I actually think Microsoft's business is lumpy enough that a switch to SaaS right after an upgrade cycle could work without flushing the golden goose. It's a tricky business though, and it involves a degree of faith that investors are probably unwilling to stomach.
The reaction of investors was my biggest concern about the likelihood of this, as I've said on my blog:
http://smoothspan.wordpress.com/2008/03/02/microsoft-switching-office-to-saas-makes-total-financial-sense/
So Microsoft’s much-rumored big splash in SaaS this week turns out to be an extension of its hosted SharePoint and Exchange offerings. As Dana Gardner writes, Microsoft Online Services is “about maintaining the base of the small businesses and department-level buyers of Microsoft products. In essence, this is defense.”
Mike Arrington is gutted. The blogosphere wants nothing less than Microsoft Office (or Works, at a push) hosted in the cloud just like Google Apps. I promise you, it ain’t gonna happen. Not until Microsoft is finally dragged kicking and screaming into the on-demand era, sometime in the next decade. (By the way, beware the suspect math Arrington and some analysts are using to talk up Google Apps revenue. Someone forgot to subtract the existing revenue acquired with Postini’s on-demand email filtering service.)
There will be some more to mull on at MIX. Probably some kind of Platform-as-a-Half-baked-Software-Plus-Services play (PaaHaSPS), building on the hosted development service announced by Ray Ozzie last year plus some Silverlight 2.0 goodness to put a new spin on it. There’s also Startkey, an interesting move that allows users to carry their local settings with them as they migrate around the cloud.
But Office in the cloud? Steve Ballmer will lose his job before that happens. Shifting the Office cash-cow into the cloud on a monthly subscription basis would drive a stake through the center of Microsoft’s business model (which is why Microsoft got uppity when a UK hoster tried to introduce a $10-a-month service last month).
When Microsoft finally gives way to the SaaS tide, the company will post annual losses equivalent to the annual GDP of several minor countries for several years on the trot, just like IBM did in the early 1990s when it finally realized client-server was going to trump its proprietary systems strategy. For obvious reasons, Microsoft will do everything it can to delay that outcome until the last possible moment (and probably beyond).
In the meantime, expect nothing but disappointment if you think Microsoft is going to shift any of its desktop products into the cloud any time soon. I don’t own a hat, but I’m so sure of this I’ll promise to eat Ryan Carson’s if it happens. Safest bet I ever made.
