Are SaaS and Silverlight the keys to Microsoft’s software piracy dilemma?

Piracy is a multi-billion dollar business issue for Microsoft due to their requirement that software be physically installed on the user’s desktop/server. This is one of the key advantages to the Software-as-a-Service (SaaS) web-app business model - one does not see street vendors selling pirated copies of Salesforce.com or NetSuite. Software vendors that continue to rely on a physical installation of their code on the user’s desktop/laptop operate with an outdated business model.

Microsoft absolutely needs to get into SaaS in a big way. So far, they have only tentatively dipped their toes in the SaaS waters with the announcement to offer Sharepoint and Exchange as SaaS options for SMBs with 5,000 or less seats. Microsoft also announced a SaaS version of their CRM application, CRM Dynamics 4.0, to position against Salesforce.com. This is all well and good....but what about Office? The core piracy issue occurs in the more widely-distributed, consumer apps such as Office. When can I get my Google Apps or Zoho versions of Word, Excel and Powerpoint?

Offline Silverlight and aQuantive are required to deliver a SaaS vision for Office. Silverlight is Microsoft’s answer to Adobe’s Flex technology. With Silverlight, developers can create highly engaging web apps that mimic the richness of traditional desktop apps. Want to hit a button that embeds a pivot table into your sales spreadsheet? With Silverlight, it is possible to build webified version of Excel that does just that.

There are already talks of an offline version of Silverlight which will compete head-to-head with Adobe AIR. Both AIR and offline Silverlight allows the user to run their web apps locally from their desktop/laptop. To conceptually understand this, imagine using an offline version of GMail. You could browse your GMail messages while sitting on a plane, because the app would sense that you are disconnected from the web and start reading from a local database. Upon arrival to your hotel, you fire up the wifi connection and your local database reaches out to the Google data center and replicates any changes that occurred during your 3-hour flight. An offline Silverlight-enabled version of Excel allows Microsoft to deliver on their SaaS vision of Office.

Underlying all of this discussion of a SaaS version of Office and other Microsoft apps in the implication that they will be free, or nearly free. Can Microsoft give up a highly lucrative, per-license, revenue stream? This is where the aQuantive purchase is so important. Within aQuantive, there are two business units that deal with ad-serving and ad measurement. For Microsoft to offset the revenue loss by shifting to a SaaS model, Microsoft will offer two pricing tiers:

1. Ad-supported FREE version. Users can interact with a free version of Office (built on Silverlight) that runs in a offline/online mode, depending on the presence of an internet signal. Targeted ads will be served using the aQuantive/Atlas platform.
2. Enterprise version. For large corporate clients that are leery of storing docs in the SaaS Cloud, an ad-free version would be available. These client versions of Office would require synchronization with the enterprise server license of record.

Migrating their consumer apps to a SaaS model allows Microsoft to make a huge dent in the piracy issue that is a drag on revenue and earnings. Pirates attempting to sell a desktop copy of the Enterprise version will end up with junk - without an enterprise server license, the desktop copy will not operate, period. With the ad-supported version, Office can deliver a user interface known and trusted by millions of users, and monetize this version via ad revenue.