too little, too late. In an interview early this fall
Greg Gianforte, CEO of RightNow Technologies, said Microsoft’s recent emphasis
on hosted CRM and the hosted model in general is simply an affirmation of “the
fact that the on-demand space is going to dominate the enterprise software
market as a whole.”
“It’s probably better to see on-demand as a business model
that’s completely replacing an old-fashioned, low-ROI model that is becoming
another artifact in the history of information technology,” Gianforte said. “These companies [Microsoft and SAP, which
has also announced a big push into hosted services] are simply recognizing that
the hosted model we’ve been delivering for almost a decade now is the way to
go.”
Their problem, Gianforte says, is that “they can’t possibly
beat us at our own game. SAP, for example, would have to completely re-write
all of its applications from scratch in order to build a multi-tenancy
architecture to match ours. And, from a
business perspective, they would have to replace this huge services ecosystem
they’ve developed over the years that thrives on complexity and difficulty.
“Microsoft faces similar hurdles. Enterprise applications
are something you have to sell direct, which they don’t do. And Microsoft’s
customers are in IT – not the business unit, which is where the on-demand buyer
is.”
NetSuite’s CEO Zach Nelson is equally publicly unconcerned. “They
will be too late to the party when they jump in,” he said earlier this fall
about Microsoft’s announced hosted CRM project. “We have a 7 year head start in
building the functionality and the systems to deliver software as a service. I
don’t care how much money or how many developers they throw at the problem, it
will take them 7 years to get to where we are today.”
But, Nelson says, “I hope they do announce on demand
products in the CRM and ERP space. It will be the ultimate validation of what
we are doing, and will force customer to look at our solutions as well as
theirs.”
Salesforce.com’s Marc Benioff was characteristically blunt: “Microsoft has really let this industry and
its customers down. Where is the innovation? While we are preparing to release
the 19th generation of our on-demand service, they are struggling to
release their second. And this is true across many product areas that are
popular with businesses and consumers today. Google, RIM, eBay and Apple
all thrive today because Microsoft has failed to innovate.”
Yeah, but what do
you really think, Marc?
Much of the problem is simply a company built to do one
thing has a most difficult time changing direction in mid-stream to being
something else. “These big software companies like to take the money and run.
They have no idea what it’s like to depend on a subscription model where you
must satisfy your customer to get a renewal,” Gianforte says. “We do. The
dinosaurs of the software industry can make all the noise they want to. To really come after us, they’d have to
completely cannibalize their existing business. They can’t afford to do that, and Wall Street won’t let them.”
Microsoft has the deep pockets to make a serious run at
hosted business technology, and are making what appear to be serious forays
into the arena. They’ve announced plans for Windows Live and Office Live, two
Web-based offerings that aim “to help the company compete with Google, Yahoo
Inc., salesforce.com and other companies that are already seeing success with
such Web-based offerings,” the AP writes.
The
Register is its usual caustic – and insightful – self regarding Microsoft’s
Live offerings: “Live software is pure Web 2.0 pop culture. It’s based on a
well-established ‘service in the cloud’ architecture that fuses – and confuses
– things already in the market, from IM, social networking, downloadable music
services and blogs to hosted email, business intelligence and CRM services.”
Basically the fear in Redmond is that as more and more is
available via online services, “from word processing to storing photos,” as the
AP puts it, “there will be less of a need for Microsoft’s lucrative Windows
operating system and Office business software.”
The question, as Bittman says, isn’t if Microsoft needs to
do this, but can they transform such a huge corporate culture without sinking during
in-the-water repairs? As Fried quotes him, “Can high-volume, high-margin
software compete against high-volume, low-margin advertising?” he said. “It’s
the clash of two models.”
After all, as industry observer Mary Jo Foley has reported, in
early November Brad Wilson, Microsoft’s general manager of CRM, clarified Microsoft’s
plans around releasing a hosted version of its CRM 3.0 product: “We are not
going to offer a hosted solution ourselves,” Wilson said. “We don’t need to
play somebody else’s game.”
Microsoft will provide a hosting infrastructure and “encourage
our partners to make the product available on a hosted basis, where
appropriate,” Wilson said. What that means, Foley explained, is “Microsoft
announced earlier this year that it would make its CRM 3.0 product available
via subscription-based pricing under service provider licensing agreements.
This means channel partners will be able to offer interested customers a hosted
version of CRM 3.0, for which they can pay as they go.”
Confusing? Sure is. Maybe Microsoft not only has to figure
out how to retool the ship in the water, but where they really want that ship
to go. It doesn’t sound as if they know yet.
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