The appeal of Microsoft Office 365 as an alternative to on-premise productivity and collaboration applications is growing among small businesses, Microsoft cloud services partners said.
This shift to Office 365 allows solutions providers to focus more on higher margin services and other technologies, as opposed to hardware selection and other services associated with traditional on-premise deployments.
"Now we can spend time on customizing the environment and really making it work for the small business," said Jennifer Mazzanti, president and co-owner of eMazzanti Technologies, a Hoboken, N.J.-based IT services company.
Microsoft Office 365 is the "great equalizer" because it allows a small business to act like an enterprise without investing as heavily in operational costs, she said. Offloading small and medium-sized businesses (SMB) customers onto Microsoft's cloud infrastructure also helps them concentrate on higher level skills.
"There are very few specific functional or feature requests that cannot be supported in Office 365, unless someone has specific legal liabilities," said Chris Hertz, CEO of New Signature, an IT services company in Washington, D.C. "Increasingly, the decision is to go to the cloud, especially among SMBs who have struggled to maintain infrastructure in-house."
Microsoft has been mum about adoption rates, but it has said that 90% of Office 365 customers come from among SMBs. New Signature recorded overall revenue growth of 60% from July 2011 to July 2012, and Microsoft's cloud business was a huge contributor, Hertz said.
InfinIT Consulting, a Microsoft partner in San Jose, Calif., pitches the service to every SMB customer, said Jerod Powell, CEO and founder. Microsoft's recent updates to the Office 365 compensation structure are a play to convince more channel partners to do the same. Under Office 365 Open, solutions providers can now bill customers directly, addressing a common complaint among Microsoft partners that selling the company's cloud services was akin to ceding account control. The program also boosted margins to 23% for deals of at least 2,500 seats, but it cut fees for renewals from 6% to 4%.
Despite those changes, some traditional partners remain unconvinced that Microsoft's cloud offering is appropriate for every customer.
Some small businesses are skeptical that paying a perpetual lease for software is cost-effective, said Joe Balsarotti, president of Software To Go, an IT services company in St. Peters, Mo. Even though the company has listened to Microsoft's cloud pitch and invested in basic training, the model doesn't make sense for its existing accounts, he said.
"Seriously, our client base is mostly profitable, established businesses with less than 20 machines," he added. "Their owners could care less about 'upgrade cycles' or the latest version of anything. All they want is a stable tech environment that does not get in the way of their business."
Another challenge for some SMBs may be one of infrastructure. For example, some of Software To Go's clients still don't have enough bandwidth to run cloud solutions effectively.
"A handful of our rural clients still have dial-up because no affordable broadband exists," Balsarotti said.
About the expert
Heather Clancy is an award-winning business journalist in the New York City area with more than 20 years' experience. Her articles have appeared in Entrepreneur, Fortune Small Business, the International Herald Tribune and The New York Time. Clancy was previously editor at Computer Reseller News, a business-to-business trade publication covering news and trends about the high-tech channel.
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