Microsoft and On-premise

Last week Google launched embedded video chat from within Gmail and chat. First of all, wow. It has been an instant hit at Appirio and other customers of Google Apps. Immediately you can get crystal clear video and voice without almost any effort (especially true for Mac users with our built in cameras). We've used it to connect our teams across the country and with India and Japan. It dramatically changes the communication experience because Google streamlined the user experience to make it simple to connect with anyone - inside or outside your company. In our very first video connections, our attention actually turned to this as another extreme example of the innovation gap between on-premise software and "the cloud". Rumor has it that even group video chat will be coming soon. What would it take Microsoft to add such a capability into their traditional Exchange platform? How long until end users at customers would actually benefit from it?

1. Microsoft would have to build and test it - Given all the different versions of their software, hardware, OS combinations facing Microsoft, they would have to make some very tough choices or severely limit the options they supported. Given the precedent of Vista compatibility, this enormity of this can not be underestimated. Conservatively, it would take them more than 10x the effort for Google to do the same thing within Exchange.

2. Customers would have to then get the new version and upgrade all Exchange instances - With Google, it basically was a couple clicks and it worked. For Exchange / Outlook customers they would have to upgrade or install completely new software. If they wanted to chat with those outside their company, they would have to hope those folks had also upgraded.

With an estimated 500M Outlook users, lets assume that the fully loaded cost of the upgrade (license, support, rollout on the server and to each client) will be just $10 per user (an incredibly conservative number in our opinion). That means it would cost businesses at least $5 billion to gain the functionality Google just rolled out in a day. The likely case is that this would also take years to take hold, severely limiting the benefits because not everyone was on the same version immediately. You would have to wait for your friends company's to rollout the "new version" so that you could video chat cross company (or naively hope that Microsoft actually built it using a standards based approach).

3. They would have to fix security and synchronization problems - What major new capability released from Microsoft doesn't create new security holes? Lets say that 500M users represented 5M companies each of whom had to spend an additional $1000 (1-2 days over a year) to deal with the security patches, and the subsequent synchronization to OS, SQL Server, Exchange version, that would be needed. That's another $5 billion down the tubes. For Google, even when problems do arise, they are fixed by Google, once, for all customers (without the customer having to take any action).

So what's the answer? Microsoft will 'never' effectively add video chat to their on-premise Exchange platform. Instead they will try to mimic Google and eventually create an add on that leverages a single multi tenant platform to support this kind of capability. So what you say? Ray Ozzie already admitted Microsoft had to change dramatically, "It's (cloud computing) a transformation of our strategy." The real world challenges of attempting to "embrace the cloud" while preserving and even promoting their legacy is simply too much for even Microsoft to bear.

At a recent private event of medium size enterprise CIOs, one of the most senior Microsoft executives was left struggling to explain why a company should continue to invest in Exchange when Google was providing a broader (and growing) set of capabilities for 1-2 orders of magnitude less expense than Microsoft (Google Apps for mail, calendar, chat, docs, and sites lists for $50/user/year). The realities of attempting to preserve revenues from a legacy solution while promoting the new model is too much inner conflict for even Microsoft to wade through. As we have said before, the most likely path for company's like Microsoft to "transition to the cloud" is to set up an independent unit that can compete freely with their own solutions.

In the last year, Google has added more innovation to the messaging and collaboration space than Microsoft has in the last decade. To do this at a fraction of the cost for themselves and customers highlights the radical difference and inherent conflicts in on-premise vs. on-demand. With the current economic conditions, we expect to see a large set of studies and research that drill home the simple fact that real multi-tenant SaaS/PaaS solutions deliver much more value for a dramatically lower cost for both the provider and consumer. IT is simply too important and too costly to be left with solutions of a pre-Internet world.

Narinder Sighn

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