Microsoft plans its hosting future

Securing a place for itself in the Internet-based applications hosting market, Microsoft last week decided on a commercial licensing program for its Microsoft.Net initiative. Under the program, application service providers can deliver Microsoft's Windows 2000, SQL Server 2000, Exchange 2000 Server and Office 2000 software to customers through subscription licensing.

The company last month unveiled Microsoft.Net, an Internet-based software platform that will store documents and applications on remote servers that can be accessed via various Internet devices equipped with a software key and proper authentication.

Based on extensible markup language, the initiative is an attempt to sustain Windows as the principal operating system as computing moves from PCs to hand-held wireless devices such as cell phones and personal digital assistants.

"We will not be... delivering software products in 10 years," said Microsoft CEO and President Steve Ballmer from the Fusion 2000 business symposium in Atlanta. "You won't be able to ship or even to rent somebody a piece of software. Software is going to have to update itself, take care of itself, store stuff on behalf of the user, roam the user's preferences and favorites."

.Net will allow Microsoft to offer software over the Web as a service.

The company has developed an ASP licensing program under which ASPs will license Microsoft products to end users on a monthly subscription basis.

"[The company reviewed] all different kinds of models, working with a variety of partners and software applications to determine what's going to work best in a real-live hosting environment," said a Microsoft spokeswoman.

The subscription license model marks the first time Microsoft will veer from its standard sales and licensing model. The new approach will not affect the company this fiscal year, but it definitely will in the future, said John Connors, chief financial officer for Microsoft.

"Over the next three to five years, the hosting model is going to be a tremendous phenomenon for consumers and small businesses and, to some extent, medium-sized businesses," Connors said.

Microsoft, through .Net, is ensuring that it is prepared no matter how the licensing game is played, said Rick Kent, vice president of The Phillips Group. "They're setting up channels for this [ASP model] that supplement their existing channels," Kent said. "They'll monitor the marketplace and follow up, however it evolves."

The ASP hosting model appears to be more talk than action right now, Kent said. But it's new, and it's gaining support - particularly from companies that want to outsource technical support.

"The ASPs tend to have local support and can be very responsive compared to the software houses, which are generally not set up to handle end-user requirements in terms of support," he added.

Microsoft timed its strategic move well, said Clare Gillan, group vice president of applications research for IDC. "There's a lot of hype surrounding the ASP market, where people thought it would be much larger, much sooner," Gillan said. "It's in the early stages. Microsoft's timing is just fine."

In fact, the company's participation is needed as the focus starts shifting to the consumer market, she said, explaining that Microsoft is enabling developers to more easily create ASP-ready applications.

"As any vendor participating in the ASP market, [Microsoft] needed an alternative pricing model," Gillan added. "The ASP industry is contingent upon an annuity model, as opposed to an upfront or perpetual pricing model."

Microsoft complemented its .Net strategy last week with the announcement of partnerships, tools, support and service delivery initiatives, as well as an ASP certification process.