Microsoft Office 365 could shrink partner business

Microsoft played up the partner advantages of Office 365 but will likely take much of the business direct.

Microsoft responded to Google Apps with Microsoft Office 365 on Tuesday, a hosted service due out next year that provides Microsoft Office, SharePoint Online, Exchange Online and more for a monthly subscription fee.

Playing up the advantages Office 365 gives partners, Microsoft said it will help gain business in new markets, particularly small businesses that can't afford to support a full Microsoft Office implementation. But, in reality, the software giant will take a lot of the Office 365 deals direct, said Rob Helm, an Office analyst with Kirkland, Wash.-based Directions on Microsoft.

"Even for companies with 3,000-plus seats, Microsoft is going to do most of the work themselves," Helm said. "Partners will kick in for some of the tasks Microsoft doesn't handle, but their role is shrinking more than ever."

From the partners' perspective, recurring revenue adds to the bottom line. However, compensating sales reps for this product may prove challenging.
Richard Ayarsexecutive VP, Custom Information Services

If Microsoft leaves the SMB market alone, as it usually does, Office 365 will be good for partners who work in that market segment, said Richard Ayars, executive vice president, Arlington, Texas-based Custom Information Services, a Microsoft Gold partner.

Office 365 is a similar sell to Microsoft's Business Productivity Online Standard (BPOS) suite, but it includes capabilities closer to what users get with local versions of Office than BPOS provides.

Subscription fees will range from $6 per user per month for very small businesses to an enterprise package that can cost up to $27 per user per month.

Questions remain about how sales will be supported in selling that subscription service.

"From the partners' perspective, recurring revenue adds to the bottom line. However compensating sales reps for this product may prove challenging," Ayars said. "As usual, this announcement creates more questions than answers."

But, in general, partners were pleased to see Microsoft come up with something that could keep customers from ditching Office for Google Apps, especially since Google recently enhanced its Apps offering more like Office.

"Office 365 is clearly something Microsoft has to have in the marketplace," said Dave Sobel, CEO of Evolve Technologies LLC, a Fairfax, Va.-based IT consultancy. "Office is a fantastic product, and very familiar to the majority of users. As cloud becomes viable for a portion of the marketplace, it makes sense for [Microsoft] to have a strong offering in the cloud."

Office 365 vs. Google Apps

Though this offering will help Microsoft compete against Google Apps, it won't shut Google out because even the small-business version of Office 365 is more expensive than Google's Cadillac plan, Google Apps Premium Edition. Google's premium version includes Gmail, Google Calendar and Docs, Google Talk, Google Video and Google Sites for $50 per user per year, plus a 99.9% uptime service-level agreement.

Microsoft Office 365 for small businesses with fewer than 25 employees includes Office Web Apps, Exchange Online, SharePoint Online, the recently announced unified communications suite Lync Online, and an external website for $6 per user per month, with a financially-backed 99.9% uptime guarantee. For 25 users, that's $1,800 per year, compared to $1,250 for 25 Google Apps Premium Edition users for one year.

Office 365 for midsized and large companies ranges from $2 per user, per month for basic email to $27 per user per month, depending on what the company chooses to include. The enterprise version offers Microsoft Office Professional Plus desktop software, email, voicemail, enterprise social networking, instant messaging, Web portals, voice and videoconferencing, Web-conferencing, 24x7 phone support, on-premises licenses and more.

In either case, Office 365 seems to make the most sense for small business that don't have IT support for a full Office 2010 suite and for customers with a good percentage of employees that work remotely or travel and need an online version of Office, Sobel said.

For those use cases, Microsoft partners said the pricing is reasonable, especially since Web Apps through BPOS is relatively expensive at $10 per user per month.

Many long-time Microsoft partners want to move more into richer-margin services but also still rely on product sales margin to fund their businesses. The transition from big upfront license sales to the more incremental monthly subscription fee is jarring to them, and for that reason they initially resisted Microsoft BPOS. However, over the past year, many are warming up to BPOS, saying that getting a small fee on inexpensive subscriptions is better than getting no fee on free consumer-oriented services.

Let us know what you think about the story; email Bridget Botelho or follow @BridgetBotelho on Twitter

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