There has been a lot of buzz surrounding the cloud lately, and last month Microsoft made a milestone decision. The software giant rolled out a web-based version of its flagship Office productivity software in 40 countries, thus offering a very good combo of an already established product and the usual benefits that come with cloud deployments. Microsoft’s main target audience will be the SMBs market.
The company has a fair share of competition to tackle with its newly launched product, most notably Google Apps. Google Apple has been around for about 4 years now and has 18 million paying users according to company reports, but Office has been around for much longer with a much bigger customer base. This pre-cloud customer base will likely account for a very sizable portion of the Office 365 customer base. Why? Because enterprises are looking to realize value, and Microsoft’s new service is specifically designed to work and complement existing Office deployments (preferably Office 2010.) One aspect of that is that employees are familiar with the software, and will be comfortable working with the service. The same may not be the case with other services, which may require training and expenditure to drive in-house adoption.
Microsoft’s existing share of the desktop productivity software market is also the reason 20 resellers including Intuit and Vodafone have already started selling O365, but Office 365 has several other benefits as well. At $2/user to $27/user per month for enterprises, a business with 100 users would have to spend $32,400 a year on Office 365 compared to the $49,90 100 Office 2010 licenses retail for, and Microsoft will be making money from the second year onwards.
From the client perspective, reduced overheads on software the company already leverages can be turned into a very good opportunity. From Microsoft’s end, Office 365 solves a lot of things on the long run.
One of the first things wider adoption of O365 will drive is a drastic reduction in piracy. The cloud service, more affordable than the standard pricey licenses, will give the software maker some control back over a topic that has accounted for fairly large losses the years. Secondly, SaaS is a highly lucrative market – Microsoft should be able to achieve the average industry margins of 75 to 85 percent. And lastly, as Seeking Alpha’s Rash Menaria highlighted, O365 is a doorway for the company to establish if not shift entirely to a subscription model over time, consequently ensuring recurring revenues.