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Microsoft hops into managed PC business

A pact with the company behind the Energizer bunny is the first of several hosting deals, CNET News.com has learned.

Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
Ina Fried
4 min read
Microsoft is making a foray into the managed-services business, starting with a deal to manage the PCs for consumer products company Energizer Holdings.

Under the terms of the pact, which has not been formally announced, Microsoft will take over responsibility for managing, updating and supporting the battery maker's roughly 6,000 computers. It will also host a variety of applications, including e-mail, portal and instant-messaging services. The deal is expected to be phased in over the next serveral months.

"One of the knocks against Microsoft has been that they don't understand their customers' business."
--Paul DeGroot, analyst

The Energizer pact is the first of several that Microsoft wants to run as part of a project the company hopes will help it better understand its customers' needs, a Microsoft executive told CNET News.com.

"We want to add a limited number of additional customers in order to really improve the diversity of our experiences, the depth of the knowledge we are going to gain, and then drive that back into products that will improve the experience of all of our customers," said Mike Adams, a general manager in Microsoft's IT unit.

The efforts will be revenue-generating, but Microsoft did not put a price tag on the Energizer deal or say how many people would be involved. An Energizer representative was not immediately available for comment. The deal with Energizer was reported Wednesday morning by online technology site TechTarget.

Microsoft's IT department will be charged with overseeing the efforts. Adams stressed that the effort was a "project" aimed at improving Microsoft's understanding of its customers and not a new business.

Microsoft has long touted the fact that it uses products internally before they are released to customers, a process called "dogfooding" that the company has said has been of great benefit. Adams said that this will take that effort a step further.

"The concept was really to take what we are doing in IT and make that available to some customers in a different, more direct way than we've been able to in the past."

Paul DeGroot, an analyst at market researcher Directions on Microsoft, said he is not sure whether Microsoft will learn that much from the effort.

"I'm not sure, quite frankly, how much insight you get into your customers when you run their IT department," he said. "There is going to be a tendency to have them work like you work."

At the same time, DeGroot said that Microsoft has long been criticized for not having the same kind of industry-specific understanding as companies like IBM that work more directly with customers. "One of the knocks against Microsoft has been that they don't understand their customers' business," he said.

While many technology companies, such as IBM and Hewlett-Packard, have substantial businesses offering such outsourced tech help, Microsoft has generally left such work to its partners. The company's own, comparatively small consulting business

is more focused on helping customers integrate Microsoft technology.

Many of Microsoft's partners do offer such services. Adams said he was not aware what, if any outreach, Microsoft has done to let partners know of its plans.

"I've not had any deep conversations with any of the different partners," he said.

That's a problem, DeGroot said, as is the fact that Microsoft has not clearly stated which services it is willing to offer and whether there is an opportunity for partners.

"It is entirely possible that they want to do this small limited experiment," he said. "Maybe this is version one and by version three, it is going to be huge. People have seen them do that before and turn things into a business. It's really important for their partner community that they clarify what the limits are."

HP, though, will be involved in the Energizer deal. Microsoft plans to serve Energizer primarily through the same means it handles its own operation, which has 92,000 users and more than 300,000 PCs. HP is part of that, helping to handle support and managing call centers that field help queries from Microsoft workers. HP will provide similar services to Energizer, Adams said.

A limited number of Microsoft workers will be placed at Energizer locations, Adams said, though most of the work is designed to be handled remotely, he said.

It's unclear how far Microsoft might take the effort.

DeGroot said the business itself is not a highly lucrative one. "There is a lot of competition and margins are not necessarily that great," he said. "Unfortunately for Microsoft, there are no businesses--no legal businesses--with the margins of the Windows operating system."

Although the software juggernaut could expand the project and eventually move deeper into the IT services realm, the Energizer deal could also be a precursor to Microsoft expanding its efforts around "software as a service." Today, only a limited array of Microsoft software is available on a hosted basis, primarily through partners.

In an interview on Wednesday, Microsoft Chairman Bill Gates told CNET News.com that he expects over time that there will be a shift with more businesses wanting to have others host their software off-site.

"Clearly, we want to accommodate both models and give people even the flexibility if they want to switch from one approach to the other approach," Gates said.