Microsoft's latest small-business plan

It happens every couple of years. Microsoft's newly installed head of small-business efforts goes on the road to talk about how the company sees vast potential in the huge numbers of underserved firms that all want the capabilities of big business software without the cost or complexity. The new executive assures me that Microsoft gets it and promises Redmond is rededicating itself to the market.

This time around, the executive was Birger Steen, a Norwegian oil trader who ran Microsoft's Russian subsidiary before moving to Redmond last year to take over the small and midsize business sales effort. In addition to his unusual background, Steen also came in with a different pitch. Refreshingly, Steen said he didn't really think that small businesses are all that poorly treated.

"They are underserved but they are also well served by some people who are not us," Steen said, noting that in every market there tends to be a company like Intuit in North America that does a really good job of crafting accounting and other software products for smaller firms.

What Microsoft has the opportunity to do, he said, is to provide the operating system and Office (and related products like SharePoint and Exchange) and then partner with the Intuits of the world. In addition, he said, Microsoft can help spur the development of the next generation of extremely custom software that a dentist or car repair shop uses to run their core business.

Although Microsoft won't make that last piece of software, Steen said, it could be based on Windows Azure, Microsoft's cloud-based operating system. The cloud, Steen notes, is well suited to smaller businesses because it allows them access to the latest technology from a state-of-the-art data center that they don't have to build.

That helps break a cycle in which businesses have to buy computing infrastructure upfront, yet another capital expense that forces entrepreneurs to take out a second mortgage or max out a credit card.

"Cloud computing, from a pure economics standpoint, is a more efficient way of servicing small business," Steen said. "It's not a one-time thing. It's pay as you need it."

More importantly, Microsoft is moving to deliver all of its software this way, in addition to continuing to offer on-premise software for those that wish. Some products, like Exchange, already come in hosted form, while other products will soon be offered on a subscription basis.

The other key thing businesses want from Microsoft is a good, stable operating system. And Steen says life has gotten a lot better for both Microsoft and small businesses now that Windows 7 has arrived.

OS matters
There are already signs that small businesses, which largely passed on Windows Vista, are interested in Windows 7. One early indicator is the fact that retailers have seen enough demand to start stocking machines with the business-oriented versions of the operating system--Professional and Ultimate.

A study from SpiceWorks finds that small businesses are speeding up their plans to move to the new operating system. One in five companies is planning a faster upgrade to Windows 7 than it had been expecting before the software hit the market.

Steen even sees some reason to think that businesses will start upgrading existing machines that are running Windows XP. Although he knows that historically never more than a few percent of machines have gotten such an in-place upgrade, Steen said there are some reasons things could be different. They include the existence of "XP Mode," the lack of significantly higher hardware requirements, and the fact that so many small-business PCs (an estimated 200 million worldwide) are capable of being upgraded to Windows 7.

According to the SpiceWorks numbers, for example, more than half of Windows 7 installations at new businesses will come from the upgrade of existing machines as opposed to buying new PCs. Machines running Vista, though, are far more likely to get an upgrade than are those running XP, which make up 90 percent of the PCs at small businesses. That said, nearly half of the companies surveyed said they planned to upgrade some XP machines to Windows 7.

To deal with the fact that Microsoft knows that moving from XP can be difficult, especially for small businesses without an IT staff, the company has set up a program in the United States where businesses that agree to move a number of PCs to Windows 7 can get vouchers that cover part or all of the cost of hiring someone to help with the migration. And, since the small businesses tend not to hang out in techie circles, Microsoft is distributing the vouchers at the types of places that such firms do hang out, like chambers of commerce and other business organizations.

Different this time
For all his enthusiasm, Steen knows that many people before him have professed Microsoft's devotion to small business only to find themselves largely trying to pitch Microsoft's existing lineup to small businesses, along with perhaps one or two custom-tailored products. "Our focus on this space wasn't constant," he acknowledges.

Microsoft has entered some markets, only to exit them after failing to make inroads, such as its small business accounting product. The company has also tried to create products for markets that really didn't exist, such as the recently discontinued Windows Essential Server product, which combined several products in one, but required a customer to basically start from scratch.

It was a product Steen said was "just not something that answered a real customer demand in many cases."

That said, Steen insists Microsoft has done some good products in the past, such as the small business version of Office as well as Microsoft's Small Business Server product that combines the Windows Server operating system with Exchange Server.

"There is some good stuff that stayed behind from the previous work."