Microsoft expands its response to hosted software

Microsoft is strengthening its early-stage push to fend off competition by offering more Internet-based software, a change from its traditional method of selling programs that run on individual desktops or corporate servers.

With Internet-savvy rivals threatening Microsoft's usual sales model, Microsoft started offering its Exchange e-mail server software and other programs to "beta" testers in March. Under the new setup, companies including Eddie Bauer Holdings started to let some of their business software be run remotely in Microsoft's data centers, rather than buying, installing and managing it themselves.

Microsoft said today that t will sell a package of four server products — Exchange Online, SharePoint Online, Communications Online and Live Meeting — to U.S. companies by the end of the year for $15 per PC user per month, and to global businesses in the first half of 2009.

The company also plans to sell a lightweight version that gives limited e-mail and SharePoint access to "deskless" workers like nurses, factory employees and salespeople for $3 per user per month.

Microsoft's announcements coincided with its annual conference for partner companies that resell its software to other businesses, held this year in Houston.

Competitors from search leader Google to IBM and business back-office software maker Salesforce.com are pushing online alternatives to Microsoft's installed programs, arguing that this approach is less expensive and more flexible. For example, updated versions of the software can be delivered instantly over the Internet.

For its part, Microsoft has stuck by its pronouncement that consumers and businesses will opt for a mix of remotely hosted programs and desktop or on-premise programs.

In this case, Microsoft will still require companies to buy Outlook and other desktop programs powered by the remote servers.

As an incentive, Microsoft also told partners today that it would give them a cut of contracts for online services, totaling 18 percent the first year and 6 percent each year thereafter.

"We wanted to make sure partners were really encouraged to transform their business, too, as the world moves toward software plus service model," said Chris Capossela, a senior vice president in Microsoft's information worker software group, in an interview.

Capossela estimated the partners' slice of sales will add up to more than their current markup on packaged software, and that business customers will end up paying less for the same Microsoft software.