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Microsoft's SaaS Channel-Crossing Strategy

Crossing the English Channel might not seem like a big deal, but it can be depending on the tools you have to make the trip. Independent software vendors (ISVs) face much the same predicament when trying to cross over from their familiar on-premise, perpetual license businesses to the software-as-a-service (SaaS) model.

Microsoft is launching the SaaS Incubation Center Program to help ISVs make that leap. The program is predicated on partnerships between the Redmond, Wash.-based software vendor and hosting companies using Microsoft's Windows-based Hosting for Applications to provide ISVs with business and technical guidance, consulting services, and access to an established hosting channel.

Thus, ISVs will be able to outsource the infrastructure requirements of providing SaaS to the hosting companies and benefit from the experience that hosting companies have in providing service level agreements and generating subscription revenues.

Microsoft will also provide the hosting companies with white papers on technical issues and business strategies in order to help them consult with their new ISV partners.

The hosting companies, for their part, get the opportunity to foster new relationships with ISVs, expand their portfolio of services and drive incremental revenue.

"There is a play for value-added resellers and system integrators to aggregate and pull packages together for their customers," Michael van Dijken, lead marketing manager for hosted solutions, told internetnews.com.

Van Dijken said that switching to a services-oriented business model isn't easy for ISVs, who have to consider a raft of factors, from how they compensate sales people for monthly contracts, as opposed to commissions on one-time sales, to how to negotiate service-level agreements with their customers. In many cases, ISVs who relied on VARs to sell into their markets will have direct contact with their end customers for the first time.

"It's a big decision for ISVs to make that jump, but I think that trend is going to accelerate over time," he said.

He noted that this ecosystem is still in its infancy, but that Microsoft wants to lay the groundwork for future efforts among its channel partners.

"Our approach is to enable the ecosystem and make investments that help to drive that," he said.

Microsoft has relationships with more than 20,000 ISVs developing on Microsoft server-based platforms. Van Dijken said that internal polling showed that a quarter of those are already doing some service-based delivery or are actively considering it.

SaaS Incubation Center Program partners utilize the Microsoft Solution for Windows-based Hosting for Applications, which provides the platform architecture, guidance and sample scripts for service providers to host SaaS-based applications.

The platform helps hosting companies monitor system performance and health, measure system usage, automate server builds, and manage security for ISVs. This ultimately allows ISVs to provide a strong SLA to end users, which is a critical component of online service-based delivery.

Mike Mankowski, senior vice president at Tier 1 Research, a division of research firm the 451 Group, told internetnews.com that a lot of ISVs are searching for a way to expand their business. In the same way that SaaS allows companies to outsource their IT requirements, he said, this model could allow ISVs to outsource their infrastructure requirements.

The Microsoft program "also gives what I believe a lot of these smaller companies are looking for, which is some hand-holding."