Microsoft is dipping its toe in the application-rental waters, despite conventional wisdom dictating that a company reaping billions in software revenues sell, not rent, its products.
The software giant has launched a small pilot program for its BackOffice software suite, offering it to a limited number of ISPs to begin leasing the program on a subscription basis. A similar test program for Office also is in the works, sources close to Microsoft said.
The move comes as the trend toward application service providers (ASPs), or outsourcing of applications, picks up steam after moves by Hewlett-Packard, Intel, and various ISPs. Microsoft refers to ASPs as Commercial Service Providers.
One of the first members of Microsoft's program, FutureLink Distribution, will offer SQL Server, Exchange, and Windows NT Server on its FutureLink Server Farm for periods ranging from one month to two years. Fees will be charged using a Subscription Access License.
The pilot program, which Microsoft officials will discuss publicly next week, smacks of a "cover-all-bases" strategy, observers agreed.
"Microsoft is working internally to come up with licensing models to accommodate hosted deployment of their software," said Dwight Davis, a Kirkland, Wash.-based analyst at Summit Strategies. "Microsoft understands that this trend is somewhat inevitable."
For some time, Microsoft officials have voiced interest in renting software, as well as selling it by subscription. Chairman Bill Gates recently said the reason Microsoft is investing millions in the bandwidth arena is to sell its software.
"This pilot program is being driven by the former Microsoft [Internet Customers Unit] team, along with Volume Licensing," a representative said. "Microsoft is a strong supporter of the partner model, and views this as another extension of that model. Microsoft has no plans to enter this space directly."
Software rentals are particularly ideal for small and midsize businesses that want to keep costs down and "let the ASP deal with all the headaches," Davis said. Renting has not caught on with larger corporations, though, because of security and loss of control concerns.
"The problem we see is once users have created a lot of data files and then go rent [a different application] they have to struggle with converting the native file formats," said John Dunkle, president of Workgroup Strategic Services, in Portsmouth, N.H.
Microsoft's archrival, Oracle, this week announced the first hosting partner for its business applications in its own ASP program, Business OnLine: Denver-based Qwest Communications. With an eye toward a similar arrangement, Microsoft made a $200 million investment in Qwest last December.
The Microsoft deal gives FutureLink a leg up in the ASP arena. The company also last week acquired Micro Visions, a server integrator that resells Citrix Systems products.
Microsoft Corp., in Redmond, Wash., is at www.microsoft.com. FutureLink Distribution Corp., in Calgary, Canada, is at www.futurelink.net.