wants Chinese software firms to help fly the flag for its
software-as-a-service (SaaS) initiative, in a move which reveals the
growing importance of China to the US giant.

Microsoft has signed
a memorandum of understanding with Suzhou Software Park to create a
“SaaS incubator” in which Chinese houses can develop SaaS products —
under the watchful eye of Microsoft, of course.

For those not up
on latest software fads, SaaS is a much-hyped concept of delivering
software over the internet as a pay-as-you-go service rather than as a
shrink-wrapped product that has to be licensed and installed.

that Microsoft's rise to dominance in the packaged software industry
owes much to the highly-lucrative perpetual licensing model, cynics
might wonder why Microsoft is now banging the SaaS drum.

many experts in the software industry believe the writing is on the
wall for the perpetual licensing model. While Microsoft's does not yet
feel unduly threatened, there are now a plethora of open source and
web-based alternatives nibbling away at software markets that Microsoft
has traditionally called its own.

For example, Last week's Office 2.0 conference
in San Francisco provided a glimpse of a brave new world in which
computer users can run spreadsheets and write letters without having to
install any applications on their computer — or pay licence fees.

of the services yet offers the breadth of Microsoft's Office suite —
not even Google, which announced that it is combining its online word
processor and spreadsheet onto a single platform.

Microsoft is well aware that these services might become sufficiently
appealing that significant numbers of mainstream users would consider
not renewing their licences for Microsoft software.

That's if
they ever owned a legitimate copy in the first place. In China, as in
other emerging markets, Microsoft has long faced the challenge of
trying to convince businesses and consumers to pay “western” prices for

It knows that if cracks down too hard on rampant
software piracy, it risks alienating not just millions of potential new
customers but also undoing the years of work patiently spent building
bridges with China's government — not to mention the money it has
ploughed into initiatives such as Suzhou Software Park .

gives Microsoft a different way to tackle this perennial problem of
piracy. Because SaaS need an internet connection to work, unauthorised
users simply cannot gain access. Nevertheless, SaaS applications tend
to be simpler than their site-based counterparts, so they are not
suited to all types of application or user.

I'm not sure in what
direction the Suzhou SaaS incubator is going to take Microsoft in China
as the statement does not give much detail. I suspect it is aimed
mostly at custom-built applications for the public sector and the like,
in which case SaaS is simply a different delivery model rather than a
challenge to Microsoft's existing packaged software business.

More interesting for me is Microsoft's “strategic alliance” with CDC, the Chinese software company, which was announced
this summer. The deal calls for the two to develop a SaaS offering for
Microsoft's customer relationship management software, which could
potentially appeal to millions of small Chinese businesses. Its
commercial launch is due in December.

Go here (pdf) for more on Microsoft's presence in China.