Although Microsoft has been anything but forthcoming
about its .NET initiative, HostingTech uncovers the
secret behind its strategy - and it all boils down to
Max Smetannikov correspondent | HostingTech
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
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
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
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
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),
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
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]
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.