Microsoft Getting Into Hosting

At least that&s the plan the Redmond, Wash.-based software giant has now, sources said. Microsoft hopes to have hosted CRM available in the second half of 2006, with hosted Dynamics ERP likely to follow, sources said.

Howard Diamond, CEO of ePartners, Dallas, said hosted CRM is a natural for Microsoft and does not see a conflict with his own hosting business. “CRM is a funny thing. It&s the only [Microsoft Business Solutions] product that is also covered by Enterprise Agreements, so I make more money on the services than the product anyway. This is a logical evolution of the product that I need to do the service sales I want.”

Currently partners such as ePartners and NaviSite host Microsoft CRM and other applications for clients.

Thus far, Microsoft has not acted as a managed service provider except in some now-discontinued bCentral offerings, its current small-business Web hosting business and—to stretch a point—Hotmail.

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The company is mum on exactly who will run the server farms and the applications, although Microsoft Chairman Bill Gates last month told CRN that it shouldn&t matter to partners. “The value-add of the partner isn&t reliant on the software running on the server on premise,” Gates said.

Because of competitive pressures posed by hosted CRM, and IBM&s On Demand messaging, Microsoft has to offer a hosted option, sources said.

Toward that end, the company has brought aboard a small group of “ex-high-availability folks from Unisys, [Hewlett-Packard] and elsewhere” to work on the project, one company source said.

While some partners worry that the move signals partner disintermediation, others think it&s a no brainer. Two partners that have been briefed on the plans said they have been assured that a Microsoft hosted offering will be “revenue-neutral” for the channel.

One partner said Microsoft needs to talk more about software as a service. “My biggest frustration today with Microsoft is they continue to sell as shrink wrap with professional services around it, and they never mention hosting providers,” the partner said.

Last week, Microsoft CEO Steve Ballmer concurred. Companies have to “respond to the core trend, move to a services approach—software as a service. If you do these things well, you compete well, and you win. The notion of all significant software evolving will have a service element,” he told attendees of Gartner ITXpo in Orlando, Fla.

But even Microsoft insiders have questions about the project. Take the next release of CRM, due late this year. Dubbed Dynamics CRM, it does not support true multiple-tenancy, which eases the coexistence of multiple secure accounts running on the same software.

One hosting solution provider put it succinctly. “They&re doing this because they can&t stand being beaten by [ CEO Marc] Benioff,” he said. “But Microsoft is better at making software than it is at managing relationships,” which is key in hosted apps.