Microsoft’s Battle Plan for War on Google and Apple

December 4, 2007 – 8:31 pm

As you know Google has been eating Microsoft’s lunch in the public sector almost as bad as Apple has been embarrassing them in the arena of public perception with the Mac vs PC ads targeting Vista’s “perceived shortcomings” (You have to admit that those ads are funny!).  Neither one is yet dominate among SMB or retail consumers but the battle for market share is setting a stage for a real all out turf war. 

Today I had the privilege of sitting down to the table for a two hour lunch and very “transparent” conversation with Microsoft’s Corporate Vice President of US Small and Midmarket Solution & Partners Group, Michael Park and some other local MS Partners.  You can bet both the Mac ads and the battle for SaaS were topics I was anxious to discuss.

While Michael shared about Microsoft’s vision and marketing strategy we all appreciated how candid he was about some of their shortcomings both with the partners and with their marketing efforts in targeted areas.  At first the Dynamics Partners got into conversations that showed off Michael’s MBA from Harvard and left my little old ME mind spinning.  They talked about things like “mapping the capacity relative to the opportunity” or something like that.  ;-)   Then came the good part as we discussed SaaS and where MS sees the market trend, our role and their role.  I won’t recount the entire conversation but I’ll share the part that I know is of the most interest to my 7 readers.  The part where Microsoft signs Comcast as a SPLA partner thus allowing them to deliver hosted Exchange for free to SMB customers

After Michael explained that the acquisition of sockets (MS platform adoption by end users) was MS’s primary goal in their Office Live and SaaS strategy I asked if that was the reason for singing the SPLA deal with Comcast.  “Yes” was the quick answer.  I asked, “Is there any concern that allowing a company like Comcast to attempt to deliver a personal service would lower customer expectations (see this blog for more on that) and what would happen to any up-sell opportunities from those SMB customers?”  While he didn’t answer either of those questions directly he went on to explain how it was a stratigic move in preperation for an all out war - the ultimate battle for platform domination that is destined to occur in the Web 2.0 and SaaS prevalent world of tomorrow.  Let me share the battle plans as I now understand them.

The Battle Fields: The retail/home consumer market then ultimately SMB desktop, server and Software as a Service preferences.

The Prize:  Consumer and SMB platform preference for hosted applications that will generate billions of nearly effortless recurring revenue and valuable Web 2.0 real estate ripe for advertising.  

The Stage:  Microsoft has spent $20,000,000,000 in the past 18 months in R&D and tens of millions of dollars marketing Office and Vista this past year only to succeed in the enterprise space, yet lose ground with SMB and home consumers.  The reality is that what ever SMB consumers feel comfortable with using at home, they ultimately trust at work and right now consumers are happy with XP except when straying towards Macs (I guess to scratch a creative itch when they get home from the PC filled office).  SMB adoption of Vista is pathetic and those consumers are being tempted by the low cost and convenience of Google Apps hosted communication and collaboration tools.  The public sector market has been particularly vulnerable to Google’s allure.

The first part of Microsoft’s two part battle plan is mass marketing efforts (air cover) in early 2008 to drive “home users” to Vista, Windows Home Server and ultimately the Live products that integrate so well with the two and provide long term stickiness.  They will accomplish this by spending a fair chunk of their war chest on very strong media ads that Park says “will focus on consumers to dispel the misconceptions about Vista and launch a direct attack on Apple and XP”.  “The growth starts at home” he finished.

The battle plan for the SMB space, while leveraging the momentum expected from the home user marketing, is much different and very tactical.  The goal of the the SMB War is to “secure the platform and this must be done through trusted advisors to the SMBs” Park said.  Microsoft is working VERY hard to amass an army of Small Business Specialists (SBSCs) armed with a secret weapon Google does not yet have - the trust of the small business owner earned through a person to person relationship that brings value-added guidance to the other key needs of their business.   The SBSCs are being rallied right now and armed with the tools they need to help small business succeed.  Every small business needs bandwidth (Comcast is just the first, TWC is not far behind), Hardware (new SBSC deals with D&H and CompUSA), phones (enter Response Point), a bank (sorry, can’t comment here), an attorney (not sure on the plan here), office supplies (again, can’t comment) and an accountant (MS Accounting Network).  Throw in a payroll service and a shipping company…  What more do you need? 

The success of the SBSC channel has already proven to be a success with 4x more sales growth than equivalent non-SBSC partners and now Microsoft is arming the them with allies, benefits and co-marketing relationships that should make them more than conquerors.

As an SBSC PAL I must commend Microsoft on an excellent battle plan.  I’ve been a first party to some of the war room talks and can tell you the SBSC alliances being formed are many and strong. The SMB IT Pro community has seen Microsoft’s commitment to them through the SBSC initiative and is really starting to get behind Microsoft (as long as Microsoft stands behind the community). 

The battle is coming to “secure the sockets” and Microsoft has a strategy to mobilize and arm trusted advisors to meet Google and Apple at the SMB battle front.  My question to you is where will you be during this battle and are you even an SBSC yet?

  1. 9 Responses to “Microsoft’s Battle Plan for War on Google and Apple”

  2. Mark, I am glad you got to hear this message from Michael Park. I would agree that success in this market requires the strength of relationship that Microsoft partners have built with the small and medium business. In fact I would argue that in an S S world the trust relationship is more of a requirement and the customer partner relationship will only get strengthened. Additionally, I want to be clear that this is not an all or nothing proposition. Microsoft will provide the choice to customers on how to consume thier IT needs, and customers will be spread along the spectrum from fully on-premise to fully outsourced with the bulk falling in the middle of some IT service in the cloud and some on-prem.

    Let me add to what you heard from Michael by laying out more of a tactical view….

    Microsoft recognizes that a fundamental shift in the market is occurring. Along with purchasing and implementing software in the traditional model, businesses are also looking to acquire software delivered as a service where the application is hosted This is a market trend which is recognized by all major analysts.
    The goal of Microsoft’s Software Services strategy is to empower customers and partners with richer applications, more choices, and greater opportunity through a combination of on-premise software, partner-hosted software, and Microsoft-hosted software. How software is consumed will ultimately be decided by customers based on their IT strategies and specific needs. However, one thing is certain: choice is always a good thing, and a Software Services strategy will help Microsoft partners and customers realize their full potential.
    Microsoft’s Software Services strategy takes an expansive view to include the best of on-premise software combined with the best of hosted services, bridging this continuum to allow for superior options in customer choice and business opportunities for partners. This blended approach (rich and reach) is designed to deliver the best of both worlds, with the goal of empowering customers and partners with richer applications, more choices, and greater opportunity.

    Microsoft sees three models for delivering software, and each one affords distinct opportunities for partners.
    • On-Premise. In this model, software is installed at the customer location and licensed to the customer. A partner can make money through traditional methods such as providing deployment and system integration services, application development, resale of software licenses, and training and support.

    • Hosted by Partner. In this model, the infrastructure and software is owned and licensed by the partner, who purchases Microsoft software licenses through a Service Provider Licensing Agreement (SPLA). In most cases, the hosting partner will add additional software or services, such as vertical or LOB applications, storage and data backup, and bill customers based on a subscription model.

    • Hosted by Microsoft. In this model, Microsoft owns the infrastructure and provisioning of the software, which is provided as a service to customers. Examples include Microsoft Office™, Windows Live™ Virtual Earth and the upcoming Microsoft Dynamics™ CRM Live. This model creates new partner opportunities, with monetization methods for partners that include subscription fees for partner-developed solutions that are built on top of Microsoft-hosted services, on premise integration services and through referral and resell fees for customers who use those services.

    Microsoft has a clear and effective strategy for enabling partners who wish to host and deliver applications as a service to their customers. This approach is focused on three core areas as outlined below (please see the soon-to-be-released “Next-generation Hosting White Paper” for more information).
    • Next Generation Hosting Platform: Microsoft continues to invest in building the platform and developer technology for delivering services. As the S S opportunities expand, Microsoft will deliver more innovation and enhancements at the core service platform level (including Microsoft Windows Server 2008 with Internet Information Services 7.0, Microsoft SQL Server 2008, Virtualization services, and the Microsoft Visual Studio 2008 development environment). These enhancements will help S S solution providers build out the infrastructure to deliver the applications and services that customers require.
    • Next Generation Services: Critical to the success of S S solution providers is the breadth of services available to meet customer needs. Using Windows as a service delivery platform makes it easy for S S solution providers to launch services quickly and deliver them profitably. These services can be thought of in several categories:
    o Microsoft applications. Applications such as Microsoft Exchange Server, Microsoft Dynamics CRM and Windows SharePoint Services are examples of applications that Microsoft has designed for easy delivery as hosted services.
    o Microsoft services. Services hosted by Microsoft can be included as part of an S S solution provider’s offerings. The John L. Scott real estate Web site (http://www.johnlscott.com/), for example, combines Microsoft Virtual Earth mapping (a service hosted by Microsoft) with real estate listings to deliver a compelling end-user experience.
    o Commercial ISV-created applications. With specific architectural guidance both for hosters and ISVs, more and more applications are being built that S S solution providers can easily host, aggregate, broker, and deliver as services.
    o Open-source applications. With Microsoft Windows Server 2008 with Internet Information Services 7.0 now optimized to run PHP, S S solution providers can tap into the many applications available through the open-source community and deliver them efficiently on the Windows platform.
    • Client Experience: Microsoft continues to support the development of tools for a richer end user experience, such as Microsoft Silverlight™, the Microsoft Expression® Suite, tools for AJAX development, the Microsoft .NET framework, ActiveX for Microsoft Internet Explorer, Microsoft SoftGrid Application Virtualization for Terminal Services, and more—so that S S solution providers can take any Windows application and deliver it with click-to-run characteristics over the Internet.

    Small Business Specialists (and other traditional Microsoft partners) have the opportunity to go beyond on-premise software sales and its associated service revenue; these partners can now ADD an entirely new model – software delivered as a service (and its associated service revenue). As the “SaaS” model gains acceptance and momentum, traditional Microsoft partners such as the SBSC channel need to determine a strategy for participation and growth. Delivering software in this fashion allows partners to:
    • Develop new reoccurring revenue streams.
    • Create on-going “sticky” relationships with customers.
    • Reach new customers
    • Up sell new services to existing customers.
    There are three primary models in practice today where partners are delivering services to their customers on the Windows platform. Over 2500 partners in the US are successfully leveraging these business models.

    White-Label Software Services
    Many existing Hosting and Software Service partners provide an opportunity to resell and privately brand their services. This is a good way to get started in the hosted services space because:
    • Low-risk way to create a software service delivery capability.
    • Typically no capital outlay is required.
    • No contract with Microsoft required.

    There is a key opportunity in the hosted messaging and collaboration services space (typically these services would include hosted Microsoft Exchange, SharePoint and Office Communications Servicer) today. These services have broad market appeal and the opportunity is growing. Partnering with a white-label provider would allow any partner to tap into this opportunity today.

    The Titan release of Microsoft CRM (slated for early 2008) has been designed to be hosted and for the application to be delivered as either a service or on-premise. This affords partners an even greater revenue opportunity and an ability to deepen relationships with their customers.

    Managed Services Subscription Software
    This approach is a new twist on the traditional value delivered by Microsoft partners. Partners still deploy solutions at the customer’s site, but by bundling software with hardware and services for a monthly subscription price, new opportunities are created.
    • Build an ongoing relationship with the customer and expand customer base.
    • Take a small step into the S S world.
    • Make IT more accessible to the small business customer.
    • The Service Provider Licensing Agreement is designed to support partners interested in this business opportunity.

    Fully Hosted Services (Software as a Service)

    The partner becomes a hosting provider by either running their own datacenter or co-locating with another hosting company.
    • Expands market reach beyond geographic boundaries.
    • Takes advantage of solutions from Microsoft.
    • The Service Provider License Agreement is designed to support this business model and is required for partners delivering services on Windows.
    • More information at http://www.microsoft.com/hosting

    By Elliot: Director US S S Channel on Dec 5, 2007

  3. Mark this is a great story and we will see who draws first blood.

    By Mark Rhoades on Dec 5, 2007

  4. Thank you for offering one of the clearest descriptions I have seen about Microsoft’s SMB strategy.

    I have a few observations that may create opportunity niches within the overall strategy.

    For several years I was a NetSuite customer. After a fair amount of research about Microsoft’s plans I switched to MS OfficeLive Small Business Premium. My initial impulse to begin researching Microsoft options came from observing that I was using Microsoft products (Word, Excel, Outlook, etc.) 85% of my work day and NetSuite 15% of my day and the annual cost of NetSuite was 50x more than the annual cost of my Microsoft products. The good news is that I achieved an annual 25X cost reduction by switching to MS OfficeLive Small Business Premium. The bad news is that I have lost some important functionality that can and must be addressed by Microsoft and its SMB partners. From my perspective MS OfficeLive Small Business Premium is an excellent platform but it has some gaps that must be fixed. These include:

    1. Adding a shopping cart capability that enables selling digital content.

    2. Removing the 1,000 name limit in the Contact capability by fully instilling Outlook capabilities into the OfficeLive Small Business premium offering.

    3. Seamlessly integrating Accounting Express into the OfficeLive Small Business Premium offering. For example currently Bank of America offers account integration into Quick Books but not Accounting Express. Focusing on integrating bank account information into Accounting Express and doing it as part of the OfficeLive Small Business Premium offering is one way to make the system more robust.

    4. Creating an affordable path that enables OfficeLive Small Business Premium customers to effectively use SharePoint WSS 3.0 capabilities. Office Live offerings give the appearance of doing this but when one actually attempt to develop business offerings around these capabilities they quickly discover that custom SharePoint models must be developed. Microsoft and its SMB channel partners are missing a large opportunity by not making SharePoint an easy to use solution for this segment of the market.

    As it pertains to SharePoint I encourage Microsoft and its SMB Channel partners to focus on developing an SME Best Practice template and deliver it as a solution offering that can easily be deployed to public groups. This requires enabling SharePoint in an unlimited seats offering mode and making it possible for someone to execute one-off uses of the Best Practices template.

    I also recommend developing a SharePoint template that enables developing emerging market research reports. It also must be executed in the same mode (unlimited seats, public / internet wide accessible and one-off usability).

    Small business operators are continually searching for market opportunity niches. Enabling them as a group to develop research reports about emerging markets is good way to ensure their future success.

    Here is one example of an emerging market that offers high potential for a group of interested parties to work on and continually update sub-industry segment research reports. Please excuse me for including such a long quote but it is necessary to make my point.

    “A study financed by the American Solar Energy Society released this month forecasts unprecedented job growth in solar and other clean-tech industries. From 8 million jobs and $933 billion in revenues generated by renewable energy and energy-efficiency industries in 2006, the numbers are predicted to rise to perhaps more than 40 million jobs and $4.5 trillion by 2030. Solar represented just 17,600 jobs nationally in 2006, the report says. But the industry group is forecasting almost unimaginable growth to more than 1.3 million solar jobs in 2030, representing a 7,582 percent increase in 24 years.”

    I want to emphasize the point that creating a SharePoint template that enables public groups to develop emerging market research reports ought to include sub sections that identify new opportunities and technology capabilities that are available or need to be created to support developing business models to pursue these opportunities.

    OfficeLive Small Business Premium is going in the right direction or I would not have switched to it from NetSuite. However, Microsoft and possibly its SMB partners are missing a key concept. SMBs have small teams therefore designing models that enable private access for a limited number of team members while offering benefits is not the right best way to leverage these technologies for the SMB segment.

    SMBs tend to operate in collaborative models with key players coming and going. Figuring out ways to leverage this kind of actor behavior may be crucial to long term success for both Microsoft and its SMB partners and the SMB companies that you want as customers.

    Thank you for sharing these future strategies. To discuss these recommendations in greater detail feel free to contact me by visiting http://www.smecapitalmarkets.net

    By Brad Smith on Dec 7, 2007

  5. I am Engage and ready for the Battle. I have some friend who enjoy talking off out Google and open source is the deal. I continue to tell the my possition and understanding. Microsoft has it all figured out. I will be on the profitting side of this battle. in fact i just droped one fully loaded pond of Response Point at a new client with out SBS, and guess what next, SBS server 2003 R2, target drawn
    http://smarthostdesign.com/responsepoint

    By Femi Dada on Jan 18, 2008

  6. Great post. This is why MS will never die. Sadly for linux heads like me lol. Nah I use windows daily. Just kidding.

    By BellaKitty on Jul 13, 2009

  1. 4 Trackback(s)

  2. Dec 4, 2007: The plunge - E-Bitz - SBS MVP the Official Blog of the SBS "Diva"
  3. Dec 5, 2007: The plunge - MVPs
  4. Feb 28, 2008: SBSC & MSP Buzz » Blog Archive » Google Makes Move in SMB Unified Communications Market
  5. Apr 4, 2008: SBSC & MSP Buzz » Blog Archive » The SBSC Logo is Worthless…

Post a Comment