In January, for example, it debuted Microsoft Office Outlook Live, which takes the company's Outlook software and offers it to consumers along with storage space as part of a monthly or annual subscription.
Sheryl Kingstone, an industry analyst with the Yankee Group, points out that just because Microsoft hasn't offered many products this way doesn't mean the company is opposed to the idea. In fact, she gives Microsoft credit for spotting back in the mid-1990s that the Internet could be used as a mechanism to deliver games and other software.
As for the business side, she says, it's "just not something that they have put a stake in the ground yet and said that they want to go after".
Ultimately, though, analysts say, the trend is headed toward a greater use of hosted software, particularly for small and midsize businesses that are looking to avoid the complexities and upgrade hassles that come with running their own software. What such customers really want is software that's functional, easy to use and has a low total cost — needs, Kingstone said, that the hosted software approach is well-suited to meet.
Such a move, though, presents more than technical hurdles for the world's largest software seller. One of the key issues is how Microsoft will price such offerings.
Gates agreed that pricing remains a big challenge. It's relatively straightforward for truly generic applications, but it quickly grows thorny as companies want to run their own unique business processes. Meeting the business needs of one customer could ultimately interrupt or slow work for another company.
"It's very hard to do service-level agreements and resource pricing when things get arbitrary," Gates said.
For Microsoft and other traditional software vendors, though, service-based pricing requires a broader shift in economics. Such companies are used to getting paid up front for licensing and then again for either consulting or ongoing support services. In a service-based model, all of those costs must be factored in to the monthly fee.
In addition, there's a shift in expectations, Wainewright said. With traditional software, companies like Microsoft are offering a set of capabilities that customers must either work into their businesses themselves or pay consultants to do. With a service, customers expect the product to work immediately and contain enough connectors to hook up with other business applications.
Another key question is how Microsoft might deliver future software-as-a-service products. Although Office Live and some other Microsoft products are delivered directly, the company has traditionally relied heavily on partners to sell and tailor its software.
But Gates and the analysts agreed that as there are definitely challenges, so too are there benefits.
