In typical fashion, Microsoft has given its own name to its SaaS strategy, calling it "software plus services." The company first revealed the strategy in a keynote by Ray Ozzie in Boston at its TechEd 2007 conference, saying that it would begin offering business services on a hosted basis but continue to offer packaged software in its traditional licensing model as well.

Ray Wang, a vice president at Forrester Research, said this "hybrid" business model makes sense for Microsoft, which has to keep its enterprise licensing customers happy. Not all of them are ready to move to SaaS, even if the trend, which has been hyped for years, is finally turning into reality for IT customers.

"There are so many customers that don't want to move to services," he said. "What Microsoft is doing is providing another option, another delivery option."

While Microsoft's move to hosted services will be good for the company and its enterprise customers, it has been disruptive for the company's hosted-services partners, with whom Microsoft now is competing. Even before it decided to offer its own hosted services, Microsoft allowed partners to host its software infrastructure for their customers.

Serguei Sofinski, CEO of Intermedia, a Microsoft hosting partner, said the vendor's "aggressive pricing strategy" pressures profit margins for partners, who will have to diversify their offerings and providing other value to customers to stay competitive.