Microsoft has announced a major rebranding of its cloud computing services bundle targeted at knowledge workers. Based on the former Business Online Productivity Suite (“BPOS”) and a handful of other online initiatives, the new Microsoft Office 365 combines existing Exchange Online, SharePoint Online, Lync Online (formerly Office Communications Server Online) and Office Web Apps online services. New to the lineup however is the option to license the desktop version of Microsoft Office Professional Plus as part of the Office 365 subscription, rather than buying the product at retail or subscribing via Software Assurance. This not only applies to traditional knowledge workers, but a new “Kiosk Worker” bundle with Office Web Apps could prove to be very disruptive to the desktop productivity software market.
Microsoft has been slowly building its cloud strategy for years, culminating with dedicating two massive data centers in the US and EU to cloud operations. This has been a wise strategy for Microsoft, not only to compete with Google and IBM cloud initiatives, but to exploit the growing acceptance among organizations of cloud-based applications to support a variety of knowledge worker requirements. These include email, real-time collaboration, team support, content creation and management and cloud based end user storage. Indeed, recent Info-Tech surveys indicate that only 1% of Microsoft Office clients actually end up switching from Office to competitors like Google Apps. However, a full 14% of organizations currently using MS Office said they do intend to use MS Office 2010 Web Apps in some fashion.
Our research also suggests that organizations are re-evaluating continued investment in on-premise email platforms. Small enterprises stuck on Exchange 2003 are examining cloud-based email as a way to avoid migrating to the more complex, multi-server Exchange architecture introduced with Exchange 2007 and continued with Exchange 2010. Medium and large sized organizations are actively performing calculations to compare the total cost of ownership of on-premise email systems to multi-tenant SaaS options, hosted single-tenant options and even traditional managed hosting. An Info-Tech survey, conducted when Exchange 2010 was released, revealed that 16% of organizations planning to upgrade to Exchange 2010 had already decided to deploy it off-premise.
These trends illustrate that that the MS Office 365 initiative is not just about competing with Google. Instead, MS Office 365 addresses real market trends that indicate organizations of all sizes are seriously considering cloud-based deployment options for knowledge worker software and services in general, regardless of provider. Demand for the knowledge worker software cloud pie is growing and there will be hefty slices available for multiple vendors.
Less clear though is the market demand for buying MS Office 2010 Professional Plus as part of a monthly Office 365 subscription. Microsoft has stated that the Office Professional Plus desktop products will be available for $24 per user per month, INCLUDING email, voicemail, “enterprise social networking,” instant messaging, Web portals, extranets, voice and video conferencing, web conferencing and 24/7 phone support. While Info-Tech research indicates that the majority of organizations stay at one version of MS Office for 5 years, this bundled Office 365 pricing is very compelling, especially for small enterprises.
As part of Office 365, Microsoft is also offering an even less expensive new bundle for “Kiosk Workers,” those workers who are not knowledge workers but who are instead driven by process, such as manufacturing and operations employees and spend 5-10% of their time on a PC. Info-Tech’s recent research on switching office productivity suites confirms that as many as 20% of organizations have an opportunity to deploy lower-cost or free office products (e. g. Open Office) while keeping the more expensive MS Office for true knowledge workers. Our research also confirms that vertical industries with lower ratios of knowledge workers to process workers, such as manufacturing and retail, are more likely to switch from MS Office to Google Apps or Open Office than other industries with high ratios of knowledge workers to process workers, such as financial services and professional services. We believe the new Kiosk Worker bundle will be extremely disruptive in the office productivity cloud software market.
For now, Info-Tech recommends the following to organizations that are interested in MS Office 365:
1. Organizations on Exchange 2003 must evaluate all off-premise options for Exchange before upgrading to an on-premise version of Exchange 2007 or 2010. Small enterprises in particular will find Exchange 2007 and 2010 more complex than Exchange 2003, so Exchange Online is an attractive upgrade solution for these organizations.
2. Organizations that decide to deploy Exchange off-premise should consider adding SharePoint Online to their Office 365 package to support teams with content and collaboration services. However, Info-Tech is concerned that most organizations have not yet created SharePoint development and governance strategies. Deploying SharePoint off-premise does not diminish the need for these strategies, but instead makes them all the more imperative to have in place.
3. Unlike SharePoint Online, Lync Online should not be considered as an a la carte add-on to Exchange Online. Instead, organizations need to have a mature unified communications (UC) strategy in place and be at the point of implementation before adopting Lync Online.
4. Leasing Office Professional Plus through Office 365 is a good deal for small enterprises. Organizations with a ratio of knowledge workers to process workers of 80% or less should investigate the new Kiosk Worker option for targeted deployment to eligible process workers.