Like any traditional software vendor a significant slice of Microsoft's revenue comes when customers upgrade to a new version of its products. The downside of this model is that upgrades cause uncertainty, disruption and expense to customer organisations.
Microsoft has started to face serious competition from cloud computing: Software-as-a-Service vendors who do not require customers to install their software on their servers. Instead the vendor hosts the system and customers pay a monthly subscription to use it via the web. Microsoft's key competitors from the cloud include Google apps and Zoho.
Software-as-a-Service vendors do not usually require customers to upgrade to new versions of their software, instead improvements are made incrementally and included in the subscription fee. The reason for this is that Software-as-a-Service vendors bear the burden of hosting each of their customers' implementations of their product. If different customers are on different versions it adds complexity to this hosting and erodes their economies of scale.
The prospect of impending upgrades casts a shadow over the three main products that Microsoft sells into enterprises: Windows, Office, and SharePoint.
Windows
Windows is suffering from a widespread reluctance of organisations to upgrade from Windows XP to Vista. Organisations perceive that they can do most of what they need to do with XP, and that Vista does not offer significant advantages. Adoption was also hit by economic conditions. Many buyers take a wait-and-see approach when it comes to new releases of Microsoft products. By the time Vista had settled down the credit crunch was upon us and buyers saw sticking with XP for another year as a way of saving cash. Many organisations will now be tempted to skip Vista entirely and
wait until Windows 7 comes out. Gartner and Microsoft have both warned against this strategy:
- Gartner said that failing to upgrade to Vista is risky: organisations skipping Vista may later find themselves with no option but to upgrade to Windows 7 shortly after its release because support for Windows XP is withdrawn.
- Microsoft says that Windows 7 will be based upon Vista, and upgrading to it from XP will be significantly more complicated than upgrade from Vista.
Organisations might call Microsoft's bluff on this one: E-week's Microsoft-watch blog reported in this
post that only 10% of enterprises have upgraded to Vista. Microsoft has already bowed to pressure to extend the life of XP, and it is not in the company's interests to make life too difficult its customers.
The Office Suite
The productivity tools contained in the Office Suite no longer offers Microsoft a competitive advantage. The establishment of standards for word processing tools has meant that it is too easy for competitors to provide software that imitates and interoperates with Microsoft Word, Excel and Powerpoint.
MS Word documents can be viewed and edited in rival packages such as Google Docs, Open Office and Pages (Apple's equivalent for the Mac). I have bought an Asus ee netbook and a Macbook over the past year and a half, neither had Office on it. I have only missed it when colleagues provide me documents that contain macros written in Word.
Of these alternative packages Google Docs is the strongest competitor. It is free to individuals (which gets lots of people accustomed to using it). It also forms the basis of Google Apps: the system that Google offers to organisations from the cloud in competition with Office and SharePoint.
The main hope for Office lies in making it linking it ever more closely with the one great success of Microsoft's year, SharePoint. The next version of Office (Microsoft Office 14) will be very tightly wrapped in with the next version of SharePoint.
The dilemma for Microsoft is that to differentiate the Office Suite from their free/cheap competitors they have to make it more sophisticated, but the increased sophistication increases the disruption and cost of upgrade to organisations because it introduces a need to provide training. The upgrade from Office 2003 to Office 2007 was the first Office upgrade in my memory that was radical enough for organisations to need to roll out training to accompany it.
SharePoint
The latest version of SharePoint, MOSS 2007 has been a roaring commercial success. It has seen massive take up for by organisations using it for their web sites, intranet, collaboration and document management. It has also been adopted by organisations wanting to introduce web 2 features such as blogs and wikis into the enterprises, despite the fact that these features are not particularly powerful in MOSS 2007.
One of CMS watch's 12 technology predictions for 2009 is that the release of Office 14 will cast a shadow over SharePoint during 2009. The next version of SharePoint is due to be released at the end of 2009/start of 2010, coinciding with Office 14. It will be significantly different to the current version of SharePoint, to enable its tight integration with Office 14. CMS watch predicts that organisations will be wary of doing extensive customisation of their SharePoint implementation for fear of the work involved in upgrading it to the next version. Those organisations that adopted SharePoint 2003 are finding it far from straightforward to upgrade and migrate content to MOSS 2007, because MOSS 2007 was such a radical change. If the same pattern of a radical rather than an incremental upgrade occurs at the end of 2009 then Microsoft again runs a risk of alienating customers.
The implications of cloud computing for Microsoft
Microsoft is unbeatable at providing traditional host-it-yourself software for organisations, because of:
- their large salesforce
- their long-standing relations with IT departments
- the investment that organisations have already made in the Windows platform and the software that Microsoft provide for it
The move of organisations to cloud computing is not in Microsoft interests.
- It erodes the competitive advantage they have from their provision of Windows
- it levels the playing field for competitors wanting to sell into the enterprise.
- it plays to the strengths of rivals such as Google whose products were developed from the start to be provided from the cloud.
This
post from Paul Miller describes the commercial and technological difficulties that SAP had in translating their hugely successful Enterprise Resource Planning software into an offering from the cloud. The business model for providing systems from the cloud is fundamentally different from the model for providing systems for organisations to install on their servers. The move to the cloud will be the hardest challenge Microsoft has ever faced.
The strongest indicator I have seen that the move to cloud computing is inevitable is the fact that Ray Ozzie, Microsoft's Chief Software Architect is now basing his entire long term strategy on moving Microsoft's offerings to the cloud (see this
full length article from Wired.com)
The implications of cloud computing for organisations
The initial driver for organisations to migrate to cloud computing will be economic. Traditional software requires a substantial up front investment in licences, servers, integration, configuration, training and roll-out. These spikes of investment of time and resorces are repeated (albeit to a lesser extent) for every upgrade.
One of the first categories of organisation to adopt Software-as-a-Service were start-ups, partly because they had not already sunk investment into server rooms and IT staff, but also because they find it hard to acquire credit, and therefore the steady monthly subscription to a Software-as-a-Service vendor was more feasible to finance than the big up-front investment for traditional host-it-yourself software.
We are now in a credit crunch. Most organisations are finding it hard to find cash for investment. The smooth monthly subscription model of Software-as-a-Service is becoming more attractive.
Software provided from the cloud os different in character to the software that vendors have provided you on disks to install on your servers. It is simpler and leaner. The vendor bears the cost of hosting it so it is in their interests to cut out extraneous bloatage. Google apps is a far less complex product than SharePoint. Whether this lack of complexity is a good thing or a bad thing depends partly on whether you see training colleagues on how to use their information systems as a benefit or a cost to your organisation.
Cloud computing will erode the boundaries between the information systems of different organisations
Most teams in any organisation have as much need to collaborate with people outside the organisation as they do with people inside the organisation. Any collaboration system that is confined to your organisation will by definition meet no more than half of a team's information needs and communication needs. As soon as you stick a piece of software on your servers, customise it to your needs and wrap a firewall around it you are cutting that system off from the rest of the world.
At one time organisations aspired to have one corporate repository, organised with a corporate classification. This dream is dying. In the document and records management sphere corporate fileplans have failed. Organisations have not been able to get these corporate classifications accepted and used by staff. Where organisations are using them staff do not find them useful. A software package (SharePoint), that has no place for a corporate fileplan, has swept the board.
Cloud computing will diminish the technical barriers to information collaboration between different organisations. Different organisations subscribing to the same Software-as-a-Service will be on the same version of the software and differences between the systems will be minimal.
Myself and my colleagues in the TFPL consulting team all have Windows, Office and SharePoint on our desktops. Maybe you do too, but what versions do you have? We have XP, Office 2003 and MOSS 2007. Contrast this is with an example of Software-as-a-Service. I use Google docs, the basis of Google Apps. Maybe you do too. I don't need to ask you which version, there is only one version, and if I want to collaborate with you all I have to do is to send an invite to your username (in this case your googlemail address).
Imagine, in the very near future, several different organisations are signed up for a similar Software-as-a-Service for their generic collaborative software. It might be Google Apps, it might be Zoho, it might even be SharePoint if Microsoft managed to get it working well from the cloud, it might be AN Other system. It will be trivially easy for a team inside one of those organisation to add in external partners to their collaboration sites. Not just technically possible for system administrators- trivially easy for end users. Once this happens there will be no going back to the days of server- installed, firewall encircled collaboration software, because going back would mean the organisation is cutting itself off from its customers and partners.