Microsoft Office 365—Innovator’s Dilemma?
Are you ready to migrate your business’ desktop productivity to the cloud? In the past two and a half years Microsoft has built an integrated suite of cloud Office productivity products that far surpasses its closest rival, Google Apps, in capability. Yet, while the press hype for Microsoft’s cloud strategy is all positive, one has to wonder if Microsoft is fully committed to a complete cloud-based software delivery model that might well cut into its bread and butter desktop software business.
Recent cuts to Microsoft’s partners’ Office 365 sales commission structure might be an indication that Microsoft is hedging its bets on a product that is sure to cut in to its revenues from the traditional desktop applications and affect the future profitability of its large network of technology partners.
Microsoft has long been the leader—one could even argue the inventor—of the desktop productivity suite, the business workhorse combination of word processing, spreadsheet, lightweight database, and presentation tools software.
Office 365 is an innovative new way of delivering these services that goes beyond that core functionality to include full integration with other useful business systems software—such as SharePoint collaborative file sharing, Lync (formerly Microsoft Office Communicator) instant messaging, video conferencing and telephony, and Exchange Online email services.
Google Apps is making inroads in the online productivity suite market, but currently its tools—other than the mail client and scheduling platforms—are not even close to the functionality that Microsoft has been delivering for years.
Released in June 2011, Office 365 is now—thirty months later—officially the fastest growing Microsoft product ever. Office 365 has much appeal to the enterprise that wants and needs all the feature bells and whistles.
Typically enterprises roll any desktop software upgrades into their general technology refresh programs. So as the global economy continues to climb out of this long recession, companies have been migrating to Office 365 at a rapid clip. All this looks good on paper, but remember that most enterprises are already paying for Office on a subscription basis—have been for years—so the conversion to Office 365 for the most part does not represent net new revenues.
While the total number of subscriptions sold has not been published, as of 2013 the product is already generating a healthy $1.5 billion in annual revenue—a number that is sure to grow significantly in the next few years. However take any revenue projection with a bit of caution, because it is unclear how many of those Office 365 sales represent net new customers for Microsoft.
To achieve real revenue growth, Microsoft has to address the long tail market of the small and medium-sized businesses and mid-sized companies that for the most part are clinging to their older hardware platforms and antique on-premises versions of Office, Exchange, and Small Business Server. That group is going to be a harder sell, because, until their server hardware breaks, their costs for maintaining the current systems are close to nothing.
Convincing this target market to start paying an annual subscription for Office 365 plus the additional costs for more network bandwidth to support a cloud model—without any obvious advantage or appealing features—is going to be a hard sell indeed.
