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Microsoft Online Services: Pricing and Partner Model Revealed

When Microsoft announced earlier this year that it was entering the cloud computing market with its Microsoft Online Services (MOS) product line (see my MOS overview for details) I lauded the company for finally making some of its highly rated but complex server products like Exchange 2007 and SharePoint available to a wide range of customers as hosted services. But there were two questions raised by this announcement at the time: How would Microsoft price these services? And how would this affect the company's partners?

This week at its annual partner conference, Microsoft will answer both of those questions. My early take is that the news is largely positive.

First, let's look at pricing. At the low end, Microsoft is offering two very affordable MOS products, though they do come with a few limitations. The first is Exchange Online Deskless Worker, which will cost $2 per employee per month and provide complete, unfettered access to Microsoft-hosted Exchange services, albeit only from a Web-based Outlook Web Access (OWA) client and with just 100MB of email storage space. The second, SharePoint Online Deskless Worker, will also cost $2 per month, but provide just read-only access to SharePoint-based document shares. Customers can also subscribe to a Deskless Worker Suite, which provides both of the above services for $3 per month per employee.

Microsoft is also offering access to full-featured online versions of Exchange, SharePoint, Office Communications, and Live Meeting. You can subscribe to these services individually if you'd like, but the better deal is the Online Business Productivity Suite, which combines them all for $15 per user per month. (Otherwise, Exchange is $10 per month, SharePoint is $7.25, Office Communications is $2.50, and Live Meeting is $4.50.) Unlike the Deskless Worker versions, these products aren't hobbled in any way. So for example, Exchange Online provides Outlook compatibility and comes with 1GB of email storage space per user; you can upgrade storage in 1GB increments if you'd like. Customers with existing Software Assurance (SA) agreements will receive SA credit and can mix and match on-premise servers with Microsoft hosted servers, using provided migration and Active Directory (AD) synchronization utilities.

The partner story is sure to garner its share of controversy as it appears to be quite different from the traditional Microsoft partner revenue model. That said, Microsoft is promoting MOS as a way for partners to increase recurring revenues and establish more meaningful relationships. On the less interesting end of this curve, given its one-time-deal nature, are new opportunities around migrating, integrating, and customizing customers' on-site servers with MOS-hosted services.

More intriguing, however, are the ongoing revenue opportunities introduced by MOS. Microsoft will pay its partners a 12 percent commission on the first-year contract price of any new MOS subscriptions, and six percent every year thereafter for as long as the customer remains subscribed. When you consider that Microsoft's conservative estimate is that 70 percent of MOS customers will in fact be new customers, the scope of the opportunity is suddenly obvious. Microsoft believes that MOS will lead to better ongoing relationships between its partners and customers. I think the company might just be on to something.

MOS and other Microsoft "Software + Services" solutions are, I feel, the real future of the company's enterprise software products and will likely become the volume sellers in the coming years. It's still early, but it looks like Microsoft has gotten the pricing and partner opportunities right. And that's important when you consider the magnitude of this change.

This article originally appeared in the July 8, 2008 issue of Windows IT Pro UPDATE.

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