MSFT vs GOOG: Cloud Gas War on the Horizon?

July 8, 2008

Mary Joe Foley, author of an interesting book about the “new” Version 2.0 Microsoft, wrote “Microsoft to Sell Hosted Service Subscriptions for $3 a Month”. You can read her essay here in the All about Microsoft information service. This is one of the ZDNet Web logs, which I find pretty darn useful to me.

Her point is the price. But the most interesting passage for me was this:

Over the past couple of years, Microsoft has been attempting to persuade its partners, especially those who’ve built businesses around hosting Microsoft software for their customers, that Microsoft isn’t going to steamroll them with its new managed-service offerings. Microsoft execs have been warning partners to get out of the plain-old hosting business and to, instead, focus on more of the value-add they can provide on top of hosted services.

I am not a Microsoft partner. I have watched as Certified Gold Partners innovated in search and add-ons for SharePoint, to cite two examples. Then, with each new release of SharePoint, the features that partners figured out how to make work and educated the customers to appreciate would migrate into the SharePoint platform.

My conclusion was, “Wow, that’s pretty risky for a partner investing big bucks in a value-add, enhancement, or snap-in gizmo for a Microsoft core product.” Well, this is another example of how large companies in their quest for revenue can take actions that put pressure on partners. When I was in South Africa, one guide told me, “When elephants fight, only the grass gets trampled.” Okay, this price war may not be real, but the price cut is.

The target is Google,, and other vendors who like Macbooks and OSX.

The “grass” may be pretty sparse right now, but any firm thinking about getting into commodity services via the cloud may want to sharpen their pencils and revisit their business plans.

Kudos for Ms. Foley for snagging this information. I want to add three observations, which is now standard operating procedure for this Web log with two or three readers:

  1. A dollar amount play is dangerous. The major competitor has a different business model, and I think Google will use it to further provoke Redmondians.
  2. Customers don’t know whether $3 is too high, too low, or just right. Penetration of for-fee hosted services remains modest. In the enterprise, I saw figures that were in the 10 percent penetration range. This price point may become the benchmark, which if usage spikes could be a big cost hit for Microsoft as it rushes to scale. Google is getting beat up because some of its services are not scaling fast enough. Google’s stuff is free, which muffles the snorts. I will have to wait to see how the service scales, if it even has to scale.
  3. At least one Certified Gold Partners is making plans for life without Microsoft. I spent time with one big Gold outfit, and I thought I heard words to the effect, “To heck with them.” If this anti Microsoft flu spreads, the result might be quite interesting competitively.

You can get a another interest view of this from ReadWriteWeb here.

Agree? Disagree? Don’t be shy?

Stephen Arnold, July 8, 2008


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