Microsoft's Yahoo Offer Sets Stage For SaaS Battle With Google

Solution providers Friday said Microsoft's $44.6 billion bid for Yahoo sets the stage for a heavyweight software as a service (SAAS) subscription battle between Microsoft and Google.

Tyler Dikman, the CEO of Cooltronics, a Tampa, Fla. solution provider, urged both Microsoft and Google to come to the table with a recurring revenue commission for solution providers to sell basic productivity software as subscription service. "I'm not a VAR that believes I should be paid for everything, but if I am bringing the customer to either Microsoft or Google they should give me a monthly recurring revenue commission," he said. "We provide a wide range of services to our customers and when all is said and done we need to be profitable. The more options we can provide to customers the better. This is a missed opportunity for both Microsoft and Google."

Solution providers said that currently neither Microsoft with Office Live or Google with Google Docs offers partners the opportunity to earn a monthly recurring revenue software as a service commission.

Dikman said he believes a Microsoft Office Live monthly subscription would drastically reduce piracy of Microsoft Office in small and medium businesses. "This is definitely where Microsoft needs to head, especially when you look at the outrageous price of Microsoft Office," he said. "I can say with certainty that at least one out of five systems we deal with has pirated Microsoft Office software. If you provide customers with a more attractively priced monthly offering it will cut down on piracy."

Dikman said customers would love the option of paying a monthly $10 subscription for Office with all updates rather than $400 for a packaged copy. He says it would also spark a huge uptick in Office upgrades. "Office 2007 is a great version of Office," he said. "The biggest problem I have is I have to save every document as an Office 2003 document instead of Office 2007 because most of the people I do business with don't have Office 2007 yet so they can't open those files. That defeats the purpose of a lot of the functionality in Office 2007."

"Software as a service is absolutely where Microsoft needs to be headed in order to get everybody on the same page," said Dikman. "I am certain more people would adopt Office 2007 if it was a software as a service offering."

"Both Microsoft and Google understand that its going to be a battle to get monthly subscription software service revenue from customers," said Glen Coffield, president of Smart Guys Computers, a four-store system builder chain based in Orlando Fla. "The question is which one is going to partner with solution providers like Smart Guys to drive that subscription revenue."

Coffield said a successful Microsoft acquisition of Yahoo would provide a platform for Microsoft to kick its software as a service (SaaS) plan into high gear, but the key is leveraging solution providers to sell a Microsoft Office Live monthly subscription. Of course, that would mean giving solution providers a recurring revenue commission. Not something Microsoft has been willing to do at this point.

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The SaaS battle between the two giants comes with the recurring revenue subscription model, winning favor among solution providers and their small and medium business customers who are increasingly opting for a fixed monthly managed services subscription model that includes any and all technology support support rather than an a la carte hourly break/fix model with solution providers.

"As a solution provider, if you can have recurring revenue that pays the bulk, if not all of your fixed expenses every month, then how hard is it to be a profitable company?" asked Coffield. "If you know you have residual income coming in upfront paying your rent, utilities, insurance, maybe even your your employees, you get to concentrate 110 percent of your energy on making a profit because your basic bills are already paid."

Coffield said Microsoft has an advantage in that he already has a relationship with Microsoft, with a Microsoft account rep that calls on his business. At the same time, Coffield said he is already working with Google through Intel's Premier Partner Program getting revenue for installing the Google toolbar on systems. What's more, he said, Intel has an online marketing initiative under which system builders can use 10 percent of their marketing funds to buy Google keyword searches.

"Obviously, at the end of the day, I win if there are competitive offers that come from both Microsoft and Google," said Coffield. "If they get into a one up battle against each other that is a positive for me. Competition is good. We have far too little of it."

Coffield, for his part, ultimately sees hardware being given away for free to customers as part of a monthly software services model. He compared it to the cable company charging a monthly bill for service and giving away the cable box. "There is no value in the hardware to the customer," he said. "They don't understand the value of hardware. The value is what comes through the internet. It is their email service, their music and everything else. That is what they understand."

"My concern is that Microsoft or Google tries to go around us and partner with a tier one vendor to provide free computers and lock in customers with a three-year subscription model," he said. "That has already been done with online services. That is nothing new."

The most dramatic, immediate impact from the deal may be a quick response by Google to "redivert their attention back to their core search business," said Coffield. "By becoming a bigger competitor in Google's core business, Microsoft is forcing Google to go divert funds and energy back into the search horse race. Basically it's a flanking maneuver."

Alani Kuye, president and founder of Phantom Data Systems in Norwalk, CT, said Microsoft's potential acquisition of Yahoo is another sign of consolidation in the services market.

"With Unified Communications as the centerpiece of Microsoft's latest strategy, that will be the equivalent of a Google acquisition," said Kuye. "Now Microsoft is in a strategic position to compete directly against Google by leveraging Yahoo's long standing history and position, while maintaining their position in the enterprise space."

Alan Weinberger, chairman and CEO of the ASCII Group, a solution provider network with 2,000 partners that has ties to both Google and Microsoft, said he sees the intense competition between the two behemoths benefiting both solution providers and customers.

"If Microsoft feels compelled to make an astounding, $44.6 billion dollar offer with very substantial cash and no debt financing, they will, if approved by the government, start competing like they did in the 1980's," said Weinberger. "That can only be good for the channel because they will come out with products that will of necessity be better than their perceived competition." A combined Microsoft-Yahoo will create a more effective competitor in the online market to Google, said Weinberger. The major push by Google beyond just search and advertising into Google Apps along with the growth of Apple and open source in the market has led Microsoft to "almost bet the company on this very large acquisition," said Weinberger. "This is a very seminal event in our industry and can only be positive for the solution providers for reasons stated."

Jennifer Bosavage contributed to this article.