Although Microsoft has been anything but forthcoming about its .NET initiative, HostingTech uncovers the secret behind its strategy - and it all boils down to hosting.

Max Smetannikov correspondent | HostingTech | msmetannikov@hostingtech.com

Although in recent months Microsoft (www.microsoft.com) has managed to convince the top Web hosts in the United States to play ball with their new .NET platform, even the most ambitious players hesitate to say when the first services based on platform are going to go on sale. The delay is not necessarily a bad thing. As Microsoft tries its hand at creating an operations system for application provisioning, most participants want to take only one step at a time, in an effort to minimize mistakes while introducing this new technology into the market.

To grossly oversimplify, .NET is Microsoft's answer to Sun's J2EE (Java 2 Enterprise Edition) programming environment. In other words, .NET is a software strategy that allows developers to build applications in any language and operate across platforms. This is a powerful concept, as Microsoft attempts to gain turf in application provisioning.

In this new paradigm, a software vendor like Microsoft needs to work closely both with software developers, who are creating new kinds of applications, and service providers, who are channeling demands of business owners for new applications.

Web hosts have a pivotal role to play, but the exact parameters are not clear. In theory, hosts would draw from new kinds of applications developed with .NET technology to offer advanced services alongside with basic hosting and account monitoring. As such, hosts would be giving work to software developers banking on demand for Microsoft applications. Indirectly, the hosting companies would be supporting vendors by generating demand for their products. Microsoft does not plan any direct compensation for hosts that help make the .NET vision a reality, but makes a good argument that, by investing in a new technology, service providers will eventually get more revenue from applications they cannot yet imagine.

It might sound far-fetched, but the first products suggest it just might deliver on its promises.

The skinny on .NET
Although many Web hosts are talking about deploying .NET, it is not a product. Rather, it is a concept Microsoft is using to retrofit its existing product lines and develop new ones. Microsoft insiders say .NET is an evolution comparable to when DOS got a graphical user interface and became Windows.

".NET is about connecting information systems and devices based on XML Web services," says Neil Charney, Microsoft's director of the .NET Platform Strategy Group. "So everything we do from now on will assume the Web service model of computing."

There is risk involved with this .NET initiative. Microsoft is gambling that the future of computing lies in sharing applications over a common communications platform. Just like users can look at any text through a Web browser, endusers - through .NET - could make a payment via the method of their choice, and any billing system should work with any provisioning system.

In today's world, applications are designed to run over specific network protocols and typically have to be integrated with each other to ensure information is "understood" by different networked elements.

Microsoft aims to eliminate the need for such integration. With the .NET initiative, Microsoft creates a lingua franca for information encoding. If .NET catches on and muscles out competition in the face of Java, then a billing system would seamlessly interconnect with a database (assuming they are both .NET-compatible). This would make Microsoft a dominant provider of a new category of software, presumably called "information encoding systems."

The exact shape of this new industry segment is still forming, and Microsoft's success in effecting this major change is not a given. In explaining how .NET would enable applications to be dropped into existing operating-system-like environments, Charney compared .NET to software developed by virtual server companies like Ensim and Sphera. Add a couple of grid-computing efforts into the mix, by companies like Terraspring, and datacenter-management software from companies like Opsware (formerly known as Loudcloud) and NOCPulse, and it becomes abundantly clear that Microsoft is just one of the players looking to simplify an incredibly complex problem.

The scope of Microsoft's effort is huge, as is made clear by the extensive membership lists of organizations like the Web Services Interoperability Organization (www.ws-i.org), of which Microsoft is a founding member. The company draws heavily on its economic influence on software developers. As far as Microsoft's service providers' strategy goes, the plan seems to suggest engaging the chosen few in early stages of .NET development, and using their economic success as the word-of-mouth advertising tactic.

The .NET hosting club
A very exclusive group of 10 Web hosts have learned about Microsoft's far-reaching .NET plans in great detail last summer (2002). Microsoft has finally solidified its strategy towards service providers, and has put together a road show about what .NET means to the hosting industry, or, more specifically, to the 10 hosts Microsoft believes are leading the industry and have adequate resources to deploy .NET-related initiatives.

Although the entire list has not been made public by Microsoft, we were able to uncover nine of the 10 hosts selected for this elite group: Rackspace (www.rackspace.com), iNNERHOST (www.innerhost.com), Interland (www.interland.com), IBM (www.ibm.com), Digex (www.digex.com), Brinkster (www.brinkster.com), EraServer (www.eraserver.com), XO Communications (www.xo.com), and USi (www.usi.com). Rumor has it, EDS (www.eds.com) is the final member of the group.

Microsoft has explained the .NET pitch to these companies in concrete terms, that is, the effect of the initiative on sales.

"We have classified Web hosting needs in three areas we are catering to: helping them achieve better efficiencies; increase average revenue per user; and help increase market share," says Pascal Martin, Microsoft's solution unit manager in the network service provider group.

Web hosts can start benefiting from .NET once their server architecture is upgraded to support the initiative - .NET works on versions of Windows, starting with Windows 2000. The strategy is to channel Web developers to Web hosts that have worked with Microsoft, in order to ensure applications work on their platform.

Satisfied .NET partners
At the forefront of the .NET assimilation into Web hosting is iNNERHOST, a service provider with a large number of application developers as customers. INNERHOST's executives are not shy about making a connection between deploying .NET and making more money.

"The choice of .NET has paid dividends," says Luis Navarro, iNNERHOST's chief executive. "We are one of the few hosting companies that is EBITDA [Earnings Before Interest, Tax, Depreciation, and Amortization] and cash-flow-positive."

Navarro links his company's success with .NET because the company has seen an increase in business since making its back end .NET-compatible and starting to offer support for .NET enabled applications, especially VisualStudio.NET and ASP.NET. In Mexico, several of these applications are available for Web developers on a rental basis. As developers started undertaking more complex projects, utilizing .NET architecture to create business-centric integrated distributed applications, iNNERHOST saw a sharp increase in revenues from hosting, bandwidth, and software rentals.

Herein lies Microsoft's market penetration strategy. It offers Web developers a set of tools to develop a new generation of applications that seamlessly link applications running in Microsoft environments. Web hosts, partially interested in making money on providing a staging ground for this activity, get in on this process on the ground floor. The next step is for Web hosts to figure out what new services they can launch with .NET in their back end.

Figuring out the latter is really what keeps Web hosts interested in .NET, say executives from Interland, whose developer focus is based more on general business than iNNERHOST. Interland is looking closely at what developers operating under its wing are doing, and hopes to draw on their talents when the time is right.

"We hope to select companies that have demonstrated a skill set of meeting the requirements of the enduser and working closely with these developers to address the needs of their market," says John Lally, Interland's director of product marketing.

Some of the first .NET-based applications might be collaboration tools built on top of applications like Sharepoint and Microsoft Exchange. The timeline for these projects is blurry at best. The sense that most executives have is .NET penetration is unfolding slowly but steadily.

"We are several years away from the mass adoption," says Lally.