Microsoft Office 365 Signals Huge Cloud Shift - InformationWeek

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4/19/2011
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Doug Henschen
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Microsoft Office 365 Signals Huge Cloud Shift

More than 100,000 organizations are signed up to test the vendor's new on-demand platform, suggesting email and collaboration could overtake CRM as the top services-based app.

Microsoft's Office 365 productivity platform entered public beta on Monday, and the company says more than 100,000 would-be customers will test the online service within the next few weeks.

It's a powerful indication of the interest in on-demand email, collaboration, and communications, as delivered through Office 365's combination of online services: Exchange (email, calendar, and contacts), SharePoint (document sharing and team collaboration) and Lync (instant messaging, videoconferencing, and meeting).

Given Microsoft's dominant share of the on-premises email software market -- Exchange has a worldwide installed base of 360 million mailboxes, according to Radicati Group, exceeding 70% market share among businesses with more than 500 PCs, adds Microsoft -- Office 365 can't help but boost cloud computing adoption, even if customers end up using a competing service. Here's why.

Software-as-a-service (SaaS) email and collaboration alternatives have been around for years. In fact, Microsoft followed Google, Zoho, and smaller competitors into this market. Office 365 itself is a replacement for a jumble of existing Microsoft services, including the two-year-old Business Productivity Online Suite (BPOS), Microsoft Office Live Small Business, and the free educational service [email protected]

These options notwithstanding, CRM is currently the top SaaS application, used by 44% of businesses that use some form of SaaS, according to a 2010 survey by InformationWeek Analytics. SaaS email came in third, at 35%, behind Web-presence apps (for managing Web sites), used by 38% of survey respondents. Collaboration apps (including wikis and instant messaging) were a distant sixth, at 29% adoption among SaaS users.

These stats could change quickly once Office 365 debuts later this year, on a date yet to be announced. That's when tens if not hundreds of thousands of IT decision makers who sign Microsoft enterprise agreements will have a new option to migrate users online. To put the current SaaS mix into perspective, Salesforce.com, the market share leader in on-demand CRM, last reported slightly more than 92,000 customers.

Microsoft customers must currently license all their users for software and then pay a discounted "step-up" fee to add BPOS services. Setting cost differences aside for the moment, a change in the licensing approach with Office 365 will make an important psychological difference. For the first time, enterprise customers will see clear on-premises versus on-demand pricing alternatives as well as tallies of users in each environment. This alone will invite examination, even among risk- and change-averse IT executives who might not have otherwise investigated on-demand alternatives.

Bottom line: Microsoft's invitation to consider an on-demand alternative will have lots of fresh eyes looking at the cost of running email and collaboration software and underlying hardware on-premises.

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