This blog article on whir.com titled Microsoft's Hosted Business Application Push, Should Exchange, SharePoint Hosts Worry? by Mathew Baldwin reinforces the fact the Microsoft is going to be a big player in the SaaS space.  They are a large fish in this ocean of opportunity, and as a large fish other big players (incumbent broadband providers) need to be paying attention.  The open questions are:

1.  What size customer will they target? 

This article assumes that Microsoft focuses on large, fortune 500 customers.  While that might historically be true, is it true in light of launches like Office Live?  One completely unsubstantiated report we've heard is that nearly 40% of the current Office Live beta users are Consumer and SoHo.  That's a big portion of the SMB space.  So the time is likely now to react.

2.  How should incumbent service providers compete? 

As the article states:

"The best way to compete with Microsoft on this front is to offer differentiating features. For Hosted Exchange, this might be Good and BlackBerry services, a lower cost archiving service, a better anti-virus/anti-spam service; For SharePoint, this could be partnering with SharePoint ISVs to create add-on templates or services to the base Microsoft SharePoint stack."

We couldn't agree more.  Incumbent providers, especially broadband providers who are providing all of the underlying network infrastructure for Hosted Apps as a free lunch, need to look at moving up the stack.  Innovation on SharePoint capitalizes on all the power of the Microsoft platform.  SMBLive is an example of a SharePoint-based ISV specifically built for distribution via the incumbent broadband providers.  See TELUS ePoint, BT Workspace and BT Tradespace for in-market examples of what's possible for an incumbent provider to build on SharePoint.

3.  And per the article's closing question:

"And finally, what does the announcement of Google launching Google Apps Premier mean for Microsoft and the rest of the hosting community?"

From our perspective, it's further validation.  Large, multi-billion dollar companies don't pursue markets unless someone sitting in the finance department with an MBA from Wharton has built an impressive spreadsheet that says it can move the dial.  Moving the dial is NOT easy for a multi-billion dollar player.  Moving the dial requires a big market with a big revenue opportunity.  The fact that both Microsoft and Google are in the Hosted Apps market with offerings that appear to be directed at the SMB segment means that the market opportunity is real, and real big.  Incumbent hosters and broadband providers should all be taking notice, and formulating plans.