Microsoft's Services Gambit

Not surprisingly, Microsoft's decision to enter the software-as-a-service game has stirred a hornet's nest of speculation among its business partners, whose reactions thus far are divided. Some are embracing Microsoft's proposed services model as a potential new opportunity, while others are flat-out certain it spells bad news for their own businesses. Many, however, are simply undecided.

Consider the numbers. In an online poll of VARBusiness.com readers following the Microsoft "Live" news last month, nearly 1,000 respondents weighed in on the services topic. Their responses broke down in near-equal thirds--positive, negative and no impact--regarding whether Microsoft's plans to make a majority of its software products available as free or subscription-based services would hurt partners' businesses.

Industry analysts say polarity and division is to be expected at this point, as is lack of opinion. It's too soon for the channel to know exactly how this will play out, they say, especially given that Microsoft is still feeling its way toward what represents a fairly seismic shift in business models.

"On one hand, there is a value proposition for partners, so I think it is not appropriate [for VARs] to issue a call to arms to rebel against this," says Stephen Graham, group vice president of global software business strategies at IDC. "But, on the other hand, no one has really done a good job of mapping this out. The vendors themselves are still trying to figure out what this all means in terms of what they should be doing, never mind figuring it out for their partners."

Tom Prebula is owner of Advanced Business Networks, a solution provider in Boise, Idaho. Prebula is one of those partners who worries that the new services have the potential to "greatly" affect his business in a negative way. "If Microsoft takes over quite a bit of the software services, there goes a lot of my business," he says. "The only place there are any margins at the moment is in software. Customers are still going to have support issues, but I can almost guarantee that Microsoft will sell some kind of support with this."

Prebula says that if the new services cut into his offerings too much, he may have to lean more heavily on his networking and security business to make up the difference. "It would mean I'd have to be more focused on that," he says.

VARBusiness Online Poll • Are solution providers at risk from Microsoft's services move? • How might solution providers be affected? • Which Microsoft services would have the greatest impact? • Which market segments are most at risk? • Which market segments do you serve?

Prebula is not alone. More than half of VARs in the online poll said Microsoft's services initiative would decrease demand for channel involvement in deploying and selling Microsoft software and/or cannibalize their traditional Microsoft software business.