Microsoft's Yahoo Offer Sets Stage For SaaS Battle With Google

The SaaS battle between the two giants comes with the recurring revenue subscription model, winning favor among solution providers and their small and medium business customers who are increasingly opting for a fixed monthly managed services subscription model that includes any and all technology support support rather than an a la carte hourly break/fix model with solution providers.

"As a solution provider, if you can have recurring revenue that pays the bulk, if not all of your fixed expenses every month, then how hard is it to be a profitable company?" asked Coffield. "If you know you have residual income coming in upfront paying your rent, utilities, insurance, maybe even your your employees, you get to concentrate 110 percent of your energy on making a profit because your basic bills are already paid."

Coffield said Microsoft has an advantage in that he already has a relationship with Microsoft, with a Microsoft account rep that calls on his business. At the same time, Coffield said he is already working with Google through Intel's Premier Partner Program getting revenue for installing the Google toolbar on systems. What's more, he said, Intel has an online marketing initiative under which system builders can use 10 percent of their marketing funds to buy Google keyword searches.

"Obviously, at the end of the day, I win if there are competitive offers that come from both Microsoft and Google," said Coffield. "If they get into a one up battle against each other that is a positive for me. Competition is good. We have far too little of it."

Coffield, for his part, ultimately sees hardware being given away for free to customers as part of a monthly software services model. He compared it to the cable company charging a monthly bill for service and giving away the cable box. "There is no value in the hardware to the customer," he said. "They don't understand the value of hardware. The value is what comes through the internet. It is their email service, their music and everything else. That is what they understand."

"My concern is that Microsoft or Google tries to go around us and partner with a tier one vendor to provide free computers and lock in customers with a three-year subscription model," he said. "That has already been done with online services. That is nothing new."

The most dramatic, immediate impact from the deal may be a quick response by Google to "redivert their attention back to their core search business," said Coffield. "By becoming a bigger competitor in Google's core business, Microsoft is forcing Google to go divert funds and energy back into the search horse race. Basically it's a flanking maneuver."

Alani Kuye, president and founder of Phantom Data Systems in Norwalk, CT, said Microsoft's potential acquisition of Yahoo is another sign of consolidation in the services market.

"With Unified Communications as the centerpiece of Microsoft's latest strategy, that will be the equivalent of a Google acquisition," said Kuye. "Now Microsoft is in a strategic position to compete directly against Google by leveraging Yahoo's long standing history and position, while maintaining their position in the enterprise space."

Alan Weinberger, chairman and CEO of the ASCII Group, a solution provider network with 2,000 partners that has ties to both Google and Microsoft, said he sees the intense competition between the two behemoths benefiting both solution providers and customers.

"If Microsoft feels compelled to make an astounding, $44.6 billion dollar offer with very substantial cash and no debt financing, they will, if approved by the government, start competing like they did in the 1980's," said Weinberger. "That can only be good for the channel because they will come out with products that will of necessity be better than their perceived competition." A combined Microsoft-Yahoo will create a more effective competitor in the online market to Google, said Weinberger. The major push by Google beyond just search and advertising into Google Apps along with the growth of Apple and open source in the market has led Microsoft to "almost bet the company on this very large acquisition," said Weinberger. "This is a very seminal event in our industry and can only be positive for the solution providers for reasons stated."

Jennifer Bosavage contributed to this article.