Announcements with Compaq, Corio, and Digex Mark Major Momentum for Microsoft’s Application Hosting Strategy

REDMOND, Wash., Jan. 13, 2000 — Microsoft announcements with Compaq Computer Corp. and Digex, Inc., as well as an announcement by Corio, Inc., this week helped further the company’s strategy to support what independent analysts are calling the computer industry’s fastest-growing market segment: application hosting services. Microsoft complemented this news with the release of a major new roster of Application Service Provider (ASP) companies that are using Microsoft technology — particularly Microsoft Exchange Server — as the foundation for managed corporate messaging and collaboration.

“Our goal with the ASP market is analogous to our strategy for the more traditional part of the software market — to build the best, most robust platform upon which our partners can innovate and deliver solutions to their customers,”
said Tod Nielsen, vice president of the Developer Group at Microsoft.
“The new relationships announced this week are about working with major industry players to integrate our platform into their solutions — and about our learning from these key companies as we explore the best ways to serve customers in this new market.”

Microsoft and its strategic partners have good reason to be interested in what Forrester Research’s Jeanne Schaaf calls
“the fastest-growing segment in this particular market.”
Forrester projects that the ASP market will grow 76 percent annually for the next three years, with the industry reaching $21 billion in revenues by next year alone. Customers from small and medium-sized companies are interested in application hosting because it offers access to hosted solutions that would normally be out of their reach. There are several reasons for this: the cost of buying the software and hardware to run the solutions is too high, or perhaps they do not have the IT staff necessary to install and manage complex Line of Business software solutions.

Customers are also interested in application hosting because of the variety of new software services made possible by the Internet, with utilities such as hosted extranets and VPN services. Many customers are seeing application hosting as an opportunity to save money by taking advantage of the economies of scale that hosted applications make possible.

For its part, Microsoft has focused on giving independent software developers, ASPs, network service providers, channel resellers, and others the robust, scalable, flexible platform needed for application hosting. Microsoft’s platform is based on the Windows DNA Platform, which includes Microsoft Windows 2000, SQL Server 2000, BizTalk Server for business process integration, and Commerce Server 5.0 for next-generation e-commerce. Windows DNA also encompasses the best tools for developing and delivering the hosted solutions in the shortest amount of time, including the component object model (COM), which is the world’s most widely used component software model, and Visual Studio, the rapid application development (RAD) tool.

“Great technology is crucial to successful application hosting, but it’s only one piece of the puzzle,”
said Thomas Koll, vice president of the Network Solutions Group at Microsoft.

You also need to understand the changing requirements of the market, to understand the needs of service providers and their customers, incorporate that feedback and ultimately provide various ways to deliver hosted application services to them.”

The Corio announcement and Microsoft’s announcements with Compaq/Digex further this strategy of developing new, flexible ways to deliver the Microsoft application-hosting platform to customers.

Microsoft’s deal with Corio, a leading ASP, is a broad one: the two companies will pool research and development resources to incorporate Microsoft products into Corio’s hosted applications, allowing customers to take advantage of Microsoft’s applications and system software products on the Corio Intelligent Enterprise TM (CIE) platform.

Corio will host enterprise applications from current Corio partners Commerce One and Siebel Systems on the Microsoft Windows DNA platform, including Windows 2000 Server and SQL Server. Corio will also have access to Microsoft’s sales channel to drive joint sales and marketing activities across the U.S. To emphasize the strategic nature of the relationship, Microsoft has taken a $10 million equity stake in Corio.

In the Compaq/Digex project with Microsoft, the three companies pledge to jointly develop, deliver, and market a suite of high-performance application hosting services based on the Microsoft Windows DNA Platform, including Windows 2000 and SQL Server, as well as Compaq ProLiant servers and StorageWorks platforms, to be managed at the Digex SmartCenter data centers. Microsoft and Compaq will each invest $50 million in return for Digex convertible preferred stock and warranties to purchase Digex common stock to fund the development, deployment, and promotion of the new services.

The companies expect that the pact will boost Digex’s capabilities to install, manage, and upgrade large volumes of servers for application hosting customers, while also making it easier for independent developers to
their existing and new Windows-based applications.

Meanwhile, Microsoft also announced this week that a virtual “who’s-who” of industry players are already using Microsoft Exchange Server as part of a pilot offering for ASP-based corporate messaging and collaboration services. They include British Telecommunications PLC, CenterBeam, Inc, Compaq Computer, Data Return, EDS, Equant, FutureLink Corp, Hewlett-Packard, MI8, Micron Electronics, NetSHore, MTT Mpowered, a division of Aliant, Qwest Communications International Inc., TeleComputing Inc., UnitedMessaging, and Usinternetworking, Inc. Many of these companies are also offering Office Online, which was announced in November.

“We’re gratified by the tremendous interest of ASPs, network providers, and other key players to work with us in developing the application hosting market,”
said Nielsen.
“Microsoft will continue to seek relationships with innovative companies that can help us to deliver the best application-hosting platform and services to customers.”

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