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Microsoft gets dirty with Gmail cloud cash fight

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Microsoft is so committed to the cloud that it's throwing everything at rivals like Google to crack open the door on sales and gain momentum online.

Chief operating officer Kevin Turner painted a rosy future for Microsoft in the cloud for Wall Street this week, but at the same time, Microsoft has been getting dirty. The Reg has learned that Microsoft is paying partners' sales people a bonus for converting customers from Gmail to Exchange.

Sales people at partners who provide hosted versions of Exchange Server receive between $5 and $7 for every Gmail inbox they convert.

The bonus is a form of payment known as a Sales Promotion Inventive Fund (SPIF), something that Microsoft does not typically offer to partner sales people.

Given the kinds of accounts Microsoft is winning on BPOS, that means Microsoft is taking a decent hit on every large Gmail account it converts.

A source we spoke to in the hosting space said on agreement of anonymity: "My account manager is calling up to say: 'What can you do for me against Gmail?'"

"Microsoft is as anxious and aggressive as they can be to do what ever it takes to win against Gmail," he said.

Microsoft refused to comment on specific cases, but said simply it does offer “competitive pricing”.

Hosted Exchange has been available as a service from partners for years. This is where somebody else runs the server for you offsite or on your premises.

Recently, Microsoft has begun pushing the Business Productivity Online Suite (BPOS) that includes Exchange Online hosted in a datacenter and that comes with SharePoint Online, Office Live Meeting, and Office Communications Online from Microsoft.

Microsoft offers BPOS through partners and starts at $5 per month for organizations with a minimum of five seats.

BPOS is being aimed at the full spectrum of organizations, from small businesses to major enterprises. But it's the latter with tens of thousands of seats that are the more desirable, PR friendly, flagship accounts that can help prove your strategy is working.

Microsoft will be losing a decent chunk of cash simply in the name of market share and pride if it's paying partners up to $7 for each Gmail inbox scalp as an incentive to sell Exchange Online.

Turner this week named one such flagship BPOS win, Hyatt Hotels and Resorts with 67,000 users that Microsoft landed against Google and IBM.

Hyatt was on Lotus Notes not Gmail, but if it had been a Gmail shop, Hyatt could have cost Turner's organization up to $469,000 - close to half a million dollars - under the SPIF program.

Microsoft has been known to grease the retail channel in the past when establishing and selling Windows and applications like Office.

And this time, it's not just throwing cash into the heavens hoping some rains down as customers and revenue - it's been programming an army, too. Since January, Microsoft has trained 10,000 out of 13,000 people to sell cloud services, according to chief financial officer Peter Klein at Microsoft's annual Financial Analyst Meeting (FAM) Thursday.

New partners also are being sought by Microsoft to sell cloud.

When he wasn't apologizing to Wall Street for messing up on the iPad, chief executive Steve Ballmer said Microsoft will have to create new partner types and bring new partners into Microsoft's network of 64,000 partners. Like the iPad, Ballmer didn't provide specifics, just a solid promise Microsoft's committed. If it's not job-one, it's certainly up there.

"It is something we are working through, [a] big unit of work," Ballmer said.

And existing partners are being cajoled into learning new tricks.

"They are hanging on in some cases for dear life for that business model of yesterday," Ballmer said sweetly of current partners apparently fat and happy on 35 years of selling Windows licenses and services.

"One of the big call to actions that we had had at our partner conference was, okay, look, this in the cloud opportunity you will actually sell more on premise software because people are right now holding up purchasing decisions because they aren't sure. You will have to help us embrace the model."

And we thought it was just the practicalities of restricted IT budget born of an uncertain economy preventing companies renewing their IT spend. Apparently, it's a spiritual uncertainty over computing paradigms holding things up.

Partners who do "help" Microsoft are taking an awfully big business bet, because Microsoft cannot itself say when it will make any actual money on cloud services. Probed by ISI Group analyst Heather Bellini at FAM using the characteristically padded words of the Wall Street interrogator over what time period it will take for Microsoft to build revenue "to scale" from cloud services, Klein cooed evasively Microsoft expects a "pretty smooth" transition moving customers on to cloud services.

But what about the money? "It will depend how fast the adoption is," Klein said. How long is a ball of string, exactly?

To be clear – and clarity is vital when talking about the cloud – Microsoft defines its particular cloud-based services business as BPOS, Office Web apps, Dynamics Online and Windows Azure services according to the company's latest 10K filing.

And, here's where obfuscation creeps in, because Microsoft's cloud business right now is primarily a re-play of Microsoft's earlier battles over email and collaboration against IBM.

Turner boasted this week that 70 per cent of Microsoft's cloud strategy wins in the fourth quarter were new customers. Unfortunately for Microsoft's PR machine he continued these were Lotus Notes and Novell email converts - not converts to what Microsoft would really like to sell - Windows Azure - against cloud rivals such as Amazon and Google with App Engine.

Before cloud, Turner was leading a total war to eliminate Notes from entire regions and replace it with Exchange. Before Turner, Microsoft and IBM boasted about millions of email and collaboration seats against the other.

For now, Microsoft's cloud fight is on email and collaboration, and thanks to BPOS, Exchange is again in the front line. And the battle is far from being "pretty smooth". It's a cash fight to the death. ®

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