Weekly Review: Is Microsoft Tired of Web Services?

There are signs of fatigue creeping into Microsoft's stance on online software and Web services these days. Despite placing the strategy dead center of the company's future vision two years ago, those in charge seem to have started to tire of the hard slog of making it happen. Perhaps others within the organization are even asking difficult questions about the mounting aura of failure surrounding the strategy — what with bCentral canned, HailStorm staunched and the entire move to subscription licensing about to blow up the company's face.

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Last week, the frustration bubbled to the surface in comments from Charles Fitzgerald, general manager of Microsoft's .Net platform strategies. Speaking to a European online news service, he reportedly said there was a danger that customers would become bored with the whole concept of Web services before they had even been delivered. He said rival vendors were to blame for stoking up unrealistic expectations through excessive hype.

But perhaps his comments were a sign that an internal debate has started to rage behind closed doors inside the Microsoft organization. Almost two years ago, company founder and chairman Bill Gates launched the vendor's .Net strategy, declaring it as significant a development as the transition from DOS to Windows (see Microsoft Maps Out a Net-Centric Future).

At the time, ASPs were all the rage, and Microsoft was preparing to launch its long-awaited ASP channel strategy — one that it had been quietly piloting for almost two years with application vendors including Pivotal, Onyx and Great Plains, and with providers such as Digex, Qwest and USinternetworking. Briefing journalists ahead of the launch in July 2000, CEO Steve Ballmer boldly predicted the demise of shrinkwrapped software within ten years. See Microsoft Prepares for End of Shrinkwrap Software

Predictions like that were fashionable back then, but they've since fallen out of favor. It has proven much tougher than any of us expected to shake customers from their attachment to software that they can physically install under their own supervision and management. Nevertheless, Microsoft has pushed on regardless with its long-standing commitment to move to an annuity model for software licensing. Known officially as Licensing 6.0, the scheme comes into effect on July 31st, forcibly imposing on the majority of customers a licensing model in which continuous annual payments replace the previous one-off purchase price.

Customers for Life
Had the world already begun a serious shift to online services, Licensing 6.0 would now be looking like a far-sighted strategy that positions Microsoft full square in the services era. Instead, many customers are perceiving it as an attempt to extort a lifetime annuity in return for delivering patches and upgrades that either fix faults that shouldn't have existed in the first place or else add new features they don't want or need. Although the licensing has changed, it's still the same old packaged software, and it doesn't fit with the service ethos that a subscription license implies.

But then, for all its protestations to the contrary, perhaps Microsoft simply doesn't have its corporate heart in this concept of online service provision, when everything in its heritage is founded on selling packaged products. Some interesting light was shed on this question by a footnote in last week's quarterly financials from Concur Technologies, the travel and expense management independent software vendor (ISV) whose business model is gradually shifting to ASP delivery as its sales of the Internet-hosted version rocket.

As well as selling its solution direct, Concur sells through two partners, both of whom rolled out its offering last year. One of them is payroll service provider ADP — a company with a strong services ethos. To date, the ADP partnership has brought Concur an impressive 330 new customers.

The other partner is Microsoft Great Plains — a product company. How many new customers has this partnership brought Concur? "Several" says the press release, which translated from marketing-speak can usually be taken to mean "probably more than one, but hardly into double figures."

The figures (or lack of them, in the case of Great Plains) appear to speak for themselves. As an application vendor, Microsoft still doesn't get the online services model — even though the platform side of the business has bet the company on making an all-or-nothing shift to .Net and Web services architectures.

Nothing to Break Up Over
If this were any other company, the emergence of dissent over strategy might lead to speculation about a possible spin-off of one or more of the warring factions. But with a decision on remedies still pending from the Department of Justice's case against Microsoft, the one thing this particular company is not going to do just now is voluntarily break itself up. Whatever debate is raging inside the company is going to have to get quietly resolved in private, hidden well away from the outside world.

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