It is curious that Microsoft President and CEO Steve Ballmer is touring the globe doing stump speeches not for Vista, but for how Software-as-a-Service (SaaS) is changing the way businesses buy, use, and view enterprise applications. Even more curious are Ballmer’s predictions:

• “In 10 years, we will see the desktop user experience being delivered 100% virtually and On Demand.”
• “If you want to be a leading software company, you’ve got to be a leading Software-as-a-Service company.”

Why would the company with the largest installed software base in the world be prognosticating the demise of software as we know it? It would seem that Microsoft would have the most to lose from SaaS.

To get to the bottom of this anomaly, I tracked down Microsoft executives for some answers. And, in another Supply Excellence exclusive, I secured a podcast interview with Cliff Reeves, General Manager of Microsoft’s Emerging Business Unit.

Our discussion shed light on the key business and technological drivers behind the SaaS trend. It also provided clarity on Microsoft’s SaaS strategy. You can listen to the complete interview here. But I have captured some of the highlights below:

• Beyond lower TCO, what other benefits are businesses seeing from SaaS? “Speed and innovation. If I can deliver software as a service, I’ve got much easier deployment. I can rev my applications as fast as I like. The customer base, now that it’s all sort of together is an asset in it’s own right. Not only will I get faster releases and my feedback will get factor into development more quickly. I can share best practices on the use of the product.”
• Why is SaaS catching on so quickly among all enterprises, large and small? “Software has always traditionally migrated to wherever there was purchasing power and cheap storage to store it. And that’s happening now. Our ability to link those up are being driven by XML standards and increasingly available bandwidth. SaaS is just the logical refactoring of business applications because technology allows us to do it. And we should look at the way we have traditionally shipped software in boxes to be deployed on-site as an artifact of the fact that bandwidth wasn’t there. And the standards to do this weren’t in place.”
• What does SaaS mean to CIOs? “CIOs are thinking, ‘Now I have the freedom to have a business process run by someone that is really really good at running that business process.’ So the question for CIOs becomes ‘What business process should I move out and which pieces should I manage centrally because they are absolutely core to my business?’”
• Why is Microsoft putting so much effort into promoting Saas? “First of all, it’s fundamentally the right trend for software to re-factor so that it’s placed at the place that will best serve people’s needs. We should not only be enabling that with our tools, we should be delivering some of those services ourselves. Being a packaged software vendor isn’t the be all and end all of our goals. More and more our products are moving to have a services base. More and more you’ll find things like e-mail and managing communications as services.”

Tune into the podcast to hear more about Microsoft’s SaaS strategy.