With so much bad economic news in the national headlines, it’s encouraging to hear that business is still booming for our Microsoft partners in upstate New York.  I had the chance to spend last Thursday with nine of our partners, along with a number of Microsoft Dynamics customers, in Rochester and to talk about what’s happening in their businesses.

The partners told me they don’t see the wide swings in business that are frustrating other parts of the country.  They’re still growing with lots of business for all of them to share.  Even more interesting to me was their willingness to share so many ideas and issues during our 90-minute session, even though they compete with each other.  They realize they are part of a bigger community—the Microsoft ecosystem— and really were eager to talk about the factors influencing them all.

High on the list is the interest on the part of customers in starting to combine Web-hosted applications with the software they install on their servers and desktops—what Microsoft calls “software + services.”  I learned that one Rochester-based customer in the electronics industry has just purchased Microsoft Dynamics CRM both in its traditional on-premises, server-based form and as Web-hosted CRM Live, in an effort to test and compare the capabilities of the two formats.  The company’s CEO would like to eliminate servers entirely from his building, so he is checking out the Web-based version to compare its bandwidth, response rate and user experience.

Proof-of-concept programs like this one present a great opportunity for partners to begin collecting information and learning what customers think about new technology.  Partners should encourage these kinds of pilot programs and stay close to the customer to become an even more valuable resource in analyzing the results.

We’re a long way from knowing where the preponderance of business will lie.  Many CEOs want to keep control of their IT environment and have an IT staff manage their network locally, especially when concerned about proprietary software.  Others would prefer to host everything in “the cloud,” to lease the software so they always have the current version available, eliminate long-term agreements and, in effect, invest in the latest technology instead of headcounts and instead of building legacy systems that eventually become outdated.

So partners need to begin evaluating where their customers will be three to five years from now.  Do they have a continuing appetite for hosted applications?  Do they want to buy capacity by the gigabyte and store their data in the cloud?  They can “try on” this process today, with Web-based versions of Microsoft Exchange, Microsoft Dynamics CRM, SharePoint and Microsoft Office applications and see how their infrastructure responds.  Partners can guide them through this process and point up the pluses and minuses encountered along the way.

In the end, everyone is likely to benefit from the new business model for providing software + services.  The applications available on the Web will be offered through subscriptions or royalty programs, and partners will receive a share of that revenue, based on the work they do with their customers.  In fact, partners will be a huge component in this process, configuring and customizing computers and servers as businesses add Live services and even serving as the conduit between the customer and Microsoft to negotiate the arrangements.

Indeed a cloud is on the horizon, but it could rumble through our region raining major cost and time savings for customers as well as new business opportunities for Microsoft partners.