Microsoft Takes to Cloud to Defend Its Office Business
By STEVE LOHR
New York Times
June 27, 2011
People like Tom Conophy are stirring anxiety — and action — in Microsoft’s executive offices these days.
Mr. Conophy, the chief information officer of the InterContinental Hotels Group, decided earlier this year to begin moving nearly all the company’s 25,000 office workers off Microsoft’s e-mail and Office productivity applications and onto Google’s Web-based alternatives.
About 6,000 employees in the hotel management company have converted so far, Mr. Conophy says, and things are going well. The savings, he estimates, will add up to millions of dollars a year. And Google’s online offerings, he said, have improved steadily since it entered the business market four years ago.
“We could do this now because the Google cloud apps are ready for prime time,” Mr. Conophy said.
Halting such defections is a top priority at Microsoft. Its response arrives Tuesday, when the company begins selling Office 365, a cloud-based version of Microsoft’s e-mail, whiteboard collaboration software and word processing, spreadsheet and presentation programs. The marketing campaign will begin with a presentation in New York by Microsoft’s chief executive, Steven A. Ballmer.
Like Google Apps, the new service is run in the cloud — remotely in data centers — and users tap in from an Internet-connected browser on a personal computer, tablet or smartphone.
Microsoft’s long-awaited move, analysts say, is a studiously crafted bet, including various offerings at different prices. They are not sure whether it represents wishful thinking or a workable strategy. Microsoft’s plan is to embrace the demand for cloud-based tools for office workers, which promise to be less costly for companies than conventional software, and yet avoid cannibalizing a business that is its biggest single money-maker.
“If Microsoft stumbles, it really opens the door to Google,” said Matt Cain, an analyst for Gartner. “It’s a tremendous long-term threat to Microsoft and its Office franchise.”
The Microsoft unit that includes the Office family of products is a $20 billion-a-year business with pretax profit margins of 60 percent. The business is even larger than the company’s other big profit engine, the Windows PC operating system.
Google portrays the arrival of Office 365 as an endorsement, if not a capitulation. “This is a recognition that our business is for real,” said David Girouard, president of Google’s enterprise division. “We’re really helped move the needle in the marketplace.”
The company now claims more than 30 million active users of Google Apps, its collection of online office productivity and communications programs. But about 12 million of those users are university staff and students, who typically get free access to the apps. The standard charge for business and government customers is $50 per user a year. Google will not disclose how many customers pay that fee.
It does say it is gaining momentum. Just this month, Google announced a series of large converts. The National Oceanic and Atmospheric Administration, the federal agency that conducts climate and ocean studies, with 25,000 employees, is adopting Google Apps. Others include the State of Wyoming, with 10,000 workers, and the McClatchy Group, a publishing chain, with 8,500 workers.
The subscription renewal rates to Google Apps, Mr. Girouard said, are higher than 90 percent and for larger companies the rate is nearly 100 percent.
There are other cloud-based business e-mail, productivity and collaboration tools including entries from Zoho, Zimbra from VMware, Lotus Live from I.B.M. and Chatter from Salesforce.com.
Yet Google, analysts say, is the main rival that Microsoft has in mind with Office 365. “There’s no doubt that the increasing popularity of Google Apps has forced Microsoft’s hand,” said Melissa Webster, an analyst at IDC. “But Microsoft is really embracing the cloud now. This is the other shoe dropping.”
At $50 a year, Google’s pricing seems far more appealing than the standard price for the Office PC software, from $200 to about $400, depending on features. Office 365 prices are from $2 per user a month to $27 per user a month. The $2-a-month service is just e-mail and is intended for companies that want to extend communications to employees currently not served, like factory workers. The $27-a-month offering is for all the online features, including Web conferencing and digital whiteboards for team projects, and a license to the most powerful version of the Office personal computer software.
A $6-a-month offering is aimed at extending Microsoft’s e-mail server services and collaboration tools, like SharePoint, to small businesses. These small businesses typically have the Office PC software, but not the related software, analysts say.
With cloud-based versions of Word, Excel and PowerPoint, plus several new communications and collaboration tools, that offering could be quite appealing, analysts say. The price, at $72 a year, is somewhat above Google’s, but it carries the Microsoft name and familiarity. “It could be a lot of net new business, and stable recurring revenue, if Microsoft can pull it off,” Ms. Webster said.
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