ORLANDO, Fla.—The focus of Microsoft’s annual Convergence Conference here has always been about the company’s line of Dynamics business applications.

This year’s conference is no exception. However, Microsoft’s focus will likely shift slightly this year with a spotlight on software-plus-services, Microsoft’s parlance for on-demand software that weaves other aspects of the company’s technology into the Dynamics stack.

Microsoft announced March 12 what it refers to as “people-ready innovations” across the Microsoft Dynamics stack that includes ERP (enterprise resource planning) suites AX, NAV, SL and GL, and CRM (customer relationship management). The innovations include the next iteration of AX 2009, code-named AX 5.0, which includes more than 30 role-tailored interfaces, a new compliance center and an integrated workflow framework for more flexible business processes. The company also announced an enhanced relationship with EDS, with EDS offering Dynamics CRM as an EDS enterprise application. The two companies also will jointly develop vertically oriented CRM applications. For its GP suite, Microsoft announced a new set of tools to help companies move quickly from QuickBooks to GP.

However, the real star of the show is a new set of online services designed to extend Dynamics CRM and ERP applications to the Web as online solutions and provide choice to customers.

The first online services—many more are planned—include three offerings: a payment service that amounts to fraud prevention technology from PayPal and Chase Payment Solutions for those companies using credit cards on the Internet; marketplace services that provide integration with eBay to allow customers to sell their products on eBay as well as through their own Web stores and offline channels; and a keyword marketing service that amounts to a campaign tracking and management service for search engine marketing.

The underlying theme of Microsoft’s services for Dynamics is, according to the company, “extending the power of choice.” The idea is to enable a range of on-premises and on-demand offerings, with the ability to essentially ratchet up and down service choices. During an interview at Goldman Sach’s 2008 Technology Symposium in February, Craig Mundie, Microsoft’s chief research and strategy officer, said that as Microsoft executives weighed the company’s moves to capture the emerging SAAS (software as a service) market—underpinned by online advertising and search—the conclusion two years ago amounted to the kitchen sink approach: add a service component to virtually every business Microsoft is in.

“What that gives us over time—which you will see being implemented business by business—is the ability to sort of turn it [on and] off and decide how much computing gets done locally and how much gets done in the cloud,” said Mundie. “That can go from zero to 100 percent in either direction.”

Despite often cloudy metaphors and a confused message about its branding of software-plus-services, Microsoft has made some strides in the area of on-demand computing. It announced its Microsoft Live—Office Live and Windows Live—initiative in 2005. In December the company released CRM 4.0, its first multitenanted software available as both an on-demand and on-premises offering. Earlier this month, Microsoft announced a beta version of a multitenant server SAAS platform that will be used, initially, for e-mail and teamware, or SharePoint, services. Gartner Group said in a Feb. 29 research note that it believes the platform will be extended to other applications, such as Office, over time. The platform, expected in the fourth quarter, is aimed at companies with fewer than 5,000 seats (Microsoft already has a SAAS platform for companies with more than 5,000 seats).

CRM 4.0 is Microsoft’s answer to a metered SAAS choice for the Dynamics line. It’s available as on-premises, partner-hosted or Microsoft-hosted implementation (the Microsoft-hosted version, CRM Live, is planned for broad release this spring). The multitenant code base of CRM lets companies switch between on-premises and on-demand.

But where Microsoft’s SAAS platform initiatives converge with its software-plus-services initiatives with Dynamics remains to be seen—and could perhaps be the basis for the bulk of Microsoft’s conversations at this year’s three-day Convergence conference, which is expected to attract about 10,000 partners and customers. The other question, one also likely to be addressed at Convergence, is how Dynamics partners will make money from Microsoft’s software-plus-services strategy.

Gartner, in its research note, said that despite the “considerable challenges” that lie ahead for Microsoft, the company is on the right track to snare a good percentage of the overall SAAS market. “While it runs one of the largest public portal sites in the industry, providing large-scale SAAS services for business requires significant expertise in high availability, security, multitenant architectures, network topologies and problem resolution. Furthermore, Microsoft is retrofitting its existing software to the multitenant server model. It won’t be until the next version of Exchange (due in 2011) that its core products are better architected to run in a multitenant SAAS model,” wrote Matthew Cain.

Nonetheless, according to Gartner, Microsoft’s substantial market share in the e-mail and teamware market, particularly among SMBs (small and midsize businesses), along with the growing acceptance of SAAS business models, create a significant opportunity for Microsoft. “We believe that 20 percent of enterprise e-mail seats will use a SAAS provisioning model by 2012, compared with 1 percent in 2007,” wrote Cain.