The availability of Microsoft Office 365 may open a window of opportunity, but for whom?

19th September 2011

Microsoft Office 365 is not short of fans. Since its release in June, the successor to the MS Business Productivity Online Suite (BPOS) has become the productivity tool of choice for numerous organisations of all shapes and sizes. They include: Washington-based Affirma Consulting (‘our consultants will be more productive because of the capabilities and interoperability between Office Professional Plus and the Office 365 online services’); Honda cars in Singapore and Malaysia (it’s ‘familiar to employees’ and offers ‘seamless integration’); the London Borough of Ealing (‘it will provide web email to all users, improve security, and help us to better manage email archival’). Of course, not everybody is impressed. 

As expected, Google has taken a few sideswipes. ‘Office 365 is built for Microsoft. Google Apps is built for choice,’ says Shan Sinha, the Google Apps product manager who used to be director of strategy for Microsoft SharePoint. He also descibes Office 365 as ‘a repackaging of a lot of things that Microsoft already has’, though for many buyers and users, this is actually part of the appeal of MS Office. ‘You may be using Exchange in the cloud,’ he adds, ‘but you're still using Outlook on the desktop, and for collaboration, it’s still SharePoint,’ something he describes as ‘very clunky.’ Google has also noted that MS Office 365 is ‘optimised for Windows-based PCs and devices, and Google Apps are designed to work on any device or operating system’.

Attacking the legitimacy of the competition is unusual for Google, so maybe Office 365 prompted a brief bout of insecurity. Maybe not. ‘Office 365 puts Microsoft in Mortal combat with Google,’ says Matthew Cain, an analyst with Gartner, but it also ‘validates the model that Google has pioneered with Google Apps’, which might actually heighten interest in them, and eventually increase uptake of all sorts of cloud services. ‘The first ingredient we need for companies to wholly embrace cloud-based personal productivity and collaboration tools is time,’ he says, although he expects it to take three and five years to prove or disprove the soundness of the model in terms of economics, security, stability and functionality. 

Meanwhile, although Google and Microsoft are both hosting their productivity software in the cloud, they have taken different approaches. Because Microsoft sees Office 365 as an extension of its desktop productivity suite, and Google sees its apps as a replacement for desktop systems such as MS Office, this shows at a level that users will notice, and not necessarily appreciate. At the moment, for example, it isn’t possible to use Google Apps offline, but in response to market pressure (which may or may not extend to Office 365), the arrival of this functionality is apparently imminent. According to Google, users will soon have the ability to work as easily with Gmail, Calendar and Google Docs (word processor, spreadsheet, and presentation software), with or without an internet connection. 

Because the productivity tools in MS Office Web Apps (one of the many components in Office 365) are companions to Microsoft’s desktop productivity tools, (which are incredibly rich functionally), the cloud apps offer limited functionality. With Office 365 and MS Office Web Apps, you are not getting access in the cloud to the extensive functionality offered by the desktop versions of MS Excel, MS Word, or MS PowerPoint. So business buyers may want to check which functionality is essential to their users and which is not, before they decide which approach to take to providing remote access to MS Office – in particular, in scenarios where they already have a non-365 Office deployment in place. 

MS Office 365 certainly increases your options. You can choose from numerous variants of the Microsoft-hosted ‘plans’ (P1, K1, K2, E1, E2, E3 and E4), and most of them can be used instead of, or mixed with other approaches to providing remote and local access to Office tools. However, for small business users whose main exposure to software in the cloud has been through web-based email or web-based accounting software, the steps you need to go through to get access to Office 365 may seem rather complicated. As Microsoft has pointed out, Office 365 is about ‘software plus services’ not software as a service, and any organisation without in-house IT expertise is probably going to need external help, with even the basic P1 plan.

Those with existing non-365 deployments and access to IT expertise (either in house or from resellers) may also find that increased choice brings increased complexity. Enterprise level plans for MS Office 365 come in the shape of K1, K2, E1, E2, E3 and E4. Although they offer a wide range of functionality, admin tools, and rights to users, it’s worth noting that not all of the plans offer access to Office Web Apps, and not all of those that do include the capability to actually edit a Word document or an Excel spreadsheet online. Licensing can also be challenging, particularly when it comes to understanding the differences between MS Office as a ‘software product’ and MS Office as a ‘subscription service’. 

According to Microsoft, ‘the volume licensing of software makes it easier and more affordable to run software on multiple computers within a single purchasing organisation’. The licensing of software can be as opaque for cloud-based software as for desktop software, but the enterprise volume licensing arrangements for MS Office Professional Plus for Office 365 are so complex that explaining them requires a 7-page document. All of this goes some way towards explaining why Microsoft suggests that if you are a prospective buyer of Office 365, you may need one of its partners ‘to support your transition to the cloud by helping you to assess your needs, choose the right services, and provide add-on capabilities’. 

So you might think that MS Office 365 is an opportunity for Microsoft resellers to do what some of them do so well: add value. But not all of those that have done this for previous generations of MS products are sure if they want to for Office 365. ‘The economics for resellers are not what you would call exciting,’ one confides to FSN, whilst asking to remain nameless. He is alluding to the fact that in addition to providing the cloud for 365, in the case of around 42,000 ‘adviser partners’, Microsoft also supports and bills customers. Some advisers see their capacity to add value as ‘diminished’, and their relationship with customers ‘being hi-jacked by Microsoft’ or one of the ‘syndication partners’ that is also reselling Office 365. 

Syndication partners are typically large telcos and hosting companies. In their case, Office 365 is hosted by Microsoft, and the partner handles ‘tier 1’ and ‘tier 2’ support, whilst Microsoft picks up support that ‘escalates’ to ‘tier 3’. Syndication partners also set their own price for the Office 365-related services they offer, and (appropriately, of course) they can also bill the customer directly for this. In addition, they benefit from some financial incentives, including wholesale prices on Office 365, discounts on ERP software, and a performance rebate of up to 5 per cent. These partners also have significantly more Microsoft sales and marketing resources at their disposal than mere ‘advisers’.  

After referring a customer to Microsoft, adviser partners get a finder’s fee and a percentage of net sales value in year one, then quarterly payments (from Microsoft) on active seats – but only if the customer identifies the ‘adviser’ as the ‘partner of record’ (POR) on the deal, and only for as long as the partner retains POR status. Our mystery ‘adviser partner’ says that he can see the writing on the wall. ‘I think Microsoft will gradually transition to direct sales,’ he predicts, which some observers claim is highly unlikely. I couldn’t possibly comment. But I can remember a time when developers of accounting software were convinced that Microsoft wouldn’t move into direct competition with them, either; so who knows.