Microsoft Office 365 debuts with small-biz focus
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Microsoft CEO Steve Ballmer introduces Office 365, Microsoft's cloud-based Office suite of products in New York City.
Microsoft took the beta tag off Office 365, launching the product at a New York City event today hosted by Chief Executive Steve Ballmer.

The new product is the software giant's effort to bring Web functionality to its widely used desktop applications as well as server products that are found primarily in large enterprises. Microsoft is betting that by offering products such as its Exchange e-mail server and its Lync online communications technology as Web services, it can expand the market to small and midsize businesses that don't have IT staffs and have traditionally shied away from those products.

Microsoft is doing that by hosting the service remotely on its servers and charging customers a monthly subscription fee. More than 20 telecoms are also partnering with Microsoft to package and sell Office 365 with their own services to small and midsize businesses.

"With Office 365, people can stay connected with instant messaging," Ballmer said at the launch event. "With Office 365, people can work together on files and documents simultaneously."

Office 365 is available in 20 languages and in 40 countries.

That's a key opportunity for Office, which is used by more than a billion people worldwide. Microsoft's Business Division, of which Office is the largest component, is the company's largest, expected to generate more than $21 billion in the fiscal year that ends June 30. And even though it should grow at close to 12 percent, the division is doing so in a largely saturated market.

The constant challenge for Office is to find new users. Office 365 makes the company's server products available to businesses that otherwise couldn't afford the cost or complexity of them.

"It's exciting to imagine the possibilities, particularly for the companies that have little or no IT support," Ballmer said. "Office 365, where Office meets the cloud, is a big step forward."

With Office 365, employees can collaborate on a Word document online, reading and editing it at the same time. They can share PowerPoint presentations, updating them from a browser on mobile phones. Users can see from inside an e-mail which recipients are online and quickly launch a video conference to include them.

Microsoft announced plans to launch Office 365 last October. In April, it opened up a beta version of the product to the public. The company said that more than 200,000 customers have been testing the service, and that some are reporting technology cost reductions of 50 percent.

Scripps Networks, which owns such lifestyle channels as the Food Network, HGTV, and the Travel Channel, was one of those beta customers. The company's 2,000 employees all use the Office 365 predecessor, the Business Productivity Online Suite. Chris Roberts, Scripps Networks senior manager for information security, said the new service feels more intuitive.

"To me, it seems cleaner," Roberts said. "It's hard to imagine you're in a browser. It feels like you are in the client application."

Competition from Google
While Office is widely used, it's faced growing competition online from Google, whose Google Apps service has steadily added users. Though its customer base is beyond tiny compared to that of Office, the service, which offers e-mail, word processing, and calendaring applications, has landed some marquee customers in recent months, such as Genentech, the city of Los Angeles, and Virgin America.

Google used the Office 365 launch to pitch Google Apps, suggesting that Microsoft was trying to update outdated products.

"You can't just take legacy, desktop software, move some of it to a data center and call it 'cloud,'" Google Apps Product Manager Shan Sinha wrote in a blog post. "Apps was born for the Web and we've been serving hundreds of millions of users for years."

One advantage that Google Apps offers is price. Google Apps costs $50 per user per year. Office 365 has a more complex pricing structure that starts at $6 per user per month for e-mail, Web-based calendaring and contacts, and collaboration software. (Larger businesses can pay just $2 per user per month for just e-mail services.) The most expensive flavor, which includes management features as well as voice and video communications services, runs $27 per user per month.

Microsoft believes the familiarity of Office, as well as its track record as the longtime market leader in productivity applications, will be enough of a lure for customers. And Ballmer said the subscription fees are a price small and medium-size businesses can "predict and afford."

"Google is a search and advertising company," said Clint Patterson, the communications lead on Office 365. "We have thousands and thousands of people who sleep, eat, and drink productivity apps every day."

Lync is a key high point in Office 365

After more than eight months of hype from Microsoft and analysis, Microsoft's cloud-based productivity suite, Office 365, formally goes live Tuesday with Microsoft launch events from New York and around the world.

As usual, opinions are varied on whether Microsoft's second take at a cloud-based productivity suite meets the mark or is doomed to total failure. Some have lambasted it as too expensive when compared to competitor Google Docs, others have proclaimed it virtually cost free.

Much attention has been paid to the core features of the cloud software suite, the hosted Exchange functionality that is essentially a refresh of what Microsoft had to offer with its horrifically named Business Productivity Online Suite or BPOS. But there are some interesting new offerings within the Office 365 family, features and capabilities that deserve a discussion of their own.

One of the biggest new additions to the suite is the inclusion of Microsoft Lync in Office 365. Lync is Microsoft's rebranded and revamped Office Communications Server, its instant messaging, audio and videoconferencing product.

Lync is an intriguing addition to the suite. In a time when more small businesses are virtual, on the road or otherwise physically separated from each other, a slick and integrated real time communications tools is a must.

There are many other tools used by small businesses for web-based audio and videoconferencing, with Skype chief amongst them. But with Skype's impending purchase by Microsoft likely leading to a Skype-Lync integration, Microsoft should be able to find ways to make the more robust Lync offering more interesting to customers.

Already it offers a seamless integration with the Exchange and Outlook messaging stack, giving Outlook users the ability to find out the availability of contacts and connect right from the e-mail client that so many knowledge workers call their day-to-day home.

It also offers IT the capability to get some control over what instant messaging is being used by employees, which is important as comparatively high bandwidth video options gain prominence. And for staff that need to make connections outside of the enterprise, it offers an easy connection to Microsoft's consumer-grade IM product, Windows Live Messenger.

Lync is far from being WebEx, must less TelePresence, when it comes to multimedia conference, but it does represent a "unified communications for the rest of us" offering for small businesses, offering a balance of consumer and enterprise features with appropriate IT oversight.

But it's the Office 365 monthly subscription model that really makes it shine as part of the larger suite. Unified communications is one of those deployments that many businesses would benefit from but never seem to get around to because of architectural complexity and expense. Moving it from capex to opex make it a much more achievable goal.

However Lync is not perfect for the enterprise on the go, especially not today. For businesses that have standardised on Windows Phone 7 (both of you), you're in good shape. For the rest of us, getting Lynced up on the go may be a bit more of a challenge. There's a BlackBerry version available as well. Microsoft has pledged support for a variety of other platforms, including iOS and Android, by the end of the year.

There are other differentiators for Office 365 as well, with SharePoint clearly chief among them. Microsoft's polarising intranet portal software is the company's fastest product ever to $1 billion in revenues, and Microsoft seems to be constantly reminding its partners that it has more demand for SharePoint deployments than it does partners to do such deployments.

But on the other hand, it's been criticised as too complex for small businesses, a very powerful tool that builds that power at the expense of simplicity and usability. However, with Office 365's backend tools, perhaps things will be a little easier for the smaller customer.

Microsoft Office 365 goes live

"Office 365 is where Office meets the cloud," Ballmer said at an event in New York.

Office 365 is the next version of the BPOS (Business Productivity Online Suite) collaboration and communication suite. Among the main improvements in Office 365 is that its applications, including Exchange Online and SharePoint Online, are based on the 2010 version of their on-premise counterparts, while BPOS' are based on the 2007 version. Office 365 also comes with Lync Online, which is an upgrade to Office Communications Online.

Also significant is that Office 365 offers customers the option to have Office productivity applications like Word and Excel either through Office Web Apps -- the online version of Office -- or through the full-fledged, on-premise Office Professional Plus 2010 delivered via a subscription model.

Office 365 comes in a variety of configuration options, starting from an e-mail only version that costs $2 per user, per month, to the most sophisticated option with Office Professional Plus and voice communications capabilities with Lync Server on premises, which costs $27 per user per month. Lync Server is the next version of Office Communications Server. A version tailored for small businesses with 25 or fewer end users costs $6 per user per month.

Ballmer stressed that Office 365 is designed for businesses of all sizes. More than 70 percent of the about 200,000 companies that beta-tested Office 365 were small and medium-size businesses, he said.

Officials demonstrated Office 365 capabilities, like the ability for multiple users to jointly collaborate and edit documents in real time, not only from PC browsers but also from mobile devices.

"Collaboration is critical for business growth," Ballmer said.

Microsoft also announced that Bell Canada, Intuit, NTT Communications, Telefonica, Telstra and Vodafone are some of the partners that will resell Office 365 with their own services.

With Office 365, Microsoft is responding to an explosion in recent years of cloud-based enterprise collaboration and communication suites from a variety of large and niche vendors alike, including big names like Google, Cisco, IBM, VMware and Novell and specialists like Jive Software, Socialtext, and Zoho.

The primary competitor is Google's Apps suite, which industry experts consider the biggest threat to Microsoft's communications and collaboration products, both on-premise and on the cloud.

Since the announcement of Office 365 in October of last year, expectations have been growing, and Google has been intensifying its competitive rhetoric.

"While Office 365 does put Microsoft in mortal combat with Google, it is not really an existential threat for Google since Microsoft is essentially validating the model that Google pioneered with Google Apps. I would expect that Office 365 actually heightens interest in Google Apps," Gartner analyst Matt Cain said via e-mail.

Ultimately, time will tell how successful the concept of cloud-based productivity and collaboration tools ends up being. "Time, 3-5 years, will prove or disprove the soundness of the model in terms of economics, security, stability and functionality. The first 20 percent of the business community that moves to the cloud will act as a proxy for the rest of the business world," Cain said.

In recent months, Microsoft has struggled with several major outages affecting BPOS, which have made some critics question whether Microsoft will be able to live up to its 99.9 percent uptime service level agreement for Office 365.

With Office 365, Microsoft is also trying to consolidate the branding and technology base for various cloud-based suites it has developed in recent years, such as BPOS, Office Web Apps and Live@edu.

Overall, Office 365 will offer hosted productivity applications -- word processing, spreadsheet and presentations -- e-mail, calendar, contacts, instant messaging, Web meetings, videoconferencing, intranet and website creator tools.

Office 365 has also been designed to interact natively with the on-premise versions of SharePoint, Exchange, Lync and Office.

Forrester Research analyst T.J. Keitt calls Office 365 "a solid entry" in the cloud collaboration software suite market whose functionality is either on par with or exceeds that of rival products.

In addition, the different Office 365 options let Microsoft position it for small and medium-size businesses as well as enterprises, where IT administrators get flexibility over the amount of functionality they offer to different types of employees, he said via e-mail.

"There are obviously issues of feature parity between Lync Online, SharePoint Online and Web Apps, and their on-premises relatives, but Microsoft promotes a hybrid model -- keeping some stuff on-premises -- that will let enterprises be strategic in what they move to the cloud," Keitt said.

Existing BPOS customers have a window of 12 months to migrate to Office 365, a process that Microsoft maintains will be straightforward, even for small businesses.

However, Office 365 doesn't work with some older Microsoft desktop and server software that BPOS still supports, so customers, especially those who want Office 365 to interact with on-premise Microsoft applications, will likely face the need to do software upgrades.

For example, Office 365 can't be used with desktop Office versions earlier than Office 2007 SP2, which means it doesn't work with Office 2003 and Outlook 2003.

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