Can Microsoft Manage IT?

Microsoft has been edging its partners and third-party developers toward the software-as-a-service (SaaS) model for some time. But now, what amounts to a simple rebranding of the company’s existing on-demand software offerings may end up pulling the rug out from under some of those partners, or at least irritating them. And it’s up in the air whether large customers will line up for Online.

The SaaS model has been pretty well proven by the likes of Salesforce.com. And over the past two years, Redmond has been pushing and prodding partners to provide SaaS and managed infrastructure services on its platform. And the company has been successful at providing the ammunition for online services like MySpace.

At the same time, Microsoft has been testing the waters with its Live services, targeted at small businesses and individuals — essentially a re-wrapping of Hotmail and some other collaborative and web hosting services, which has been mostly below the radar of Microsoft’s enterprise ISVs, and practically everyone else. They were also offering Exchange, SharePoint, and Office Communications as hosted services

Now, Microsoft is reorganizing its services offerings under a new brand for bigger businesses. Microsoft has a slight advantage over some other competitors in the world of “on-demand” applications like Google Apps- in that it could theoretically more easily migrate existing Exchange customers to a hosted (or hosted-on-site) Exchange service. And the flexibility of on-demand licensing in Microsoft’s Server Provider Licensing Agreement would allow customers to drop and add users on a monthly basis–not a minor consideration if you’re looking to expand Exchange or SharePoint or Office Communications usage for a project and don’t want to permanently buy more seats.

Sure, e-mail and collaboration are not considered core differentiators for most companies–which makes them ideal targets for SaaS. But the real question is whether Microsoft can manage to provide the level of service that enterprises expect without passing off the grunt work to the customers’ IT staff?

So far, Microsoft’s Live services have been a bomb in the consumer and small business sector. Just ask former Microsoft blogger Robert Scoble: Microsoft’s services so far, er, stink. A reshuffling of deck chairs around two new brands doesn’t change the fact that the company has really not executed its Internet-based services well, and the bad smell emanating from its consumer offerings may waft over toward anyone considering the Online services.