The balance act of changing the business model

Last week Microsoft has announced that they will offer own cloud computing services in nineteen different countries. The approach is "hosted by Microsoft, offered by partners". That is an interesting approach and it is obviously the result of Microsoft's thoughts about how to manage the balance act between the existing business model and the upcoming cloud computing business.

On one hand, Microsoft relies on their partners which sell software licenses today. On the other hand, Microsoft has to provide offerings as cloud services. Until now, there have been some limited offerings for example with value-adding services for Exchange infrastructures or, in a specific market segment, the Office LiveMeeting product. With last week's announcement, Microsoft provides core services like Exchange Online and SharePoint Online by themselves. The services aren't sold directly by Microsoft but via 2.500+ specialized partners.

Microsoft has as well announced that this is just the beginning of their "Software and Services" strategy, thus other solutions will be added. Given that the pretty prominent URL www.microsoft.com/online (or www.microsoft.de/online or similar URLs) is used it becomes clear that this type of business shall provide a significant part of the future revenue stream of Microsoft.

Even with this business model which focuses on sharing revenues between Microsoft and the partners, there is still some potential conflict with partners. The price tag defined by Microsoft is sort of the upper border for Hosted Exchange and Hosted SharePoint Services. Thus, some of the existing hosting partners of Microsoft will have to change their price tags. Microsoft now is the one who controls the price tag. Partners might add services, for sure.

But many partners will have to rethink their business model. On one hand, participating in a constant revenue stream is interesting. On the other hand, the more parts of the environment are delivered from the cloud, the less project revenues will occur. That is a risk for partners.

From a Microsoft perspective, the model looks more interesting. Microsoft has the biggest network of resellers for cloud services in the market, Microsoft can compete with other cloud vendors and Microsoft adds a service-based revenue model to its existing license-based models.

It will be interesting to observe how that model affects the existing partnerships as well as the entire cloud market. Despite some scepticism I think that the chosen model is the best solution for the balance act Microsoft has to do. And I'm as well convinced that it will allow Microsoft to take a significant share of that particular area of the cloud market. It might again prove that Microsoft is pretty well able to adopt to changes - like they have done multiple times before.

By the way: Don't miss Cloud '09 and EIC 2009!



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