Initially, Microsoft will offer a hosted version of its Exchange e-mail server and services for collaborative working using Sharepoint, Office Communications and Office Live Meeting. The products will be available later this year as individual services or combined as a suite.
Microsoft chairman Bill Gates said, "The combination of software plus services gives customers advanced choice and flexibility in how they access and manage software."
Firms running their software as a service could expect lower running costs, as they would not need to buy and maintain infrastructure to support applications running on-site.
The software-as-a-service model has been around for a while, but relatively few businesses have been attracted by the potential savings.
Dale Vile, managing director at analyst firm Freeform Dynamics, said, "About one in 10 organisations are either actively investigating or using software as a service, and a further 15% to 20% are keeping a watching brief. The majority, however, are not that interested".
Microsoft has introduced a licensing model to support its online services strategy. New users can purchase Microsoft Online Services as a per-user subscription. Businesses that have bought Microsoft's Software Assurance licence to provide access to server software using a Client Access Licence will be offered a discounted subscription.
Gates said subscribers to Microsoft Online Services would be able to deploy software as a subscription service over the internet, from servers they manage on-site, or a combination of the two.
However, this could mean licensing Microsoft Online Services is more expensive, said Neil Macehiter, research director at analyst firm Macehiter Ward-Dutton. "There seems to be no cost saving because you will still need a Microsoft Client Access Licence and an online licence."
On the technical front, Macehiter said companies would need to work out how Microsoft Online Services work across their internal and external networks.
For example, firms would need to assess how a hosted service such as Microsoft Exchange Online, which manages e-mail from outside a corporate network, would work with Active Directory, which sits behind the corporate firewall. Active Directory is at the heart of a Windows-based network, providing a way to authenticate and log in users.
Microsoft Online Services will potentially need to support millions of users, said Matt Cain, research vice-president at analyst firm Gartner. "Providing large-scale software as a service for business requires expertise in high availability, security, multi-tenant architectures, network topologies and problem resolution.
"Furthermore, Microsoft is retro-fitting its existing software to the multi-tenant server model. It will not be until the next version of Exchange [due in 2011] that its core products are better designed to run in a multi-tenant software-as-a-service model," he said.