News

Phase 2 Embraces SaaS for Global SMB Market

• By Kurt Mackie
• January 14, 2008

What happens when software is hosted and provisioned remotely -- doesn't that cut out many Microsoft IT support roles?

Honolulu-based Phase 2 International, a Microsoft Gold Certified Partner, doesn't seem fazed by this prospect. The company is carving out a niche by hosting Microsoft products for the worldwide small-to-medium business (SMB) market. Phase 2 offers a broad Microsoft product line to its customers, including SharePoint, Exchange, Dynamics CRM, Project, Microsoft Live Communicator and even an AutoCAD collaboration plug-in to SharePoint.

It's true that many of Microsoft's partners see Software Plus Services as an opportunity, and Phase 2's CEO Kevin Doherty appears to be one of them. I asked Doherty about how things work for partners operating in a hosted services world, and here are some of his replies (edited for length).

Q: It's not always clear what Microsoft has meant by its Software Plus Services announcements and how S+S will affect partners. Are you doing something different than what Microsoft has announced?

KD: We're not really privy to any inside information that's not widely available publicly, but we were one of the first to sign up. We were concerned that Microsoft was going to offer some of their products as a hosted service out of their Redmond, Washington office. They've told us quite frankly that the services that they offer are in response to market conditions, and they're not interested in anybody with less than 5,000 seats. The products that they're offering will be very out-of-the-box. They're not doing any customization, optimization, or vertical integration to meet enterprise customer-specific demand.

We really want to focus in and address the small-to-medium enterprise market, as we do here in Hawaii, by a more personal approach. All of our customers have immediate access to our development engineers. We work hand-in-hand with the customer to understand their markets. We will customize the products to meet their very specific requirements and we'll do private labeling for them.

Q: I think the growth and demand for IT is going to come from the SMB market -- is that right?

KD: I agree.

Q: It sounded like a lot of people were going to get hurt in the partner community by Microsoft's Software Plus Services announcement.

KD: When they first came out with Software Plus Services, we looked around and said, "Aren't we already doing this?" We have Outlook tied to Exchange. We have CRM integrated with Outlook. We have MS Project tied to EPM.

Q: It seems as if you are going to provide SMBs with comparable products offered at Microsoft's Software Plus Services Web page.

KD: The big distinguishing factor between us and others out there doing this -- and there aren't many out there -- is the broad amount of applications in our suite. Our driving force is to become the SaaS provider for the SMB market and have all of the high-end business applications that you could require a la carte.

We're starting to move toward vertical markets as well. For example, our ShareCAD product is the bread and butter of the AEC (architecture, engineering and construction) industry right now. We're seeing a lot of traction there. Ultimately, we want to be a one-stop shop for the small-to-medium business owner that doesn't know a lot about IT.

Q: Would you open up to other tools, like Google's?

KD: We are keeping a close eye on the market demand, and we're here to stay in business. I will tell you that some of [our] products are not Microsoft products. What we're trying to do is bring the best application to the customer. It should be done first and foremost with the customer in mind.

Q: You serve customers worldwide?

KD: That is correct.

Q: What about security, porting data over the Internet. Is that a concern?

KD: Yes it is. Pretty much everything that we do is client-server-based SSL. The security issue is not a small one. One of the things we do here is we have network-based IDSes and client-based IDSes on our servers. That's a step we take above and beyond to make sure there's nothing going on that we are unaware of from a network intrusion perspective. We do have redundant firewalls. From a data center perspective, the data center at the border is protected. The biggest concern, especially when dealing with countries around the world, is client to server -- is information as it's traversing the Internet [and] man-in-the-middle [attacks], so that's where we leverage SSL technology and beyond that.

On our milestone list for this year, in early Q3, is to get our SAS 70 certification. A lot of institutions require this now. For example, we've started to do some work for a local bank, and we can't keep their information in our data center because it's not SAS 70 certified.

Q: Is it possible to have a mixed architecture where some is hosted and some is firewalled?

KD: We've looked at that before. It's like collocation. We could do that, but it's just not something that we're interested in. We want to focus on the high-value side.

Q: What sort of customization do you do?

KD: We don't just turn them on and send them a user name. [Customers] get a call, and it's one of our developers. They ask: "What kind of border do you want?" "Do you have a specific CSS template that you use?" "How big's your logo?" "What's your color scheme?" [Customers] don't really realize that this comes with our service.

We've got very high-end developers. We're not the lowest cost in the business -- I think we're right around the middle. But [customers] need to know that we will accommodate their boss or their customer. I think it will really reduce churn, because [we will produce] a site that's customized for their needs.

Q: You handle all of the licensing on your side?

KD: Absolutely.

Q: And there's no problem with Microsoft and licensing?

KD: We are doing what they are trying to encourage all of their hosting partners to do, which is get out there and actively market their products. We're spending our marketing dollars marketing [Microsoft's] products.