Microsoft Online Makes a Big Splash in the Services Pool

If you, like many others, have been watching the development of "Software as a Service" (SaaS), "Services Oriented Architecture" (SOA), "Web 2.0" or whatever the latest buzzword might be; and if you've been waiting to see who sinks and who swims in the big swimming pool of offerings—stand back, because Microsoft just dove into the pool with a very big splash.

Today, at its Worldwide Partner Conference, Microsoft announced the final details surrounding its enterprise-class service offerings under the Microsoft Online brand. I've been working with clients and Microsoft technologies for long enough to have seen some strike outs and some grand slams and, folks, I believe Microsoft Online falls squarely into the latter category. In fact, I think Microsoft Online's "debut" this week will be a turning point in the way we all view our enterprise and our technologies moving forward.

This week, I'd like to discuss and analyze the pricing and licensing of Microsoft Online. In future columns, I'll share the technical details and my experience migrating my business to the service.

A Brief History of Microsoft Online
If you haven't been following the development of Microsoft Online, let me catch you up quickly. Several years ago, Microsoft purchased Placeware, rebranding its flagship online conference application as LiveMeeting, thus entering the SaaS market. Shortly thereafter, Microsoft began offering hosted Exchange services to large enterprises. Microsoft also released its customer relationship management suite, Dynamics CRM, as a hosted model. Now, with 10 million seats licensed for Exchange hosted services and more than 50 billion messages per month, Microsoft is extending its services to enterprises of all sizes.

Microsoft Online entered beta testing last spring, offering Exchange, LiveMeeting, and Office SharePoint Server. Today, Microsoft announced the pricing and channel model that will move Microsoft Online into general availability. I met recently with John Betz, Director of Product Management at Microsoft, to discuss the final details of the offering.

Betz explained that Microsoft Online will provide, out of the chute, Exchange, SharePoint, and Live Meeting services, to support email, conferencing, and collaboration scenarios. Later this year, Office Communications Server (OCS) will be offered as Office Communications Online to fill out the picture with IM and presence awareness. Although subscribers can select any one or more of these ‘pieces,' there is obvious synergy to leveraging the entire suite, particularly when combined with Office 2007 end-user applications. Therefore, Microsoft is offering the "bundle" of Exchange, SharePoint, Live Meeting and (eventually), Office Communications as the Business Productivity Online Suite.

Licensing and Pricing
Today's announcement includes a new licensing model, called the User Subscription License, or "USL." Each user who will access Microsoft Online services requires a USL, but you don't need to purchase USLs for every user in your enterprise. So, for example, you might host the mailboxes for your remote sales force on Microsoft Online and acquire USLs for those users, while supporting internal users with more traditional Client Access Licenses (CALs). One of the great features of the USL is that a USL can be used both with Microsoft Online external services as well as with internal services. So a user with a SharePoint USL can access SharePoint on Microsoft Online and your intranet SharePoint servers—a SharePoint CAL is not required for that user.

The first question on our minds these days is, of course, cost. So let's cut to the chase. The baseline cost of a USL for the Business Productivity Online Suite is $15 per month. That means, for $15 per month, a user can have access to Exchange, SharePoint server, Live Meeting and, when released, Office Communications Online. And, in the background, ForeFront and Exchange Hosted Filtering are managing the data hygiene of your Exchange and SharePoint data stores.

The $15/month USL is the baseline for the suite. Each piece can be licensed separately if you wish: $10/month for an Exchange USL, $7.25/month for SharePoint, $2.50 for Office Communications and $4.50 for Live Meeting. Each USL includes a storage allocation: 1GB per USL for Exchange storage and 250MB per USL for SharePoint, and additional storage can be purchased for $2.50 per GB per month.

Betz anticipates that Microsoft's current Exchange and SharePoint server customers will begin to mix-and-match and migrate to hosted services, so it created a Step-Up USL that can be used by Software Assurance (SA) customers. SA customers already pay, effectively, a per-user cost for an application such as Exchange. They can purchase the Step-Up USL and convert that SA license to a USL. As an example, an SA customer with a 1000-seat Enterprise agreement will pay approximately $7.53 per user per month for the Business Productivity Online Suite.

Of course, the theory is that by moving to a mixed or hosted model, which Microsoft calls "Software Plus Services," you can significantly reduce the total cost of implementing and supporting a complex IT service. No more worries about storage, spam filtering, upgrades, redundancy, or disaster recovery. Microsoft's 13 global datacenters (growing to 20 next year) are highly scalable, and a customer's Microsoft Online services are replicated to two distinct datacenters to provide redundancy, and the service guarantees a 99.9 percent SLA.

I was quite surprised to learn from Betz that Microsoft is also offering its online services in a super-trimmed-down model, called the "Deskless Worker." This model is designed to support infrequently connected users. Exchange services include Outlook Web Access (OWA) access only, and SharePoint services provide full access to SharePoint sites but no additional storage allocation. Pricing is $2/month per service, or you can purchase the Deskless Worker Suite, consisting of both the OWA and SharePoint site access, for $3/month per USL.

My "Take" on Today's Announcement
So now that you know the facts, let me tell you what I think about today's announcement of pricing: Wow. When Microsoft started talking to me about this service, I had a target price in mind, and this beat that target handily. I know what several large organizations pay for email and SharePoint service, and even at the "retail" price of $15/USL, before any volume discounts, this is a screaming deal. I've been running my business on an Exchange service hosted by a Microsoft partner, and I can vouch for the fact that TCO, and "total headaches of ownership" have been greatly reduced.

I think this offering will change the landscape, simply by the magnitude of Microsoft's presence in the services market, and will accelerate what I believe is the inevitable transformation of IT organizations away from being plumbers and utility providers toward being a strategic asset for the organization. I see far too many very smart people in IT fighting fires and troubleshooting technology, when their brain power could be applied to much greater value if they could get their heads above water and work to align technology with the strategy and objectives of the enterprise.

What Else You Need to Know
You can learn more about Microsoft Online by visiting the Microsoft Online website. The site is extremely well designed, and you'll find it easy to learn about the services and to set up a trial. Once you're ready to purchase the service, you can purchase it directly from Microsoft or through a partner—the pricing is the same either way. Partners will offer value-added services, the most obvious of which would be Blackberry support, but we will likely see a proliferation of partner add-ons that wrap around Microsoft Online.

There are several questions I'm regularly asked about Microsoft Online, so let me answer them briefly. First, Microsoft Online can replace or complement your existing infrastructure. For example, you can host Exchange servers internally and leverage Microsoft Online to serve mailboxes for a subset of users. Your internal Exchange servers would simply forward the messages to Microsoft Online. There is no direct integration of the internal and hosted servers, yet, so you cannot replicate mailboxes or public folders between internal and hosted servers at this point. Microsoft is aiming at "Server-To-Service" feature parity in future versions of its products.

Second, SharePoint Online is Microsoft Office SharePoint Server (MOSS) Standard edition, so it does not support Excel Services or InfoPath Forms Services. It also does not offer My Sites or Enterprise Data Search—that is, SharePoint Online will not index your internal data stores or SharePoint sites. It will, of course, index all of your SharePoint online sites. SharePoint Online is thus targeted at this point for intranet and collaboration scenarios, but that's where I see most clients trying to implement SharePoint currently, so that's not a bad thing.

I only have so much "space" to discuss today's pricing and licensing announcements, and I will be working over the next few days and weeks to migrate my business to Microsoft Online. I will certainly report on my progress and success. But I have no doubt that it will be successful—I've seen a number of Microsoft "launches" and this one looks very solid and very promising. Whether you're a small business or a large enterprise, Microsoft's Software Plus Services model is likely to play an increasingly important role in the strategic and tactical decisions you make for your IT organization.

And, although I'll be the first to slam Microsoft for half-hearted products and over-hyped value, I'll also be among the first to say, in this case, "Wow." I expect to see a lot of spin from Microsoft's competitors as they try to find ways to detract from the capabilities of Microsoft Online. But it seems to me to be just what we need, right now: secure, reliable, low-touch, and a price that probably can't be beat with internal resources.

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