When Microsoft recognizes a challenge, the wheels of change start spinning faster than a politician's PR team cleaning up after a nasty indiscretion. A challenge the company is now tackling at that furious pace is the perception that Microsoft can't compete with Google and Software as a Service (SaaS).

To address this challenge, Microsoft is integrating its individual products with Web components in a model it calls Software Plus Services to create end-to-end solutions such as unified communications (UC) and business intelligence (BI). This competitive strategy is coupled with company-wide adoption of System Center and Windows PowerShell for an integrated management model. Recent announcements, especially of Microsoft Exchange Server 2007 SP1 and Microsoft Office PerformancePoint Server 2007, are interesting in light of this integration.

Exchange 2007 SP1
When Microsoft explains its Software Plus Services vision, the company invariably holds up the model of Exchange Server's integration with the Outlook client and Outlook Web Access. But Exchange's role in Microsoft's future strategy goes beyond email into the realm of the next "killer app," UC. The August announcement of a Community Technology Preview (CTP) of Exchange 2007 SP1 pounded home the UC message, stating, "SP1 will drive added value for our customers, further establishing Exchange Server as the foundation of a unified communications platform," which includes email, voicemail, IM, and voice and video communications.

According to Ray Mohrman (group product manager, UC), SP1 adds support for Windows Server 2008 and Windows Vista. SP1 lets you manage Exchange from a Vista machine by using PowerShell, Microsoft Management Console, and the Exchange Server Best Practices Analyzer. Additional SP1 features include new Microsoft ActiveSync policies for synchronization, authentication, and encryption. SP1's Standby Continuous Replication feature uses Exchange's log file shipping to continuously replicate mailbox data to a standby server, which can quickly be activated if the primary server is offline. In the area of security, SP1 integrates with Forefront Security Server SP1 and provides IPv6 support with Server 2008.

But the focus of the announcement seemed to be on integration with Microsoft Office Communications Server 2007 (OCS—the heart of the company's UC product line). SP1 enables one-click retrieval of voicemail messages from the OCS client, Microsoft Office Communicator 2007, and allows Communicator and Communicator-enabled phones to alert users to new voice messages.

The importance of SP1, according to Microsoft, is in "addressing the overall communications and collaboration needs of companies." With the complete UC solution, Microsoft has a competitive position that Google and SaaS competitors can't approach: a comprehensive set of products that can be assembled as end-to-end solutions, starting with the OS and extending through the communications infrastructure to systems management, data and storage, and end-user productivity.

PerformancePoint
Microsoft quotes IDC's research finding that the overall BI market grew by more than 11 percent in 2006, while Microsoft's BI revenue grew 28 percent, the highest growth rate among the top 10 industry players. For Microsoft, BI isn't just an opportunity to release new products such as PerformancePoint. Rather, BI represents an opportunity to sell a solution that consists of several individual products: Windows Server and Microsoft SQL Server on the back end, with Microsoft Office PerformancePoint Server 2007 and Office applications such as SharePoint and Excel on the front end. Don't be surprised to hear soon about how Microsoft's BI solution will have Software Plus Services components and System Center–based management.

Together at Last
The biggest obstacle Microsoft faces to competing with Google and SaaS is its business model. Microsoft can add online services to its software products but, unlike Google, still has to protect revenue from traditional software.

However, Microsoft has a strength that none of its competitors (except perhaps IBM) can touch: a broad range of products that can be assembled to form end-to-end solutions. Most important, Microsoft has an experienced customer base that has already invested in learning Microsoft skills. That skill base makes it easier and cheaper for customers to stick with Microsoft than to invest in learning non-Microsoft products.

By unifying the Microsoft stack with a common management model and providing end-to-end solutions, Microsoft is betting that it can leverage its mature and emerging products and build on existing customer knowledge to outflank competitors. What do you think? Is it more cost effective to adopt Microsoft's solutions than to try out competitive offerings? I'd love to hear whether you agree.