Microsoft's Ozzie Defogs Live Platform Strategy

Services are going to be a critical aspect of all of Microsoft's software, and the vendor is building its Live platform to deliver these services with speed and scalability, Ozzie said.

The Live platform will be used by all Microsoft customers and partners, from small companies all the way up to large enterprises. To account for different needs within these groups, Microsoft has a three-pronged strategy for offering Live services, Ozzie said.

Customers that are bound by regulatory compliance can choose to host Microsoft Live services at their location, or they can enlist Microsoft's managed services partners to handle the task. However, the third option -- buying services directly from Microsoft -- is a source of concern, according to several partners interviewed by CMP ChannelWeb.

In particular, Ozzie's statement that Microsoft's plan for selling services directly to customers is to "offer the lowest, lowest possible cost that we can" suggests that Microsoft could end up competing against its partners on price, sources said.

The acid test will come with Microsoft's hosted CRM Live service, which the vendor will offer direct to customers. Slated for launch in the first half of 2008, CRM Live undercuts the pricing of rivals such as Salesforce.com and Siebel CRM OnDemand, and Microsoft is giving partners a recurring 10 percent margin on subscription fees for all customers they refer.

However, "Microsoft knows they are [slighting] the channel a bit with CRM Live, because the 10 percent margin is much smaller than what many partners are seeing from CRM deals," said a Microsoft Gold partner who requested anonymity.

"When you consider the loss of the Microsoft CRM Certified Software Advisor (CSA) fee, which can be up to 20 percent, I could have been making anywhere from 30 to 40 percent on the sale of the license," said the source.

People made the same argument years ago with Microsoft Consulting Services (MSC), but as it turned out, those fears were unfounded, says Jay Lendl, vice president of Microsoft services at Granite Pointe Partners, a Plymouth, Minn.-based solution provider.

"There was all this talk about channel conflict around MCS, but eventually people came to terms with the reality that MCS serves only a small percentage of the marketplace," said Lendl.

Vendors have a responsibility to maintain a level playing field with the sales channel, and when they start offering similar services, they are by definition competing with the channel, says Jerry Weinstock, President and CEO at Internet Business Initiatives, Lenexa, Kans.

"However, the meat of the opportunity in CRM is in professional services, and while partner license revenue is important, it's only a portion of the overall revenue partners see in deals," said Weinstock.

Whether they like it or not, "Microsoft's infrastructure partners are going to have to move further up the Microsoft stack to survive," said Matt Scherocman, a director at PCMS IT Advisor, a Cincinnati-based Microsoft Gold partner.

PCMS is actively investing in businesses with higher integration requirements, such Enterprise Content Management and Business Intelligence, which are applicable when the application is on premise or hosted in the cloud, said Scherocman.

In the next 12 to 18 months, Microsoft will steadily add new components to the Live platform, both at the platform layer and the application layer, Ozzie told attendees Thursday at Microsoft's annual financial analyst day.

The bottom rung of the Live services ladder is what Ozzie called Global Foundation Services, a physical infrastructure layer consisting of Microsoft's data centers, the hardware inside, and the network that connects them to the Internet, Ozzie said.

Microsoft's data center buildout is in full swing, and in the past year the Redmond, Wash.-based vendor has doubled its server and network infrastructure, said Ozzie.

The next layer up is what's known as the cloud infrastructure services layer, which Ozzie described as "the most fundamental software level of the services infrastructure".

Virtualized computing is the key element of this layer, which also supports various application models and management and performance optimization. This layer also supports file, database, and searchable storage that power the applications on the platform, Ozzie said.

"You can think of this as a utility computing fabric upon which all of our online services run," said Ozzie. The next level up is called the Live platform services layer, which provides the backend services for Microsoft consumer and small business focused applications, as well as Microsoft's advertising platform infrastructure.

"These are services like identity services, contact lists -- this is the layer where our social graph of your relationships lives, your presence and rendezvous, communication services," said Ozzie.