Microsoft Cloud 2.0, This Time With Office

G00208152

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Summary

Microsoft launched the second generation of its cloud collaboration services, packaging it with traditional and Web versions of Office. Microsoft will now make cloud deployment a priority over premises-based releases.

News Analysis

Event

On 19 October 2010, Microsoft announced the first major upgrade of its Business Productivity Online Suite (BPOS) and renamed it Office 365, which will be available in 2011. There are six enterprise Office 365 bundles ranging from $4/user/month to $27/user/month. There is a $6/user/month bundle for organizations with fewer than 50 seats which includes e-mail, SharePoint, instant messaging, Web conferencing and Office Web Apps.

Analysis

Originally introduced in November 2008, Microsoft's multitenant BPOS can be considered a sales success, with close to a million users around the globe. But from an administration, feature set and stability perspective, BPOS has had its difficulties. BPOS was based on the 2007 versions of Exchange, SharePoint and Office Communication Server, which were never developed with cloud deployment in mind. With this generation of BPOS — renamed Office 365 — Microsoft moves to the 2010 versions of these products, which were designed (to various degrees) for cloud deployment.

The administration capabilities and feature set with Office 365, therefore, will be much stronger than those with BPOS, and are likely to lead to adoption by companies with thousands of users — we believe the average customer size for BPOS is below 50 users. The upgrade to the 2010 product suite is also likely to improve system stability, which Microsoft hopes to boost with more careful capacity management and better customer communication. Office 365 represents the primacy of the cloud model for Microsoft. From this point on, we believe that new application features and functions will appear first in the cloud, while on-premises versions will remain on a three-year release cycle.

Microsoft is including Office as part of its cloud strategy to combat potential market incursions from Google and other vendors. Available with some bundles for an additional $6/month, Office Web Apps is less expensive than Office, but its limited feature set means it will only lightly cannibalize traditional Office. A cloud-managed version of traditional Office is available for an extra $8/month with some bundles that include Web Apps. In these cases, Office is run on the local PC but managed over the network by Microsoft, ensuring an evergreen version of Office, which is attractive to organizations that struggle to upgrade Office. While the extra charge for Office is generally unattractive at roughly $168/year vs. traditional Office Software Assurance at about $100/year, it allows Microsoft to take a stake in the cloud office market and adjust price depending on market circumstances.

Recommendations

  • Organizations contemplating large scale e-mail upgrades or vendor conversions should consider cloud services from IBM, Microsoft and Google.

  • Office customers should compare the risks, costs and benefits of the cloud subscriptions to self-managed, perpetual licenses.

  • Existing BPOS customers should understand the steps required for an upgrade to Office 365.

Recommended Reading

  • "Make or Break Time for Microsoft Cloud E-Mail" — Microsoft's upcoming version of multitenant cloud e-mail service — based on Exchange 2010 — must address the extensive management requirements of large companies, or Microsoft will face a significant competitive disadvantage in the race for cloud collaboration services. By Matthew Cain

  • "Office 2010 Responds to New Competition, Continues Integration" — Office 2010 is a significant release for Microsoft, less because of features than because it represents Microsoft's response to the latest big challenge to Office: Web-based products like Google Docs. By Michael Silver

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