Microsoft

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.

Microsoft has started testing E14, the next version of Exchange. Among its features is an improved Web client, Outlook Live, seen here.

(Credit: CNET News)

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.

Tim Tisdale, CEO of Atlanta-based ThoughtBridge, explains how his company is using Microsoft Online as part of an "HR in a box" service it sells to businesses.

(Credit: Ina Fried/CNET Networks)

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.