Microsoft Exchange Online: An ASP's Reaction

Application service provider (ASP) is the trendy name for companies that provide hosted services. With Microsoft's recent push into hosted services through its Microsoft Online Services brand, I thought it would be interesting to talk to someone from an Exchange ASP and get their thoughts on Microsoft's expansion.

To put this discussion in context, remember that Microsoft often has complex relationships with other companies. For example, Microsoft and Apple both compete with and support each other; also, think of the companies that have been Microsoft partners only to find themselves competing with Microsoft after a new product announcement. (Yes, backup vendors, I'm looking at you!) Of course, the situation becomes even more complex when you consider that Microsoft's business strategy isn't governed by a single point: Each individual business unit has a degree of autonomy to decide who to compete with and how to do it.

With that in mind, I called Chris Damvakaris, the vice president of sales and business development for Apptix. I wanted to see how he viewed Microsoft's aggressive entry into the hosted Exchange business and what he thought it augured for Apptix and other Exchange ASPs. I was a bit surprised by some of what Damvakaris had to say. However, the start of the conversation was unsurprising: Apptix knew well in advance that Microsoft was planning to enter the hosted market because of Microsoft's efforts to evangelize Microsoft-hosted services to its partners and ISVs. Microsoft's focus on a Software Plus Services (S+S) strategy calls for it to give resellers and partners incentives to sell both Microsoft software and services to avoid unbalancing Microsoft’s sales channels. Damvakaris said that Apptix "welcome\[s\] the attention hosted Exchange is getting. It is a viable alternative to inhouse management of Exchange" for many companies.

Apptix focuses primarily on small-to-midsized businesses (SMBs), for whom a dedicated Exchange system is often too expensive or complex. Microsoft "is capturing the attention of the midmarket, say from 200 to 500 seats," Damvakaris explained. That doesn't mean that organizations of different sizes are bound to choose a particular ASP, of course. However, both the midmarket and SMB segments provide rich potential sales opportunities for companies that offer successful hosted services.

When I asked Damvakaris how Apptix planned to differentiate itself, he pointed out one immediate difference: Apptix offers support for RIM's BlackBerry devices by hosting the BlackBerry Enterprise Server (BES) for customers who want it. It's probably safe to say that Microsoft won't ever offer BlackBerry support in Exchange Online. Microsoft hasn't announced the precise features that will be available in Exchange Online, but I would expect Apptix and other ASPs to support features that Microsoft doesn't, or to tier feature availability in ways that make them more price- or feature-competitive.

As for the SharePoint and Office Communications Online products, Damvakaris laughed. Why? Apptix took over Microsoft's bCentral customers and has been hosting SharePoint for some time, so Apptix is well positioned to compete against Microsoft's offering. He cited "a little bit" of customer interest in hosted Office Communicatons Server (OCS) and wondered aloud if OCS might be more interesting to midmarket and enterprise customers—precisely where Microsoft is aiming its hosted Office Communications service.

One open question I had concerned security. Apptix's position seems to be that data center security is the responsibility of the hosting providers where Apptix rents space. Microsoft's position, by contrast, is that security (notably Statement on Auditing Standards No. 70: Service Organizations—SAS 70—certification) is a key part of what differentiates its offerings. Over time, we'll have to see which approach sounds better to customers.

All in all, I didn't get the impression that Apptix is too worried about Microsoft's entry into the hosted arena. If Damvakaris is right, the Exchange hosting pie is big enough for many players to get profitable slices without a lot of crowding and flying elbows.

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