Microsoft plugs tailored software for mid-market

Microsoft is expected to announce on Wednesday a renewed effort to target medium-sized companies with a specially tailored package of server software.

Code-named Centro, the mid-market server software will combine the Windows Server operating system and Exchange email server as well as management tools. The package, based on the company's Longhorn version of Windows Server as well as the next release of its Exchange, code-named Exchange 12, isn't expected to arrive until 2007.

Microsoft will detail the new software at a conference for mid-sized firms being held at its Redmond, Washington, headquarters. Also at the event, Microsoft will launch a new online resource centre and rebrand several of its Microsoft Business Solutions products under a new "Dynamics" moniker.

Microsoft has been down this road before. In the past, the company has attempted to crack into the software market populated by companies employing between 50 and 1,000 workers. The software giant's interest is understandable: there are roughly 1.4 million such firms worldwide, according to AMI-Partners, that are potential customers for Microsoft's new products.

However, past efforts by Microsoft have not gone far enough, said Orlando Ayala, senior vice president of Microsoft's Small and Midmarket Solutions & Partner Group. He acknowledged that although the company has profited from small and medium-sized customers, it has not done enough work to get to know the needs of such businesses so that it can create more products tailored for them.

"These companies are kind of in a sandwich. They are not quite like a big enterprise with all of the resources and all of the stuff. They are not quite a small enterprise - they cannot basically put all of their stuff in one server," he said.

Of course, that precarious position is not new. For years, large technology companies have noted that small and medium-sized firms are a fast-growing but underserved market. However, analysts and customers have complained that in many cases, they were offered largely the same products.

Ayala said Microsoft is taking a different approach this time. "I think it starts with R&D," he said, pointing to the improvements Microsoft was able to get with its Small Business Server, noting that the software package enables small businesses to get up and running in 20 minutes - a process that used to take two days.

"That kind of stuff has not been achieved for mid-market customers," he said.

Microsoft said it has spent the last few years studying such firms, looking specifically at individual job roles. In an email message to customers, CEO Steve Ballmer said the company's research included following workers around as they did their job and taking pictures of their desks.

"And we learned an important lesson: today's business software doesn't look enough like today's businesses," Ballmer said in the email.

Ayala did not have an estimate on how much Microsoft is investing on specific engineering for medium-sized firms, however. "We have people doing it full-time," he said. "I don't have any number to quote."

In addition to spending dollars, though, Microsoft also needs to make a cultural shift, said IDC analyst Ray Boggs.

"The R&D challenge is a bit different," he said, noting that smaller customers are less interested in whiz-bang features and more so on tools that make the technology easier to manage. That runs somewhat counter to Microsoft's typical way of doing things. "As an engineer, you want to do the neat, advanced stuff," he said. "It is, in effect, a cultural change, and it's one that is driven, in fact, by senior management at Microsoft."

Steven VanRoekel, who has been heading up Microsoft's mid-market server efforts, said the internal work has been his initial focus. "We view our first job as really changing the mind-set within Microsoft on behalf of small and mid-size customers."

The products themselves will take longer. It will be at least 2007 until Centro arrives and, although the MBS products will start sharing a brand and some visual similarities, the work to unify their underlying code will also take years.

In the meantime, Microsoft plans to keep in place a mid-market promotion that gives customers a discount on a specific bundle of server software. Such pricing helps make sure mid-market customers aren't paying more than both small businesses, which can run Small Business Server, and larger enterprises, which can take part in Microsoft's most heavily discounted volume purchase programmes.

Microsoft is launching the mid-market push with 55 events around the globe. At the main event at Microsoft's headquarters, chairman Bill Gates and CEO Steve Ballmer are both slated to speak, something Ayala said is "very rarely" done.

"It's trying to signal how important we think this is," he said.

Ina Fried writes for CNET News.com