The hosted services market has now reached that point of maturity where hosted exchange vendors are ten a penny. Personally I started in this market back in 2003 when margins were ‘rich’ for hosted services like Exchange, SharePoint, BlackBerry etc and subsequently went deeper into the vertical SaaS industry because I saw the writing on the wall. We built the business fast because we focused on value – we targeted lawyers, accountants, professional services industries – we not only gave them a great messaging solution, we partnered with software vendors who would offer them compliance, security and services like BlackBerry. These were not Microsoft technologies but services the market actually wanted.

1. Competition

The only real competition we had was Cobweb, still one of my favorite ‘quality’  vendors. BT were not on the horizon, although they had an offering they were never a player and we would outsell them at every level, hey we had the Siemens brand too.

Once Microsoft started to extend its SPLA program and with the onslaught of more efficient technologies – virtualisation, lower costs for storage etc hosting vendors started popping up at an alarming rate – either self funded or through the last boom of VC funding.

The market went through a period of acceptance with hosted services on the increase. Many of the channel partners I signed up back in 06 went off to build these environments themselves – why not? the recipe is actually very well defined and believe it or not its quite easy with the right team.

Something happened which changed the landscape – Google and the unlimited mailbox and their drives into the business channel. Microsoft’s response was BPOS – which ever way they try to justify this, Google was the catalyst. Ok, so the Microsoft strategy is to offer a competitive offering at a massive discount in comparison to their channel partners sell price. Let me back this up with an example -

We sold Exchange mailbox’s for £14.95 per month in 2003, we only dropped to £10 per month in 2006 and obviously used to cut deals based on overall margin for larger clients. This actually enabled us to build a decent channel for hosted services signing up telco and voice channels because we could offer  them great margins. note – we were the 2nd largest hosted exchange vendor in Europe at the time and had a £2million net profit business.

Without question the end user price was going to drop, this is basic economics. Technology became cheaper, the market innovated and plenty more hosted exchange vendors entered – VC backed, hence we will burn cash to build the user base to sell it OR we can just run the show leaner and meaner than others.

Good strategy – undercut your channel? devalue it, then acquire it?

2. Automation

The reason we could consistently deliver such strong margin was for one reason alone – the ability to package multiple applications irrespective of technology or vendor, empower the customers and stop them phoning us to complete really simple administrative changes and create an interface that enables us to to provision all our services out with near ‘zero touch’ to the channel under their brand – BINGO.

Every company in the market today who uses Microsoft’s HMC platform will use one of a few provisioning engines (they do much more than that) – ENSIM, Paralells, EMS Cortex ……

Whether you are APPTIX, Cobweb, Outsourcery or my old Solution1 – these 3 players are in my view the unsung hero’s of the hosting world. Without these, the hosting industry would still be in the dark ages because unless at the time you had really deep pockets, you just could not run an efficient hosting or SaaS business.

Microsoft have a platform called MPS – we had some of the best techies around back then, they could not make it work and when we really got down to the detail, the man years of development required to get a solution that could front end your entire operational support function was not feasible. BT fiddled about with it for years – we on the other hand, invested in smart technology which enabled us to take new hosted services to market, FAST.

So, its only my opinion but sitting on the outside the hosted market is going down the ‘pitcher’ plant route. The market wants choice – whether Microsoft based or Open source. Why not use the best of technology to deliver that all important value to the end user?

Why not give them an integrated Exchange 2010, BlackBerry, Salesforce and Cisco UM solution? Within one environment, single interface, one bill, one click provision?

You can do this using ENSIM, Paralells, EMS Cortex and solve many other problems for the customer and channel too – if you go the BPOS route, your locked in. Ok, so you can choose to sell BlackBerry as a great example but can you create the experience, the automation and single environment for provisioning – NO.

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