Beyond Binary

Microsoft said Monday that it's cutting by a third the subscription prices for the hosted versions of Exchange, Sharepoint, and Office Communications Server.

The software maker plans to cut the monthly per-user cost of licensing all three products from $15 to $10, while the cost of licensing individual products is also dropping by as much as 50 percent. The move comes as Microsoft faces continued pressure from rivals, including Google.

Last week, the city of Los Angeles voted to go ahead with a deal to shift many employees to Google Apps from Microsoft Office.

In an interview, Microsoft Vice President Chris Capossela said the move has less to do with competitive pressure than that "it's the price that customers are really excited to buy our suite at."

,p> "We're pretty excited about the price and not so much focused on free services or the price Google or others might charge," Capossela said.

In addition to the price drop, Microsoft is also touting several new customers and announced its plan to bring the year-old Microsoft Online services to more than a dozen new countries.

The company is announcing its commercial launch in Singapore, as well as trials in Brazil, Chile, Colombia, Czech Republic, Greece, Hong Kong, Hungary, Israel, Malaysia, Mexico, Puerto Rico, Poland, Romania, and Taiwan. Microsoft also expects to have commercial availability in India later this year.

Among the new customers are McDonalds, Aon, Lions Gate Entertainment, and Rexel Group. They join existing customers, such as Blockbuster, Coca-Cola and Autodesk as those paying Microsoft to run hosted versions of its products. Microsoft formally launched Microsoft Online at a San Francisco event a year ago.

Next week, Microsoft will also formally launch Exchange 2010 at its TechEd Berlin developer event. Microsoft said last month that it had finalized the product. Traditionally, Microsoft has developed products first as a server and only later, if at all, customized them to run in hosted form.

Exchange 2010, though, was designed first as an online service and then crafted into a product that businesses can run on their own servers.

Microsoft said Thursday that it has finalized the code for Exchange 2010, the next version of its e-mail and communications server.

Exchange 2010, which has been ahead of the rest of the Office family in development, becomes the first of the Office 2010 wave of products to be finished.

"Our senior leadership team has signed off on the final code, and it has been sent to our early adopters for one final look before its public release.," Microsoft said in a blog posting.

The product will become broadly available in November, Microsoft, said with a launch planned for the TechEd Europe conference, which runs Nov. 9-13 in Berlin. Other parts of Office 2010, such as the new versions of Excel, Word, PowerPoint and Outlook, are not due until next year, with a beta slated for later in 2009.

Among the features in the next Exchange is an ability to ignore a particular e-mail conversation, as well as "MailTips," which offers warnings when one might be about to commit an e-mail faux pas.

Microsoft developed Exchange 2010 as a service first, using it to power its Live@edu mail service and then worked to create the server version of the software--a reversal of the past way Exchange and other products have been created.

SAN FRANCISCO--Microsoft trotted out some of its biggest customers on Tuesday to make its case that it still makes sense to spend money on software in a tough economy.

The gathering of invited corporate IT users here is designed to serve as the beginning of the business push for Windows 7, which is already available to larger businesses and goes on sale to consumers and small businesses on October 22.

Among those already trying out Windows 7 is Intel. The chipmaker did a lot of work to make Windows Vista work, but like many companies, it decided not to put it on its own desktops.

By contrast, Intel is adopting Windows 7 rather quickly. Already about 500 employees from throughout the company are testing the software, said CIO Diane Bryant. Of those workers, 97 percent said they would recommend the operating system.

"It's a very strong pull," Bryant said.

Although a good business case can be made for upgrading our machines, it can still be a tough sell, said IDC analyst Al Gillen.

"The problem is it costs money to save money," Gillen said.

Microsoft CEO Steve Ballmer, who earlier Tuesday sent out an e-mail to customers arguing for "the new efficiency" driven by software, is slated to speak shortly at the event being held at the at the University of California, San Francisco's Mission Bay campus.

Update 9:55 a.m.: The panel has wrapped up and Ballmer has taken the stage. So far, we're hearing familiar talk about doing more with less and his case that technology is at the early stage of its influence on business.

10 a.m.: Ballmer starts his pitch for Windows 7.

Ballmer said his hope is that, once the new operating system hits the market, that individual workers will be going to businesses asking them to put Windows 7 on their corporate computers. "I think we are going to see a lot of that kind of demand," Ballmer said.

But, he acknowledged that alone won't sway businesses. "Even with that swell of interest, you are still going to have to confront the new efficiency."

There, he said, it will come down to whether Windows 7 really can make business workers more productive, something he clearly believes it can.

10:20 a.m. Ballmer has switched into the full-on sales pitch, highlighting the cost savings that can be achieved. Customers can expect to save $90 to $160 in costs each year per computer that they move onto Windows 7, largely from lower support and management costs. (It wasn't clear if this was as compared to a PC running XP or one running Windows Vista.)

Windows 7 can also make it cheaper to deploy new software, though Ballmer acknowledged that skeptics will point out the cheapest thing is just not to deploy new software at all. "I got that," Ballmer said.

Still, he said, it's a "very good place in the product cycle" to embrace Windows 7," Ballmer said, noting that businesses that move now would be early adopters, but not the first companies to do so, pointing to a list that included Ford, Fiat, BMW, Bombardier, Continental Airlines, Intel, Halliburton and Starwood.

Ballmer said he expects most companies will start moving to Windows 7 as they add new PCs, but won't do large-scale upgrades of existing machines and probably won't rush out to replace all their PCs either.

10:30 a.m.: On to questions and answers. Microsoft starts with a few written ones that came in over the Internet. First off: No, Ballmer is not free for golf next Monday--he'll be in London.

10:32 a.m.: Well, he took a couple more written questions but no live questions from the audience before the event wrapped up.

The fact that many customers are shifting from running their own e-mail servers to getting mail as a hosted service doesn't have to spell doom for Microsoft, insists Rajesh Jha, the man who heads the Exchange business.

In an interview on Monday, Jha said that, although many see the rise of services as more of a benefit to companies like Google, he sees it as an opportunity for his business.

"I feel we will grow our share overall with the move to services," Jha said. In particular, Jha said that Microsoft has a better option for small and midsize businesses than it did when its only option was for those companies to run their own Exchange servers. "I think we have a huge opportunity for growth. I don't think we are in a defensive position at all."

In a year in which many software businesses--including a number within Microsoft--took a hit, the Exchange business continued to grow last year, Jha said, saying that revenue for the product nearly hit $2 billion and has 70 percent market share among corporate users.

Jha acknowledged, though, that competition for the in-box is definitely heating up.

"It is where people spend more of their hours," Jha said. "It's become a real critical part of the day. Our competitors are smart. They see it too."

In addition to Google, IBM continues to push its Lotus Domino/Notes combination while Cisco has said it will have a Linux-based e-mail offering based on last year's Postpath acquisition.

Sounding a familiar refrain, Jha said that he expects customers to warm to Microsoft's strategy, which lets them have the option of running Exchange themselves or purchasing it as a subscription hosted service.

"With Exchange, we don't give them any kind of technology ultimatum," Jha said. "We don't say 'Thou shalt move to the cloud.' "

Microsoft has shifted its priorities, though. Unlike past versions of Exchange, Microsoft developed Exchange 2010 as a service first, and only later has it done the work on the server product. That server product, which has been in testing for some time and reached the beta stage in April, is now ready in a near-final "release candidate" form.

Among its features is one that lets users "mute" an e-mail thread that they are no longer interested in being part of.

Jha reiterated that the final version of Exchange 2010 should be done later this year.

"I feel pretty good about how we are tracking," he said, noting that half of Microsoft's in-boxes--some 80,000--are now on the new version of Exchange. " We'll definitely be ready this year."

The next version of Microsoft's corporate e-mail server will not only offer the ability to view e-mail by conversations, but also the option of "muting" any thread that a user would rather not take part in.

Conversation threading, a popular feature from Google's Gmail, and the mute option are several of the new features in Exchange 2010, the next version of the company's e-mail and calendar server. The software is entering public beta on Wednesday, with a final launch slated for the second half of this year.

Among the other features of the product, which has been code-named Exchange 14, is something Microsoft has dubbed "MailTips," which offers warnings when one might be about to commit an e-mail faux pas.

"MailTips is kind of like a guardian angel before you send the mail," Microsoft's Rajesh Jha said in an interview this week. For example, it will warn a user if they are about to send an e-mail to a large distribution list or if they are going to send an attachment outside their company's firewall.

Microsoft is also building in new archiving features into Exchange 2010, features that will allow companies to store a user's e-mail archive as well as make archived messages available to users when they are not at their desktop or laptop PC.

Many of Exchange 14's features work in the Web-based Outlook Web Access program, but to use them on the desktop will require Office 2010, which isn't due out until the first half of next year, Microsoft said.

"Exchange is leading the way," Jha said.

Microsoft is already using Exchange 2010 to power its Live@edu service for schools and universities. Customers of Exchange Online, Microsoft's hosted service for businesses, will have the option of moving to the new Exchange after the server software is released, Jha said.

For a bit more on Exchange 2010, here's a video I shot with Jha during an interview at his office earlier this year.

REDMOND, Wash.--Rajesh Jha likens complex software projects to building a skyscraper.

That means in the end, the thing might look pretty good. Along the way, though, it tends to be kind of a mess.

"If you walk by the site of a skyscraper under construction, it looks chaotic," Microsoft corporate VP Rajesh Jha said in an interview last week. "It looks confused. You will see dirt, scaffolding."

At the end, though, if it is useful, it will be something worth all the dust.

"If it is designed well, what comes out is something that adds a lot of value, something that folks use for a long time."

But, with the next version of Exchange, Microsoft is actually going to be letting people work from the skyscraper while it is being built. That's because, although the server version of Exchange 14 won't come out until next year, millions of people are already using a hosted service powered by an early version of Exchange 14.

The last version of Exchange, Exchange 2007, was also designed to be run as a hosted service in addition to something used by businesses on their own servers. The last time around, though, Microsoft built the server software first and then delivered the service.

In developing Exchange 14--and indeed many components of the next Office--Microsoft has flipped the switch and is instead developing the service first and doing the server work second.

"In many ways, this wave was about embracing software plus services from the very beginning," Jha said.

By doing the service first, Microsoft is able to create a large base of testers early on. At a comparable stage of Exchange 2007's development, there were a few thousand people running an early version. This time around, Microsoft has 4 million testers, in large part because Exchange 14 is now the engine behind the Exchange Labs service that powers e-mail for many universities and other educational institutions.

That has meant a lot of changes to Redmond's skyscraper construction operation. "The way we do production and testing has really changed in a dramatic way," Jha said. "The release time frame has become so compressed."

In a sense, Exchange 14 isn't really a new piece of software as it is a bunch of updates to the Exchange Online service. "Then we collapse them and build a server," Jha said.

Keeping things neat and tidy amid chaos comes somewhat naturally to Jha, whose office is nearly immaculate, with only a few books, a couple of old boxed copies of Microsoft Works, and the "Ship-it" plaque that commemorates all of the products he has helped get out the door. Jha explains that he moves frequently and his goal was to get his office contents such that they take only one box to pack. (He narrowly missed that goal in his last office shuffle three months ago.)

"I'm moving again next month," Jha said.

For more from Jha, check out the video interview I shot last week.

Microsoft has started testing the next version of its Exchange e-mail and calendar software, a product that Microsoft said is designed to run from the ground up as a hosted service that can work simultaneously with more than one business.

The new version, code-named E14, is in limited private beta testing as a traditional server product with "a select number" of businesses.

But Microsoft also recognized that traditional beta testing wouldn't help it much in getting a sense of the multi-tenant support. So starting in October 2007, the company started seeking out universities and schools willing to test E14 as part of Exchange Labs.

The move is important. Although Microsoft has continued to take share in recent years from longtime rival Lotus Notes, the company faces the prospect of growing competition from Web-based alternatives from Google and others.

Microsoft said on Tuesday that there are now more than 3.5 million people, including students, faculty, staff, and alumni, who are testing the next Exchange at more than 1,500 educational institutions.

Among the features is an updated Web client, Outlook Live. Among the changes from today's Outlook Web Access is support for managing distribution groups, setting up rules and viewing other e-mail accounts, things that typically have required the desktop version of Outlook.

It wouldn't say when to expect a public beta or the final version of E14, but I am told it will have more to say on the subject sometime this quarter. The company also plans to post a video on its testing experiences later on Tuesday.

Although Microsoft has taken steps to make Exchange better suited to hosting with E14, the software maker and some of its partners already provide hosted Exchange using the current version, Exchange 2007. Microsoft officially started offering the Exchange Online service late last year, after testing it for some time.

SAN FRANCISCO--For perhaps the first time in its history, Microsoft made the case on Monday that businesses shouldn't run its software. Instead, Microsoft argued that corporations should let it run the software for them.

During the past several years, Microsoft has been testing out the idea that it can host and run business software cheaper and more effectively than individual enterprises can do on their own. The effort started in 2005 with a single customer--battery maker Energizer--which had Microsoft essentially handle all of its PC desktops.

Over time, Microsoft narrowed the service to an option in which it hosts Exchange and SharePoint, runs the software in its data center, and charges customers on a monthly basis. Microsoft officially launched the products, known as Microsoft Online, at a customer event at the St. Regis hotel here.

"We can help you save money," Microsoft Business Division President Stephen Elop told the crowd, saying Microsoft estimates that companies can save at least 10 percent by letting Microsoft run their messaging and collaboration software for them.

One of the early customers is video retailer BlockBuster, which has been using Exchange Online for about six months. Blockbuster CIO Keith Morrow said in an interview that Microsoft's online services came at a good time for the company, which was on a several-generations-old version of Lotus Notes.

Morrow said the video rental company needed to make a change of some kind, and the option to move to Exchange without having to bring that skill set in-house was a key selling point, as was the ability to offer better mobile options, including Outlook Web Access and iPhone support.

Another Notes switcher in the crowd was Eddie Bauer, which has been a Microsoft Online customer for about five weeks. Chief Information Officer Rich Mozack said the clothing retailer wanted to move off Notes but couldn't make the numbers work to run Exchange on its own.

"We just couldn't justify the up-front investment," Mozack said.

Microsoft's Ron Markezich said about two-thirds of early customers are moving from Notes to Exchange. But even as Microsoft continues to target those moving from Lotus Notes, the company faces the threat of its own Exchange customers moving to other hosted options, including Google Apps.

Just last week, Serena Software said it was switching to Google from Exchange in a move it said would save it $750,000 a year, according to several reports.

At the event, Elop made Microsoft's familiar case that, while the cloud is great, customers are better served by an option that allows software to run on customers' own machines as well as over the Internet.

Elop said Microsoft is adding thousands of servers to its data centers every month. Although Microsoft Online is initially aimed at Exchange and SharePoint, the goal is to offer a hosted option for all of Microsoft's server software.

"We expect all of it be available in this way in the near future," Elop said.

The software maker said last year that it would offer the hosted option for large businesses, later expanding the offer to businesses of all sizes. At last month's Professional Developer Conference in Los Angeles, Microsoft also confirmed that it would offer Web-based versions of its Office applications, including Word, Excel, and PowerPoint.

While many of those at Monday's event were the company's early customers and partners, not everyone at the event was ready to sign off. I spoke with a municipality that was highly interested in Microsoft's product, particularly as it plans to move from GroupWise to Exchange. Still, with a dearth of other governments to point to, this CIO told me that he still faced challenges in getting the city's upper management and government to sign off on the deal.

It's been a busy week for Microsoft and I wanted to briefly note some other items that are making headlines elsewhere.

First of all, Microsoft says it is helping the London Stock Exchange investigate what cased a massive trading meltdown on Monday. ZDNet blogger Mary Jo Foley notes that Microsoft is among a small list of major tech providers to the exchange, a list that also includes HP and Accenture.

Foley and Microsoft blogger Long Zheng also both have items on Live Mesh apps. Foley notes that creating Mesh Apps is some of what Ray Ozzie's Startup Labs team has been up to, while Zheng posts a look at a demo Mesh app Microsoft created for making to-do lists.

We're clearly going to hear more about Mesh apps at the October Professional Developer Conference, where Microsoft is expected to release tools to let outsiders create their own Live Mesh programs. I don't think its any surprise that Microsoft is going to want to have some programs out of the gate that show consumers and developers that it is something worth spending their time on.

Meanwhile the good folks at Liveside.net take note of an update to Photosynth as well as spotting a new Microsoft beta: Microsoft Phone Data Manager, which helps synchronize contacts with certain (particularly Windows Mobile) cell phones.