August 28, 2012, 3:05 PM — Office 365 celebrated its first birthday in July, and the cloud service has attracted an impressive list of educational customers over the last year. But when it comes to gaining traction in the enterprise, the picture is far less encouraging for Microsoft.
That's not to say that Office 365 has been a failure--far from it: Microsoft recently introduced its Office 365 service to 46 new markets, and it has been adopted by high-profile conpanies including Burger King, Japan Airlines, Hallmark Cards and Origin Energy.
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Despite those marque wins, overall enterprise adoption has been sluggish, and a round of price cuts of up to 20% in March--perhaps in response to Google's aggressive pricing for the cloud-based Google Apps service--has so far failed to make much of an impact.
Anecdotal evidence suggests that not surprisingly Office 365 is faring best in the small office / home office (SOHO) market. Yet despite the big names that have adopted the service, Microsoft has found the enterprise market a far harder nut to crack. "Microsoft is certainly not happy with the speed that Office 365 is being taken up in the enterprise--it has fallen short of the company's expectations for the service," says Hans Koehler-Kruener, a research director at Gartner.
For many enterprises, the potential cost saving of moving to Office 365 are simply not enough to offset the time and effort of migrating to a cloud-based system, says Wes Miller, an analyst at Directions on Microsoft. "The migration is costly, complex, and fragile--and risks downtime with some of the most important services within an organization," he says. "These can't be underplayed, and for a lot of organizations, it just isn't worth the pain of migration to save the money."
Miller says it typically takes more than two years to recoup any operational savings following a migration to Office 365, and pointed out that projects that risk so much near-term disruption for gains that far into the future are unlikely to be a high priority for many CIOs. "In many ways, Office 365 suffers from the fact that the on-premises services are "good enough," and the operational costs are already understood and part of the organization," Miller says.
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