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Office 365: Microsoft Pitches Cloud, Eyes Profit

CEO Ballmer talks up advantages for small and midsize companies at Office 365's launch--not the cloud threat to Microsoft's lucrative on-premises enterprise software.

Office 365 Vs. Google Apps: Top 10 Enterprise Concerns
Office 365 Vs. Google Apps: Top 10 Enterprise Concerns
(click image for larger view and forslideshow)
Microsoft CEO Steve Ballmer on Tuesday officially announced the general availability of Office 365 in 40 markets. But in making the announcement in New York, he put the emphasis almost entirely on small and midsize businesses (SMBs).

That seemed an unusual decision given that any company with more than 50 employees won't be able to tap into Microsoft's lowest-cost Office 365 pricing plan, and given the number of enterprise customers that InformationWeek spoke to at the launch event. The speed with which enterprises move to cloud models, of course, will affect Microsoft's on-premises software business.

Office 365 replaces Microsoft's two-year-old Business Productivity Online Standard (BPOS) service, which was Microsoft's first response to Google and smaller service providers luring organizations to online email and collaboration services. Ballmer said today that Microsoft has been working on cloud-based computing approaches for at least six years, but his famous "all-in" declaration came only 15 months ago, and today's SMB spin seemed to underplay the potential for Office 365.

Office 365 is now generally available to organizations of any size, with a range of subscriptions and service levels available. Small firms with fewer than 50 employees will pay $6 per-user, per-month, while larger firms are likely to opt for a $16 per-user, per-month plan.

Office 365 is a more-extensive and better-integrated suite than BPOS. It combines the email, calendar, tasks, and contact functionality of Exchange Online, the document sharing and team collaboration of SharePoint Online, and the instant messaging, videoconferencing, and meeting capabilities of Lync Online.

By providing a richer set of services than its cloud-computing rivals, Microsoft hopes to retain customers that are looking to reduce software and hardware cost and re-allocate, if not cut, IT administrative resources. "It's about moving all that infrastructure out of the data center," said Alan Lee-Bourke, CIO at Scottish job-placement agency Wise Group and one of more than a score of Office 365 customers on hand at the launch event. Lee-Bourke said he eliminated an expensive AS/400 server when he migrated to BPOS two years ago, and he expects to eliminate a phone system and other systems with the upgrade to Office 365.

What most businesses are looking to move into the cloud is email management, the basis of Microsoft's lucrative Exchange Server business. Exchange has a worldwide installed base of more than 300 million mailboxes, according to Radicati Group, and it's the primary email system for more than 70% of organizations with more than 500 PCs, according to Microsoft.

Roughly three quarters of Exchange deployments are on-premises, but that business is declining as Google and others, including Zoho and IBM with LotusLive, are bringing business email online. Google's paid online Apps services, for example, now has a base of about 3 million customers and roughly 18 million mailboxes. That's tiny compared to Microsoft's scale, but Google's business is growing at a double-digit rate, a threat Microsoft can't ignore. Office 365 is aimed at stanching defections.

Office 365 Vs. Google Apps: Top 10 Enterprise Concerns
Office 365 Vs. Google Apps: Top 10 Enterprise Concerns
(click image for larger view and forslideshow)
Microsoft itself has been bringing customers online through conventional hosting and its BPOS service, but Office 365 is expected to quickly expand that business. More than 100,000 customers are testing the Office 365 beta, and more than 70% are said to be small or midsize companies. As of Tuesday, Office 365 emerges from beta and will be available in 40 major markets globally.

A key feature in Office 365 that BPOS lacked is Web-based Office apps that look and act like Outlook, Word, Excel, PowerPoint, and the other components of the Office suite (with licenses to the actual, device-installed Office software available as an upgrade to the Office 365 subscription). As demonstrated at Tuesday's launch event, the layouts of the Web-based clients mimic Microsoft's PC-installed software, and when you right-click on files and menu options, you get much the same functionality.

Familiarity of Office interfaces and workflows is a key selling point for Microsoft, one cited by Office 365 customer Robert Taylor, IT director at Hendrick Automotive Group. Hendrick has more than 7,000 employees across 75 dealerships.

In an interview with InformationWeek, Taylor said his users have plenty of interactions with Excel spreadsheets and Word documents that are generated, ingested, and otherwise integrated with Hendrick's customer relationship management (CRM) and financial reporting systems. With Office 365's Web apps, Taylor said users won't be forced to use unfamiliar tools, and integrations with mission-critical applications won't break.

Lee-Bourke of Wise Group said Office 365 offers better IT administrative control than the BPOS service he has used for two years and "revolutionary" support for collaboration among the firm's 500 employees. "The presence element pervades everything you do, so it puts the focus of the product on people," he said.

Lync presence awareness reveals who's online and available for instant messaging, who's on the phone, and, through Office 365 integrations with Exchange Online, who's available for meetings and who's out of the office.

There were plenty of small businesses represented at the Office 365 launch, but the larger companies had no less zeal to reduce software, hardware, and IT labor cost.

You can't afford to keep operating without redundancy for critical systems--but business units must prioritize before IT begins implementation. Also in the new, all-digital InformationWeek SMB supplement: Avoid the direct-attached storage trap. Download it now. (Free registration required.)

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