Microsoft: SaaS Deal with EDS Could Mean $3 Billion In Services

By Kevin McLaughlin, ChannelWeb, Apr. 28 2009, 1230 hrs

Microsoft says it has signed up more than 4,000 partners to sell its hosted business applications, including several of the industry's marquee solution providers. But interest in Microsoft's hosted services is still lukewarm in the lower end of the market, and some VARs are calling on Microsoft to step up its marketing efforts.

Microsoft on Monday revealed terms of a deal with HP-owned EDS to jointly market and sell its Business Productivity Online Suite (BPOS) to large multinational companies. BPOS, which includes hosted Exchange, Sharepoint, Office Communications Server, and Live Meeting, is now available in 19 countries worldwide. Microsoft says the EDS deal could be worth up to $3 billion in cloud services and professional services.

The EDS deal underscores Microsoft's progress in getting customers on board with Software Plus Services, the company's term for a future that involves a mix of on premise software and cloud-based services. Microsoft says it plans to eventually offer all its enterprise applications as services, and the launch of Windows Azure is expected to bring that strategy into clearer focus later this year.

John Betz, director of the Business Online Services Group at Microsoft, says Microsoft sees BPOS as an option for companies of all sizes, and notes that solution providers will be able to surround BPOS with value-added migration, support and end user management services.

"We see demand for BPOS across the entire spectrum of organization size. In some ways, the value to smaller organizations is greater because they have limited IT staff and budgets," Betz said in an interview. With BPOS, they can avail themselves of an enterprise-class experience with an investment of just $15 per user per month, he added.

However, many smaller Microsoft partners have yet to see much traction around BPOS for a variety of reasons, some which they attribute to market forces, others to Microsoft's steadfast insistence on controlling the customer billing relationship and not allowing VARs to offer white-label services.

"People don't want to resell someone else's labeled products, they want to have their own branding," said Marc Harrison, president of Silicon East, a Microsoft solution provider in Manalapan, N.J.

Microsoft VARs that sell BPOS receive 12 percent of the first year's subscription value and 6 percent of the ongoing annual service fees from reselling the suite. Microsoft says it soon will let partners place tailored BPOS orders for customers and designate themselves as the "partner of record" and receive commissions for their role in influencing the sale. But Microsoft has thus far refused to budge on the customer billing issue.