Guess Who’s Getting Into SMB Hosting?

Memo to Microsoft’s hosting partners: You may have seen this one coming. Microsoft this week said it would expand access to its self-hosted Online Services for Business to a wider swath of customers.

“[With Online Services for Business], we’re moving to embrace customers of all sizes,” Gates told the audience of developers attending Microsoft’s annual Office SharePoint Conference in Seattle.

That makes sense to analysts, who see a new dynamic at play with Microsoft now targeting customers with fewer than 5,000 seats.

“This is the major point of the strategy,” said David Smith, an analyst with research firm Gartner. Enterprise customers are still an important part of Microsoft’s Online Services for Business thrust, but the biggest market most likely will be in small and medium-sized businesses, he told “I think most people will gravitate to this offering.”

Rob Helm, research director at analysis firm Directions on Microsoft, holds a similar view.

“This move really expands the hosted market for the apps into the sweet spot of companies that can’t host them themselves,” Helm added.

Microsoft revealed its Online Services for Business hosted computing services ‘in the cloud’ plans in October. The offering will include Microsoft-hosted versions of Exchange e-mail, SharePoint document management and collaboration, and Office Communications.

“The breadth of what we can do for business productivity is very large,” Gates said.

When it was first announced, the beta of the service was only offered to customers with 5,000 or more seats. But yesterday, Microsoft opened a limited beta test among U.S.-based companies of all sizes.

“We want to scale this all the way down,” Gates said.

He emphasized that SharePoint Server 2007 and Exchange Server 2007 lie at the heart of the emerging strategy.

In fact, he said, SharePoint has been a phenomenal success. It has now grown into a billion dollar business with 100 million users. Similarly, Exchange Server has largely displaced most of its competition in large companies.

“Eighty-one of Fortune 100 companies have Exchange Server,” Gates said. “We see Exchange and SharePoint as very, very complementary.”

Repositioning Microsoft’s own hosted services to cater to smaller businesses does add at least one fly to the ointment, though –- at least for Microsoft’s third-party hosting partners. Until recently, those partners had the market for providing outsourced hosted Microsoft solutions to customers all to themselves. Now, they’ll have to compete with their own software supplier for those hosting opportunities.

“It does represent a direct move into what was, up until now, a partner opportunity,” said Directions on Microsoft’s Helm. “But Microsoft is trying to turn third parties into partners who sell [Online Services for Business].”

Another area that comes to mind is Microsoft’s current nemesis Google -– which has challenged Microsoft in areas from free e-mail, to online office suites, to its own collaboration portal.

However, if Gates is afraid of Google making incursions against any of the company’s products besides search, he didn’t show it Monday. Asked during a Q&A session following his keynote whether the recently-announced Google Sites poses any threat to SharePoint, Gates was his old derisive self.

“For most of these [Google’s] products, the day they announce them is their best day,” Gates quipped.

Gartner’s Smith said Gates may be right about Google Sites.

“Other than that they have no track record in this area, you can extrapolate from [Google’s] previous experiences,” Smith said. “The Web-only, bottom up approach hasn’t had a large impact on IT-related decisions as of yet,” he added.

That is not to say that Google’s chances of succeeding should be completely dismissed, however.

“In the long run, it’s going to be head-to-head [between Microsoft and Google],” Helm said.

In one surprise during the Q&A, Gates also said that, despite the fact that Microsoft’s dreams of a unified storage system for the majority of its products has appeared dead, it isn’t so.

“In the future of Exchange, it literally will be hosted on SQL Server,” Gates added, though he didn’t provide any details or time frames.

Delivery of Microsoft Online Services for Business is scheduled for the second half of the year. Interested parties can register for the beta here.

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