Microsoft is a sort of fountain of terminology. Every time I speak to somebody at the company, I hear an acronym or a term I'm not familiar with. And a Microsoft-led series of presentations is just a concentration of that situation. There were whole pieces of software mentioned or alluded to in the Wednesday sessions that I'd never heard of. Microsoft is a big company.

One expression that came up pretty consistently on Wednesday was Microsoft's notion of the "software + services" ecosystem. This is not a new expression, but it's an important distinction that's worth understanding thoroughly. I had the opportunity to talk to Michael Van Dijken, Microsoft's marketing manager for hosted services, Wednesday about that very thing.

Importantly, "software + services" is not a semantic distinction (it's not a different way of describing, say, "software as a service"). It's a description of Microsoft's vision for the software environment - which certainly involves software as a service.

Software as a service is the much-discussed delivery relationship that has a lot of people excited. On-demand software hosted in the cloud, in the opinions of many, is the future of software delivery - and the future of the hosting business.

Micrsoft's software+ services distinction, describes the idea that SaaS is a delivery mechanism, and while some applications such as Exchange or CRM lend themselves to that model (the excitement about SaaS is certainly not unfounded), others simply don't. They do, and will continue to, lend themselves to a desktop or on-premise model.

Many applications, he says, lend themselves to a blended model, in which an application has parts that are installed, and parts that are delivered as a service. As an example of this he offers the Xbox Live service. A video game can be played offline, on-premise, but the service piece, which enables players to play together online adds considerable value.

This combination is why Microsoft doesn't think of itself as a "SaaS company." It's not a defensive distinction, says van Dijken. It's a description of how Microsoft sees the world. We're not living in a world where all the software will be hosted in the cloud.

Microsoft doesn't see its path as becoming like Google or Salesforce.com. And those competitors have validated this thinking somewhat by introducing offline components to their services. Google released the desktop-installed Google Gears, and even Salesforce.com has issued offline pieces of its applications.

From a hosting perspective, hosts would probably prefer that all software transition to the on-demand model, considering the business that would create. Hosts typically aren't that interested in talking about the on-premise delivery model. But they ought to be very interested in the applications that will have service components. There's a big opportunity there, says Microsoft, for partnering with the ISVs developing that software.

Software + services isn't a description of a fully-developed marketplace, or a view from a crystal ball. It's an impression of the ecosystem that might develop around software and software as a service, and a best guess as to how things are likely to shake out. Nobody's quite certain what the value chain is going to look like, but Microsoft is trying to provide its partners with a model that will help provide ISVs and hosts with a model for working together.