• Illustration: MMS Organization

Microsoft Managed Services (MMS), an effort to develop a business managing desktop computers and hosting servers, is evolving from an incubation phase into a commercial product. Formerly part of Microsoft's internal IT department, MMS is now in the Server and Tools product unit, with a broader mandate that includes hosting businesses and complementary online services for Microsoft servers. Microsoft's confidence in its ability to provide centralized management services has been honed by real-world experience with two customers. However, what MMS will sell, how it will be sold, and the role that partners will play in managed services need refinement.

Incubating MMS

The MMS effort came out of discussions between CIO Randy Benz of Energizer Holdings and Rick Devenuti, then senior vice president for Microsoft Services and IT. Benz had privately expressed some frustrations about the gap between Microsoft's claimed desktop and e-mail management capabilities and those of his own organization. In an interview with Directions on Microsoft, Benz said he told Devenuti that Energizer, with about 7,000 PCs and operations or representatives in more than 100 countries, was devoting too many IT resources simply to managing existing systems and a network that was not always reliable, and needed multiple layers of security to protect desktop systems. Employees found it difficult to navigate through network file servers to get the information they required.

Microsoft subsequently signed a desktop management contract with Energizer and created the MMS group under Microsoft CIO Ron Markezich. Its mandate was not only to solve Energizer's problems but also to identify shortcomings in Microsoft's procedures, products, and management tools (such as Active Directory, Group Policy, and Systems Management Server).

Overall, Energizer was pleased with the results. According to Benz, the company has been able to redirect more IT resources to developing new IT initiatives, desktop security has been streamlined, and collaboration significantly enhanced. MMS subsequently picked up another managed desktop customer, XL Capital.

Taking MMS to the Market

The decision to place MMS in a product group suggests that Microsoft believes that it is ready to take its managed desktop service to a wider market. Markezich, who has been named vice president of Managed Solutions and will report to Server and Tools Division Vice President Bob Muglia, said in an interview with Directions on Microsoft that MMS will now carry a much larger portfolio of projects, including not only its current desktop management and hosted Exchange and SharePoint Portal Server, but also development of yet-to-be-determined hosting and ancillary services for other server products. The group continues to manage some aspects of Microsoft's own IT, including the company's Exchange installation. (For an organization chart showing the MMS leadership, see "MMS Organization".)

Exactly how Microsoft will translate its efforts with Energizer and XL Capital into a purchasable service is still being defined. MMS says the offerings will not be in the form of a traditional stock keeping unit (SKU), like most licensed Microsoft products, but it will probably be a set of standard services from Microsoft on which partners and customers can add value.

MMS will offer desktop management services, but server hosting and ancillary online services could become the unit's main focus.

The planned desktop management service is intended to be a standardized set of remote management services that could be scaled out to millions of seats. Behind the scenes, management servers located in Microsoft data centers will deliver basic capabilities such as patching and upgrading desktop software, recovery of downed systems, performance monitoring, and desired-configuration monitoring.

On the server side, MMS will host Exchange and SharePoint for customers and develop hosting businesses for other Microsoft servers, with the Communications Server voice and instant messaging product a likely next candidate.

Finally, MMS will help incubate attached services for on-premises Microsoft server products. As an example of an attached service, Markezich cites Forefront, a suite of desktop and hosted services that filter spam and viruses from incoming mail and provide other services such as redundancy or e-mail and file management for regulatory compliance. MMS will enable Microsoft to test such services on a smaller scale before opening them to a broader market. Markezich says that by 2011, the company's goal is that every Microsoft server product should be available as either a hosted or on-premise solution, with additional services available for every server solution.

While hosted servers might seem most attractive to small customers without IT departments, Markezich expects enterprises to be attracted to the model as well. He notes that CIOs, such as Benz, often spend much of their time ensuring that current business processes execute properly, while CEOs often expect an IT group to deliver new functionality. By outsourcing horizontal applications, such as e-mail, that offer little intrinsic competitive advantage, IT departments hope to reduce costs and put their focus back on projects that improve competitiveness or efficiency.

Scaling up for New Services

New data centers under construction will house servers needed for Microsoft's consumer-focused Windows Live service, as well as for Office Live (hosted Windows SharePoint Services for small companies or departments) and MMS's Exchange and SharePoint Portal servers. In some cases, product teams might operate their own hosted servers; in other cases, a central operations team might administer the servers on behalf of product teams. Microsoft has also begun training its field sales force to sell MMS services, although sales are likely to be slow until the product set is better defined.

One possible hitch is the resistance that customers have previously shown to exposing internal data and processes to an external hosting organization, but Markezich believes that resistance is declining because of factors such as the following:

• Wide-area networks, such as the Internet, are more mature, reliable, secure, and available
• Hosting providers are doing a better job of ensuring security and isolating customers from each other, and demand is high enough that many customers can easily get dedicated hardware, or even dedicated cages in a data center, further reducing the risk that data could be compromised by unauthorized persons.

As further evidence, Markezich cites the example of sensitive payroll information, which today is routinely shipped to third parties who apply the appropriate deductions and taxes and cut the checks.

Partner Roles

Microsoft's incursions into managed services have put many partners—particularly those who already provide managed desktops or host Exchange or SharePoint—on edge.

Markezich says MMS will complement partner efforts by limiting the scope of desktop services it provides, fully documenting all of its services so that partners can duplicate them and compete with MMS, and requiring that customers purchase all required licenses through standard volume channels. Markezich says his main metric is to increase the share of services that run on Microsoft software, not for MMS to manage an increasing share of those services in a way that could take business from partners.

"We want to lower the TCO of the Microsoft platform and to enable Microsoft's partners to be more successful," Markezich says. "We feel we have to demonstrate the viability of hosting Microsoft solutions and develop the technologies necessary to host those solutions, but we will be successful only if a large number of our partners—hosters, system integrators, and channel resellers—adopt those technologies and either resell Microsoft datacenter services, or host Microsoft solutions for their customers."

Many Partner Roles on Desktop

Partners will be able to sell MMS desktop management services and add services of their own that MMS will not cover.

Specifically, many stages of the desktop life cycle, such as planning, procurement, deployment, customization, and application development and integration, will not be offered by MMS.

In addition, Microsoft's focus is on services that can be standardized across large numbers of customers. Only a small number of desktop services fit into that category. Most enterprises, for example, employ custom code and unique requirements that are part of their competitive advantage; a partner will be required to ensure that desktop features not covered by Microsoft's services are properly configured and managed.

Finally, Microsoft does not plan to offer a first-tier help desk or desk-side support directly. For Energizer and XL Capital, Microsoft uses Siemens Business Services to provide these services. Customers can provide those services themselves or MMS will help them contract with partners. MMS will maintain a list of partners who have been trained on its desktop management services and who can provide help desks or desk-side management that complements MMS's services.

Partner Opportunity on Servers

Partners will be able to take advantage of MMS services by reselling access to those services. Microsoft also says it will work with partners to help them develop and sell value-added services, and will license them to run these services from their own datacenters instead of through the MMS organization.

For example, a partner could use Microsoft-hosted Exchange and SharePoint as a platform on which a particular industry, such as shipping or warehousing, could build a complex many-to-many collaboration and communications network. The service could cross organizational boundaries and use low-cost Internet connections to provide reliable communications among participants without compromising security or confidentiality. The partner would license or lease enabling software to participants, and Microsoft or the partner would host servers that acted as the hub of the network, to which participants would subscribe.

Documentation, Licensing Level Playing Field

By providing operational guides, training, and other services, Markezich says Microsoft will enable partners to duplicate what Microsoft does on either the desktop or the server, reducing any perceived advantage that it has over its partners.

Markezich also asserts that MMS will have no advantages in terms of licensing Microsoft software, because MMS will not sell licenses. Instead, customers will be required to obtain software licenses through standard volume license channels or from hosters via Service Provider Licensing Agreements (SPLAs), under the same terms that partners will be able to offer.

Questions Remain

The move to Server and Tools puts MMS into new territory, and customers and partners have reason to wonder what services will emerge and what choices they will have in the future.

What's Clear, What's Not

First to emerge are services that MMS already provides, particularly hosted Exchange and SharePoint. The company is confident that these services are ready for market, given its experience with its internal network, two external MMS customers, and hundreds of partners that the company has trained and who already offer these services through SPLAs.

Beyond that, however, the picture is cloudy. Many of Microsoft's partners already provide desktop management services very similar to (and sometimes more comprehensive than) those that the company developed for Energizer. Given the strength of Microsoft's brand, the presumably better understanding of its own products, and the ability to escalate the thorniest problems to its own software engineers, partners have reason to be concerned that Microsoft will enjoy an advantage.

That perception has been hardened by statements from Microsoft executives such as Bill Gates and Ray Ozzie, who have proclaimed that services will be a major focus for Microsoft in the future and are expected to make a much larger contribution to the company's revenues than in the past. Partners are concerned that the company is more interested in elbowing its way in for a piece of the existing services pie than in developing new services, which, in spite of more than a year of discussion, remain largely undefined.

Finally, the company's definitions of partners and competitors in the services space is unclear and could change quickly. If Microsoft defines competitors as service providers using non-Microsoft desktops and non-Microsoft management tools, the vision is relatively clear. On the other hand, if the company considers a competitor to be any service provider not using the full set of Server and Tools offerings, such as Systems Management Server (SMS), Microsoft Operations Manager (MOM), and new tools such as the Desktop Optimization Pack, then a larger number of current partners are likely to find themselves competing against the company.

Even partners that want to get in on the ground floor of Microsoft's new services push could find the way difficult: these services are only now being prepared for the broader IT market and the company has not announced essential details, such as exactly which services it will provide and how much they will cost.

The uncertainty does not mean partners should expect bad news, however—the company could develop, and license to partners, tools that can help partner management and hosting services grow.

Commitment to the Business

Microsoft could find that the services market is both harder and less profitable than it expects. A mere two customers, Energizer and XL Capital, which have received a large amount of personal attention and direct contact with Microsoft, are probably not enough on which to base a large, global business that relies almost entirely on automated systems and software. (Any task that requires ongoing intervention by people, such as a help desk and desk-side support, will be done by partners.)

In addition, services are unlikely to meet the profitability levels enjoyed by most Microsoft software products, and the company must also take into account the possibility that new hosted servers could cannibalize existing license sales. For example, Office Live provides e-mail and collaborative features that duplicate much of the functionality of Exchange and SharePoint, but at a lower price than even the least expensive on-premise alternative, Small Business Server, which includes Exchange and SharePoint.

Any failure to generate significant net new revenue from hosted servers could cause the company to rethink its commitment to this delivery model.

Who Owns the Business?

Another complexity is that while MMS is organizationally part of the Server and Tools product group, many of the products that it offers live in other groups.

In particular the two leading candidates for hosted servers, Exchange and SharePoint Server, are both part of the Business Group, which includes the Office and Dynamics lines as well. The Server and Tools group is the locus for management tools such as SMS and MOM, as well as many other servers for which hosting or add-on services could be offered.

In addition, MMS is likely to require that customers have Premier Support Agreements in place so that it does not need to duplicate application support provided by the Premier Support organization, which is in another group.

Given the novelty and range of MMS's mandate, it is not surprising that it does not fit easily into an existing group. Nevertheless, smooth cross-group communication and functionality has always been a struggle for Microsoft, and customers and partners should be prepared for changes in its structure, position in the company, and mandate, as the company refines its vision for services.

Other Resources

Microsoft Managed Services was described in "Managed Services Beginning to Gel" on page 28 of the Apr. 2006 Update.

Statements by Microsoft executives about the company's goals in services were covered in "Renewed Interest in Subscription Services" on page 24 of the Sept. 2005 Update.

The Desktop Optimization Pack was covered in "Desktop Management Applications Become Subscriptions" on page 36 of the Nov. 2006 Update.