Microsoft has said it will pay partners margin for bringing customers to its hosted services, but for hosting partners that rely on residual subscription income from customers, the existence of Microsoft-hosted and branded offerings is a very real threat.
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One Microsoft hosting partner tried to shrug off the announcement coming out of CeBIT on Monday. "From what they've said, their pricing will leave us room to compete," he said. And Microsoft has been clear about its intentions. "Everyone knows they have to do this," another partner said. This is big part of Microsoft's counter to Google's array of free or near-free hosted services.
That said, another long-time Microsoft partner who now works with hosted Exchange but does not host it, summed up what many think: "I wouldn't want to be a hosted Exchange partner for anything in the world right now."
Analyst Matt Cain of The Gartner Group concurred. "As Microsoft continues to ramp up its Business Office Productivity Suite, it will get tremendous economies of scale. It won't be long before they have millions of users, and the problem with some of the hosting partners is they have a couple hundred thousand subscribers for Exchange. We think Microsoft will ultimately be able to offer these services for much less money."
Part of Microsoft's CeBIT pitch was that pharmaceutical giant Glaxosmithkline will deploy these services to more than 100,000 employees around the world
And, as for Microsoft's promise not to undercut hosting partners? "Microsoft's number one priority is keeping Google from getting a hold in the commercial world with commercial Gmail," Cain said. In other words, hosting partners had better find some new business.
A hosted solution is a no brainer for more commonly used commodity application categories such as email. Customers have a predictable, repeatable cost structure and they don't have to worry about hardware or software upgrades in their own server rooms.
Microsoft Online Services, now available in 19 countries, list for $10 per user for Exchange Online; $7.25 per user for SharePoint Online; $2.50 per user per month for Office Communications Online; and $4.50 per user per month for Office Live Meeting.