When it comes to corporate technology, the internet services revolution cannot be rushed.
That, at least, is the message from Bill Gates. A year ago he and Ray Ozzie, now Microsoft’s chief software architect, laid out a radical new vision for Microsoft, one that was based increasingly on delivering software-enabled services rather than traditional software packages.
Yet for much of the software that companies use – from desktop “productivity” programs such as Office to the back-office applications that underpin their marketing departments, supply chain operations and other parts of their business – this is still a long way off, according to Mr Gates.
Speaking this week to the Financial Times, Mr Gates sketched out a vision for corporate software that looks less radical than that promoted by many others in the software and internet industries.
The danger, if he is wrong, is that Microsoft risks squandering its entrenched position in corporate desktop software, as well as its ambition to turn back-office applications into its next big growth business.
“What Microsoft faces today is what happened to the mainframe,” warns Joe Wilcox, an analyst at Jupiter Research – that it will be replaced by a lower-cost, more efficient model of computing, this time based on the internet.
It is represented by companies such as Salesforce.com, whose back-office applications are delivered online, and by Google, whose suite of productivity and collaboration tools for office workers has been multiplying.
According to Mr Gates, tech companies have made the mistake before of believing in overnight transformations. At the beginning of the decade, for instance, all the talk was of “application service providers”, companies that would deliver services online as if they were water or electricity. “Intel was going to build all these datacentres, there were tons of start-ups,” he says. Most foundered.
When it comes to back-office “enterprise resource planning” applications, he adds: “We’ll have some things on-premise, some things published out on the web. We think few companies will be purely on-premise, or purely on the web.”
Getting the balance right will be key to success for one of Microsoft’s most important new businesses. Its business applications business, started through acquisition five years ago and now generating revenues of about $1bn a year, is “something that will grow faster than the rest of the business for many, many years”, Mr Gates says.
“Like every Microsoft business in the first few years, we’re learning, we’re putting the pieces together.”
So far in this area, Mr Gates is following a classic Microsoft game plan. Part of it involves tying the applications more closely to Microsoft’s main asset – its desktop software. By using the Office suite of desktop tools as a way to access back-office applications, Microsoft hopes to stimulate wider usage, particularly among the smaller businesses that are its main target.
Microsoft is also playing the same “fast-follower” role it has in other markets where other companies have set the early pace.
For instance, when it comes to Office Live – a collection of online services for small businesses – “it looks like they came up with many of the ideas after they looked at the Salesforce.com website”, says Bruce Richardson, an analyst at AMR Research. Yet this me-too approach has worked for Microsoft in other markets before.
The shape of this services-and-software vision for corporate software has yet to come fully into focus, though Microsoft continues to inch forward. Earlier this week, for instance, it announced plans to make its customer relationship management software available as a service in the second half of next year, with other software to follow.
It also laid out more ideas for how small businesses would be able to combine both on-premise software and internet services (supplied by Microsoft) to create new composite applications – or “mash-ups”, in the jargon of the Web 2.0 internet movement.
For instance, a marketing executive, reviewing details of a client relationship on his Microsoft software, might link directly into a hosted “collaboration” service to start a conversation with colleagues, then connect to Microsoft’s online keyword advertising system to launch a campaign.
“There are a lot of pieces in motion that haven’t landed yet,” Mr Wilcox says.
Mr Richardson adds: “Everything is still in a state of flux.”
Microsoft’s growing range of software and services for smaller businesses are “all aimed at the same desktop, and it gets a little confused”. He says, though: “That’s the way Microsoft likes it.”
In other areas, Microsoft has shown a similar desire to attack on all fronts at once. In its assault on the digital living room, for instance, it has spread its bets across the Xbox 360 games console, set-top boxes and special “media centre” PCs.
As the shape of corporate software and technology services evolves, that may prove a smart strategy – though it risks leaving Microsoft at a disadvantage to pure internet-based companies in at least one respect. “The Salesforce.com story is pure and unencumbered,” Mr Richardson says.
Copyright The Financial Times Limited 2006
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