Microsoft Embracing On-Demand Software Model with Hosted SharePoint and Exchange

Last week, Microsoft announced its pricing for online versions of SharePoint and Exchange. A Gartner analyst says the move reflects the software giant’s willingness to adapt its business model to Software as a Service (SaaS). For IT executives, the announcement makes it much easier to plan for the cost of ownership of Microsoft products.

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The pricing model also brings transparency, if not simplicity, to the Microsoft software offerings (at least the software it delivers over the Web and hosts). That’s a departure from its on-premise software, where the cost of seats typically has varied depending on customer’s arrangement with the vendor.

For instance, the cost of the on-premise SharePoint Office Server starts at $4,424. The cost per seat thereafter depends on company size and the capabilities the customers wants to include.

For companies looking to take advantage of what’s being referred to as Microsoft’s business productivity online suite — which includes an online version of Exchange (e-mail), Office SharePoint, Office Communications (instant messaging) and Office Live (video and web conferencing) — the whole package costs $15 per user per month.

While that would be for the whole suite, customers can also purchase these services individually, according to a recent Gartner report:

• Exchange is $10 per user per month (1 GB storage, and the Outlook client is not included).

• Outlook Web Access is $2 per user per month (with only 100 mb of storage).

• SharePoint is $7.25 per user per month.

• Office Communications Server: $2.50 per user per month.

• Live Meeting: $4.50 per user per month.

According to Matt Cain, the analyst who wrote the Gartner report, these online offerings will help CIOs and IT departments plan for their expenditures for these technologies over the long run much more easily than on-premise offerings.

“The problem with on-premise was that you had all these operational costs, and that was the great unknown,” he says. “Now that it can be run in the cloud, it takes away the mystery of what maintenance will be.”

The new model also is a sign that offerings such as Google Apps—though yet to seize significant market share—has spurred Microsoft to what it calls “software plus services” (a departure from the rest of the software industry, which generally calls it SaaS). “If Google wasn’t out pushing Google Apps and enterprise Gmail, I don’t think Microsoft would be nearly as aggressive,” Cain says.

But there will be some tricks in bringing some of Microsoft’s existing customers over to the hosted model, Cain adds, particularly those who have already invested in on-premise but want to move to online services. “Let’s say those customers are excited about moving to a hosted model,” he says. “What if they paid up front for three years [of on-premise]. They’ll want some credit if they move to the online version.”

In addition, there is the possibility that larger enterprises which make a commitment to the online model will want discounts, Cain adds.

“If you show up and want 20,000 seats, that might change things a bit,” he says.