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margins for the life of the contract.
For example, if a Microsoft partner has a customer that wants to go with Microsoft-hosted Exchange Server, SharePoint, Office Communications or Live Meeting services, that partner will get a 12% margin on the initial buy-in and a recurring 6% for the length of the contract, as long as the partner remains the partner of record, according to John Betz, director of product management for Microsoft's Business Online Services.
Customer pricing for the hosted online services suite, including the aforementioned services, will be $15 per user per month -- a 38% discount over buying all the services separately, Betz said.
And for companies fielding "deskless" workers -- truck drivers, airline attendants and others who might need email but aren't tied to a PC -- Microsoft will offer another option. Such users can get both SharePoint and Exchange email access for $3 per month or pay $2 per month for one or the other.
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Stephen Elop, president of the Microsoft business division, will tell thousands of partners about the new compensation and partner model for the company's evolving hosted online services at Microsoft's Worldwide Partner Conference on Tuesday.
Microsoft will also revamp the current Service Provider Licensing Agreement (SPLA) pricing for hosting partners in advance of the anticipated services rollout this fall, said Marie Huwe, general manager for Microsoft's partner marketing strategy.
For hosting partners, some of whom charge $10 per user per month for Exchange access, that SPLA negotiation will undoubtedly be welcome.
"The goal is to have our hosting partners be competitive in the market. We're not trying to shift our business, we're trying to expand the business," Huwe said.
Some Microsoft partners see this as an insidious race to the bottom in pricing and margin. However, many see it as inevitable in a world where Google lures customers with ad-based free software functionality or enterprise application services that cost a fraction of Microsoft's traditional price. Google Apps lists for $50 per user per year.
"You've got [Microsoft] hosting partners already getting killed at $10 per user per month for hosted Exchange," said one hosting partner who asked not to be named. "They already have no margin, and now all of a sudden Microsoft is creating a market where any partner can sell [the whole suite including VoIP] for $15 per user per month. That's not a pretty picture."
For Microsoft CRM Online, the pioneer Microsoft-hosted business application, partners get 10% margin initially and a recurring 10% per year as long as they remain the user-specified partner of record.
Huwe and Betz both stressed that Microsoft Online Business Services will be a 100% partner-led effort. Microsoft will not sell them direct to customers, a prospect that had spooked loyal Microsoft partners ever since the company started beating its hosted online services drum in response to Google's hosted applications push.
Microsoft's pledge of customer delivery choice could be its ace in the hole if it can execute properly. Customers can start out with on-premise mail and then move it to the cloud or vice versa. Or they can work a hybrid model -- whichever is most efficient.
The three different market routes -- on-premise, partner-hosted and Microsoft-hosted -- will help partners better meet customers' needs, said Alan "Skip" Gould, president and CEO of BrightPlanIT in Buffalo, N.Y.
"I see all three of these as having value, and I think we'll sell all three," he said. "The [hosted] model works. It's just a question of what incentives there are to the users, and I think there are quite a few."
Most of BrightPlanIT's customers are in the upper midmarket or larger companies. Branch offices and certain departments of large companies may be interested in Microsoft-hosted online services, but small and medium-sized businesses (SMBs) are the target audience, Gould said.
Paul DeGroot, an analyst with Directions on Microsoft, a Kirkland, Wash.-based researcher, sees Microsoft's dilemma.
"I tend to give them a hard time because they're always encroaching on partner territory, but on the other hand, they have no choice," he said. Google and Salesforce.com are driving this market and Microsoft has to respond.
No company is more vulnerable to the cloud model than Microsoft, which has a huge vested interest in people carrying around Windows and Office on their laptops, DeGroot said.
Microsoft plans to start delivering these email and collaboration services -- which partners can manage via a Microsoft-hosted portal -- this fall with Office Communications Online to follow shortly thereafter. It's been offering CRM Online since April and Live Meeting has been available for years. What's still unclear is when the company will follow through on past vows to offer Microsoft-hosted ERP and when (or if) it will offer full Office capability from the cloud.
"We are committed to this model of software plus services that extends clients and servers. There will be services that complement all these offerings. Our servers will be made better with services and the same thing with clients," Huwe said.