A Cloudy Future for Microsoft Partners

If imitation is the sincerest form of flattery, then Google (Nasdaq: GOOG  ) , Red Hat (NYSE: RHT  ) and (NYSE: CRM  ) ought to be blushing right about now. Tech watchers will see lots of familiar concepts in software behemoth Microsoft's (Nasdaq: MSFT  ) revamped go-to-market strategy.

At last week's partner conference, Mr. Softy proclaimed its newfound focus on delivering software and services to customers via "the cloud," using a subscription-based model popularized by companies like Red Hat, Websense (Nasdaq: WBSN  ) and Microsoft's Business Productivity Online Suite, or BPOS, will provide customers email, web access, collaboration, web conferencing and social media applications, bundled for $15 per user per month, or separately under an a la carte pricing scheme.

No, it's not deja vu. That's the same set of applications Google and rolled out three months ago, and which they're delivering for free to customers. For $10 per user per month, the Google/Salesforce collaboration will also throw in integrated telephone and end user support, third-party applications, and other features.

Microsoft is differentiating itself from Google/Salesforce's strictly web-based offering by continuing to offer traditional on-premises software. Customers wishing to avail themselves of the on-demand product can do so through one of Microsoft's channel partners, or directly from Microsoft itself. And that's where things start to get a little hairy.

Although partners will get a 12% cut of the first year's subscription, and 6% thereafter, they will now be competing head-to-head against Microsoft for delivering value-added services. This marks a dramatic departure from the way Microsoft has worked with partners in the past. Mr. Softy formerly provided direct support and services only to the largest enterprise clients, while channel partners handled the rest.

Will an old-school company like Microsoft be able to make money in the cloud? Well, sure. Its massive, entrenched customer base should make for easy converts to the new delivery method. Plus, the company might be able to improve margins by cutting out a significant portion of its middlemen. Microsoft's bowing to the inevitable change sweeping the IT services world should benefit customers, but its partners may need to rethink how they'll remain relevant under the new model.

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Google is a Motley Fool Rule Breakers pick, and Microsoft is an Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Linda Brewton does not own shares in any of the companies mentioned. The Fool's disclosure policy sets the standard for others to copy.

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  • Report this Comment On July 18, 2008, at 7:37 PM, narindersingh wrote:

    We (Appirio) are highly skeptical of Microsoft's intentions with the cloud. We were invited to the Microsoft's partner program and provided a debrief on what its really about in our blog post (<a href=" to Partners: We Still Don't Get SaaS</a>).

    The only way for them (or other on-premise legacies) to truly get there would be to setup independent businesses that have a completely different DNA. Microsoft has been physically an emotionally closed for so long, a therapy session or two (via announcements) just won't be enough.

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