December 01, 2011, 1:47 PM — Microsoft's declaration this week that Office 365 is enjoying unprecedented levels of sales success didn't fully convince some industry experts who were expecting the company to back up its claims with more concrete figures and who feel it's too early for a victory lap.
Office 365, a cloud collaboration and communication suite for organizations launched in June, is selling eight times faster than its predecessor, the Business Productivity Online Suite (BPOS), and is on track to become one of the company's fastest-growing products ever, Microsoft said on Tuesday.
Still, IDC analyst Melissa Webster was left wanting more specific data about Office 365's performance on the market.
"What Microsoft hasn't shared is user or revenue statistics, so it's hard to judge how much traction Office 365 is getting," she said via email.
Webster doesn't put much weight on the fact that Office 365 is proving much more popular than BPOS did. "When BPOS launched, interest in cloud collaboration solutions was only nascent, and Microsoft's offerings weren't easy to buy/consume SaaS [software-as-a-service] plays," she said.
Gartner analyst Matthew Cain views this week's announcement less as an organic consequence of early sales success and more as a competitive response to Google's Atmosphere conference, held two weeks ago and attended by about 350 CIOs from around the world.
At that event, Google announced product improvements and customer wins for Apps, its cloud communication and collaboration suite, which competes directly with BPOS and Office 365.
"Microsoft's Office 365 momentum announcements, which are clearly in reaction to Google's Apps momentum announcement, demonstrate the high-stakes game being played out for ownership of the enterprise collaboration cloud," Cain said via email.
Prior to the launch of Office 365, Microsoft was criticized for years for not having a strong rival to Google Apps and for being slow to catch on to the shift to the cloud model in business software, aimed at organizations that don't want to install and maintain applications on their own servers and end-user computers, preferring instead to access them via the Internet from vendors' data centers.
It's still not clear who will end up dominating this nascent market for cloud collaboration and communication suites, but Google Apps has been an option since 2007, and Google has been aggressively boosting its enterprise features in the past two years or so to attract the attention of CIOs and CTOs at large companies.
Of course, Microsoft has been a leader in the older and much larger market for communication and collaboration software that is installed on customer premises.
Both Office 365 and Google Apps offer a suite of email, calendar, office productivity software, IM and other tools hosted on their respective data centers, but they also differ in several ways, including most significantly that Google Apps is designed to be mostly cloud-based while Office 365 has been designed with a hybrid cloud/on-premise model in mind.
In other words, Office 365, which includes hosted versions of Office, Lync, SharePoint and Exchange, is designed so that it can leverage and interact with existing on-premise Microsoft software, especially the on-premise versions of those four main components.
As with most cloud software, Office 365 and Google Apps customers license the software on a subscription, per-user basis, paying either on a monthly or annual schedule. In addition, cloud suites like Office 365 and Google Apps claim to simplify and improve collaboration because files are stored on shared cloud servers where documents can be accessed by multiple users from anywhere and jointly edited.
This SaaS model, which reduces companies' upfront investment in software and hardware, as well as the time and effort involved in setting up and maintaining the applications, has been gaining popularity, especially among small companies with few or no dedicated IT staffers.
In fact, a big part of Microsoft's "momentum" announcement was devoted to trumpeting the fact that so far more than 90 percent of Office 365 customers are companies with 50 or fewer employees.
This factoid did resonate more with Webster. "The uptake so far from this new group of users -- who undoubtedly already had the Office desktop authoring tools, but hadn't stepped up to server products -- is promising," she said.
Nucleus Research, which has been contacting and surveying Office 365 customers, isn't surprised that smaller organizations find the suite appealing. "It gives them greater flexibility, access from anywhere and in many cases greater reliability than they'd have either running the applications on their own or with a separate hosting provider," said analyst Rebecca Wettemann.
