Microsoft in a twist over SaaSy Office deal

A UK hosting company is offering Microsoft Office for £4.99 (around $10) a month with no contract commitment, and Microsoft doesn't like it — even though it seems Microsoft approved the arrangement.

Launched last week by popular web hosting provider Fasthosts, the service uses streaming technology to download the application to the customer's PC, where it runs for as long as the customer continues to pay their subscription. The headline-grabbing £4.99-a-month price point ('less than a fiver' we Brits would say) is "for any household that has a user engaged in educational activities (such as school, college, night classes etc)", and includes the 2007 versions of Word, Excel, Outlook and PowerPoint. Business users pay £14.99. Both prices are before UK VAT (sales tax) of 17.5%, which most businesses reclaim but private individuals cannot. A higher-priced service also includes Publisher, Access and Infopath.

Understandably, Microsoft was somewhat taken aback when this pricing was announced, and on Friday, Michala Wardell, head of anti-piracy at Microsoft UK, told ZDNet UK's David Meyer that "streaming Microsoft products like Office 2007 via the web infringes our licence regulations. Fasthosts have been informed of this and we are currently working with them to rectify this situation."

But Fasthosts is holding its ground. In a statement issued Friday, it said that European officials at Microsoft last month signed off "an addendum" to the vendor's current Service Provider Licensing Agreement (SPLA) which permits it to stream Office. The statement concludes:

"Fasthosts and Fasthosts' partners have therefore worked with the European and Worldwide SPLA teams in getting approval for this service prior to launch, in order to bring this innovative new offering to market.

"Fasthosts has not been contacted by anyone from the Microsoft Anti-Piracy team."

This seems to be a case of the right hand not knowing what the left is doing, and ending up in total conflict with each other. Microsoft's service provider team is keen to support partners making innovative inroads into the SaaS and on-demand worlds. But this latest initiative seems to have put the conventional licensing team's nose out of joint.

Paul Valcheff, VP business development at AppStream, whose technology is used in the solution, didn't want to comment on the specifics of the Fasthosts case, but yesterday told me it illustrated the difficulties established vendors face when trying to transition to a subscription model. "On the one hand they want to jump on the SaaS gravy train, but on the other hand they have billions tied up in licensed software that is the bulk of what's paying the bills. You can't replace a ten or fifteen billion dollar revenue stream overnight with a SaaS product."

Now I should point out here that last March I severely chastised AppStream for describing their application streaming solution as SaaS, writing:

"I know I've described SaaS as a journey, but this is not even on the first rung of the ladder. The software is still desktop software. It doesn't depend on the network in any sense, except for the automated download and installation. The applications are no more SaaS than Windows is when maintained by Microsoft's Automated Update. The installation and asset management is provided as a service, but the software itself isn't. It's just software, as, er, software."

Things are now starting to get interesting, though. The addition of a true pay-as-you-go subscription even makes an application like Office feel a lot more like a SaaS offering, and in the next month AppStream will add desktop virtualization technology that makes the package behave even less like conventionally installed software. These "streamed virtualized versions" won't be isolated in their own virtualized compartments, Valcheff told me, but will feature "complete interoperability with other apps on the PC." This would allow, for example, a customer to run a streamed virtualized instance of Office 2007 on a PC that had Office 2003 installed, and exchange documents and data between the two packages.

This is starting to move towards the kind of "serviced client" concept that I described in my posting last March:

"... solutions like AppStream could become a saving grace for the future of SaaS in which ever-richer functionality, as well as cached data, is downloaded and stored on the client. So long as it's managed from the network and the user doesn't have to tangle with the technology, that seems like a neat compromise to me. Indeed, it could even mean that I could log into and use any PC or other device wherever in the world I sat down in front of one, and I could have my apps and data streamed down to me just for that session."

I suspect that's the kind of arrangement that Microsoft will ultimately end up supporting, allowing it to provide all the functionality it wants to provide on the desktop, but without having people's applications and data tied to specific machines. Before it can get there, though, it has to shake off its Kool-Aid-infused view of "software-plus-services" that classes services as an afterthought, and instead put services first.

Oh, and it'll have to work out how to transition its licensing from the old regime to the new. Fasthosts' experience demonstrates that there's a long journey yet to travel.