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Microsoft Office 365: The Market Impact

by Guy Creese  |  October 20, 2010  |  1 Comment

Yesterday, Microsoft announced Microsoft Office 365–announced being the operative word, since it won’t be in production until sometime in 2011. Office 365 unites BPOS (Business Productivity Online Suite), Microsoft Office Live Small Business, and Live@edu under one brand name. It adds an online enterprise version of the Office Web Apps to the portfolio, as well as allows customers to buy Office Professional Plus (software) on an on-going basis.

Here are my quick takeaways from this announcement. (I previously wrote a 31-page report on BPOS and a 29-page report on Office 2010 [note: Gartner subscription required],  so this short blog post just scratches the surface of potential impacts.)

From a Microsoft point-of-view:

  • Helps Stop Erosion of the Franchise: This has the ability to stop the potential erosion of Microsoft’s Office franchise. Google Apps Premier Edition (GAPE) has been very successful in the SMB (small and medium business) space, with the long-term threat to Microsoft being that SMBs who started out using GAPE would remain loyal to Google and not switch to Microsoft Office or BPOS as they got bigger. Office 365 can snare SMBs in the early days and grow with them.
  • Can Take Google Apps Head On: GAPE is a combination of an e-mail, productivity suite, and collaboration solution, and until Office 365, Microsoft had no direct challenge to it. When pressed, Microsoft would mutter, “Well, we have BPOS, a much richer communication/collaboration solution, and no one really wants an online productivity suite to live in. Office Web Apps is an adjunct to the Office software, rather than a replacement for it.” Now, Microsoft can avoid the marketing gymnastics and just propose Office 365.

From an enterprise point-of-view:

  • Is a Credible Alternative to GAPE: Enterprises have looked at GAPE–not so much because they’re enthralled with its functionality, but because they like the idea of paying less for more basic functionality. Microsoft’s Enterprise Agreement (EA) has made enterprises pay the full boat price whether they needed it or not, and this is eliciting emotions in customers ranging from major irritation to downright hostility. Microsoft can now offer a lite and heavy version of a productivity suite in one package, which is what enterprises want; Google can only offer a lite version.
  • The Licensing Re-negotiations Begin: Almost all large enterprises have bought an Enterprise Agreement from Microsoft. Happily, Microsoft is saying, “Today, we are also announcing that customers with Enterprise Agreements can easily acquire Microsoft Office 365 through an update to the EA. The Enterprise Agreement now provides the flexibility to combine on-premise software and online services into a single volume licensing agreement.” What’s missing–or at least I haven’t been able to find public documentation on this–is what kind of trade-ins customers will be able to get for their already signed EAs. If the trade-ins are minimal or if the renegotiation gets too byzantine, Microsoft customers will remain angry.
  • A Wide Range of Pricing, So User Segmentation Needs to Begin: Prices range from $24 per user per year for basic e-mail to $168 per user per year for the full boat (Office software, e-mail, voicemail, social networking, IM, portal/extranet, voice conferencing, video conferencing, and web conferencing). If Microsoft had come out with $50 per user per year (Google’s GAPE pricing) for the full boat offering, enterprises would just buy Office 365 and GAPE would be toast. However, Microsoft didn’t, so enterprises will have to start deciding which employees need which solutions (and hence a certain product price point) to function. Segmenting users will be a new experience, as enterprises have typically thought of their users as homogeneous–“Everyone gets Office’–rather than as “This group gets Basic Office, this group gets Deluxe Office.”

The impact of Office 365 will become much clearer over the next several months as Microsoft clarifies its EA rebate stance and early adopters kick the tires. Enterprises continue to tell me, “We want good value for the money–while at the same time being able to use in-house or cloud solutions depending on our business needs.” With that as a backdrop, Office 365 is certainly a step in the right direction.

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Category: ea  google  microsoft  saas  sharepoint  

Tags: microsoft  microsoft-office  office-web-apps  

Guy Creese
Research VP
4 years at Gartner
32 years IT industry

Guy Creese is a vice president and research director for Gartner Research, within the Gartner for Technical Professionals division. He covers a range of topics at the intersection of collaboration, content management, and communications. Read Full Bio

Thoughts on Microsoft Office 365: The Market Impact

  1. Pankaj says:

    It is fair to say that BPOS was already a comparable product to Google Apps. Office 365 just adds the missing web based Office productivity part of the riddle. But web office suites aren’t really all that popular as you may think. A vast majority are still happy working with desktop based MS Office.

    The marketing push behind Office 365 does indicate one thing though, the barriers between communication, collaboration and productivity solutions are breaking down. Companies just want a single unified “productivity application” which serves all their basic business IT needs.

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