Microsoft to expand its Web services for businesses

By Daisuke Wakabayashi

SEATTLE (Reuters) - Microsoft Corp, faced with Web rivals looking to poach its business customers, said on Sunday it plans to broaden the availability of its online services for e-mail and collaboration software.

Last year, Microsoft started subscription-based online services to run its Exchange corporate e-mail program and SharePoint collaboration software on Microsoft's own computer systems as an alternative to customers buying their own hardware to run licensed software.

Microsoft initially limited those services to companies with more than 5,000 workers, but the company said it will now offer the service to businesses of all sizes in the second half of 2008, after a testing period. The company did not disclose how much it will charge customers for the services.

It will also begin to offer a free download of a software called Search Server 2008 Express that allows companies to search files and documents inside their network. The product will rival Google Inc's Search Appliance.

Microsoft plans to unveil the news during a speech on Monday by Chairman Bill Gates at a conference for SharePoint, one of its fastest-growing applications, which allows workers to share documents and plan projects on secure Web sites.

Hosted Web services are gaining popularity among business customers, because companies do not need to spend a lot of money upfront to buy and maintain powerful computer servers.

Instead, companies can rent space on a computer server from a service provider for a monthly fee and avoid being locked into multiyear corporate agreements that are used by Microsoft for many of its core software offerings.

It also lets smaller companies get applications normally reserved for large organizations.

"This is a market that is really starting to pick up. I believe it is going to going to get very large," said Karen Hobert, an analyst at Burton Group.

Google, Salesforce.com Inc and a host of start-ups are aggressively targeting Microsoft's traditional business customers with Web applications that can be less expensive and easier to install on computers and run.

Last week, Google announced that it is offering a simple Web site publishing tool for office workers to set up and run their team collaboration sites.

Google Sites, as the new publishing service is known, is a stripped-down version of SharePoint that is free to users of Google Apps, a set of business applications that Google offers at a fraction of the cost of Microsoft's comparable products.

SOFTWARE PLUS SERVICES

Some companies such as Salesforce see Web services eventually replacing traditional packaged software, but Microsoft is pushing a "software plus services" strategy with the promise that this option combines the best of both worlds.

"Microsoft is starting to feel the pressures of the Googles of this world," Hobert said.

Microsoft's rivals have begun making inroads into the corporate market. Google says it has signed up more than 500,000 businesses over the past year to use Google Apps. One appeal is the ease with which office workers can get started and run their own team Web sites, without technical support.

But Microsoft said technology administrators in large organizations are concerned about losing control over access and usage of the software.

Redmond, Washington-based Microsoft said the products will work the same as existing offerings, but the software will run on Microsoft's computer servers. Administrators, according to Microsoft, will maintain nearly the same level of control as if the software was on their own computers, but have fewer headaches managing related hardware, storage and software.

Microsoft has invested billions of dollars to build enormous data centers packed with thousands of powerful computer servers and storage systems to offer services to both regular consumers and customers in large organizations.

In order not to jeopardize corporate agreements that underpin many of its businesses, Microsoft said any company who wants to switch over to its services will be credited for the remaining portion of an existing contract, which can be applied toward monthly subscriptions.

Customers such as Autodesk Inc, Blockbuster Inc and Ingersoll-Rand have signed up for Microsoft's services, according to the company.

(Additional reporting by Eric Auchard in San Francisco; Editing by Maureen Bavdek)