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Not Quite Office on Demand For Microsoft

UPDATED: Microsoft's  definition of on-demand software is different from the conventional thinking. Rather than software-as-a-service (SaaS), Microsoft executives like to talk about software plus services.

The company plans to add more online services to help companies connect with their partners and customers, Satya Nadella, corporate vice president of Microsoft's business division, said yesterday at Microsoft's Convergence partner conference in San Diego.

Those services will include a hosted version of its mid-market customer relationship management application and hosted communities of interest, he added. "We will provide the software and services to enable you to create these connections."

The distinction between software plus services and SaaS has some observers shaking their heads, but it is an important one in the Microsoft universe.

Tim O'Brien, director of platform strategy at Microsoft, said that SaaS and on-premise software are not mutually exclusive. "It's being presented as an either-or proposition," he told internetnews.com. But Microsoft believes in a scenario where "software and service come together to make a sum greater than their individual parts."

He agreed that having applications available in the cloud is important but added that "there's a set of things you can only do with local code on the client and running inside the firewall on premise."

One example of this vision is Excel Web Access, which, as the name suggests, allows customers to access Excel files through a Web browser. Spreadsheets accessed in this manner can be reformatted or filtered for particular views, and can be shared outside the company firewall.

But users can't change the data contained in the files, which are read-only in the browser. This helps maintain a "single version of the truth" and also helps administrators with compliance issues.

O'Brien said that this version-controlled Web version in combination with the feature-rich on-premise version make for a more complete experience than either scenario would provide separately.

But Nucleus Research analyst Rebecca Wettemann thinks Microsoft has "missed the boat" on SaaS. According to Wettemann, people don't need the new features of Office 2007 but do need better collaboration tools. That's why they'll be seduced by low-cost SaaS offerings, like those offered by Google , which allow them to continue using the Office applications they've already paid for and collaborate online.

Last month, Google introduced a professional version of its hosted applications that costs $50 per user per year. While that adds up over time, Wettemann said Google will continue to offer customers new collaboration tools while Microsoft stagnates on the desktop.

"With an on-demand model, everybody gets access to the same innovation at a lower cost. Google Apps in six months will look very different than today," she told internetnews.com.

O'Brien argued that SaaS doesn't make allowances for things like data portability when users are off line. And he said that Microsoft is less interested in what Google does than in "figuring out what our customers really want."

Excel services, of which Web access is one, are included as part of SharePoint Server 2007, launched last November. While Office 2007 and Vista have gotten most of the attention lately, the company is counting on SharePoint 2007 to drive its real-time collaboration and online services strategy going forward.

Earlier this week, Jeff Raikes said that three years down the road, people will recognize that SharePoint Server 2007 will be recognized as the most significant product to have shipped in 2007.

"It's the sleeper hit of the year," he said during an analyst meeting hosted by Morgan Stanley.

But the more compelling question will be how much market share Microsoft will have lost to Google three years down the road if it can't articulate its software plus services vision more forcefully. O'Brien conceded that the company "hadn't done that great a job of framing" its past efforts in delivering software plus service.

The danger, Wettemann said, is that while Microsoft is "thinking a lot about it, everyone else is moving."

* Updated to clarify O'Brien's statement about Microsoft's past attempts to communicate its software plus service efforts.