Tag Archives: office 365

The cloud permeates Microsoft’s business more than we may realise

I’m in the habit of summarising Microsoft’s financial results in a simple table. Here is how it looks for the recently announced figures.

Quarter ending September 30 2010 vs quarter ending September 30 2009, $millions

Segment Revenue Change Profit Change
Client (Windows + Live) 4785 1905 3323 1840
Server and Tools 3959 409 1630 393
Online 527 40 -560 -83
Business (Office) 5126 612 3388 561
Entertainment and devices 1795 383 382 122

The Windows figures are excellent, mostly reflecting Microsoft’s success in delivering a successor to Windows XP that is good enough to drive upgrades.

I’m more impressed though with the Server and tools performance – which I assume is mostly Server – though noting that it now includes Windows Azure. Microsoft does not break out the Azure figures but said that it grew 40% over the previous quarter; not especially impressive given that Azure has not been out long and will have grown from a small base.

The Office figures, also good, include Sharepoint, Exchange and BPOS (Business Productivity Online Suite), which is to become Office 365. Microsoft reported “tripled number of business customers using cloud services.”

Online, essentially the search and advertising business, is poor as ever, though Microsoft says Bing gained market share in the USA. Entertainment and devices grew despite poor sales for Windows Mobile, caught between the decline of the old mobile OS and the launch of Windows Phone 7.

What can we conclude about the health of the company? The simple fact is that despite Apple, Google, and mis-steps in Windows, Mobile, and online, Microsoft is still a powerful money-making machine and performing well in many parts of its business. The company actually does a poor job of communicating its achievements in my experience. For example, the rather dull keynote from TechEd Berlin yesterday.

Of course Microsoft’s business is still largely dependent on an on-premise software model that many of us feel will inevitably decline. Still, my other reflection on these figures is that the cloud permeates Microsoft’s business more than a casual glance reveals.

The “Online” business is mainly Bing and advertising as far as I can tell; and despite CTO Ray Ozzie telling us back in 2005 of the importance of services financed by advertising, that business revolution has not come to pass as he imagined. I assume that Windows Live is no more successful than Online.

What is more important is that we are seeing Server and tools growing Azure and cloud-hosted virtualisation business, and Office growing hosted Exchange and SharePoint business. I’d expect both businesses to continue to grow, as Microsoft finally starts helping both itself and its customers with cloud migration.

That said, since the hosted business is not separated from the on-premise business, and since some is in the hands of partners, it is hard to judge its real significance.

Microsoft unveils Office 365, wins vs Google in California. What are the implications for its future?

Today Microsoft announced Office 365, though it is not really a new product. Rather, it pulls together a bunch of existing ones: Business Productivity Online Suite (BPOS), Office Live Small Business, and Live@edu, the cloud  . It also impacts the desktop Office business, in that with at least some varieties of Office 365 subscriptions, users get the right to download and install Office 2010 Pro Plus edition.

This rebranding is a smart move. I have long been mystified by the myriad brands Microsoft users for its online offerings. I hope this will all integrate nicely with the new Small Business Server “Aurora”, a forthcoming version of SBS designed to bridge the cloud and the local network. If it does, this will be attractive for small businesses – who will pay $6.00 per user per month, we were told today – as well as for larger organisations.

Enterprises will pay between $2.00 and $27.00 per user depending on which services they buy, and can get extra features such as unlimited space for email archiving.

I also find it interesting that Microsoft has won what sounds like a bitter battle with Google for the migration of the State of California to online services.

Why would anyone choose Microsoft rather than Google for cloud services? Google was born in the web era, has no desktop legacy weighing it down, has helped to drive browser standards forward with HTML 5 and lightning-fast JavaScript, promotes open standards, and has a great free offering as well as subscriptions? Further, with Android Google has a fast-growing mobile platform which it can integrate with its services.

No doubt Microsoft can make a case for its cloud offerings, but I suspect a lot of it is the power of the familiar. If you already run on Office documents and Exchange email, moving to online versions of the same applications will seem a smoother transition. There is also the document format issue: you can import Office documents into Google Apps, but not with with 100% fidelity, and the online editors are basic compared with Microsoft Office.

When Microsoft seemingly had no idea what the cloud was about, it was easier for Google to win customers. Now Microsoft is slowly but surely getting the idea, and the value of its long-standing hold over business computing is being felt.

Google is also winning customers, of course, and even if you accept that Office 365 is the future for many existing Microsoft-platform businesses – and, Microsoft will hope, some new ones – there are still a host of interesting questions about the company’s future.

One is how the numbers stack up. Can Microsoft as cloud provider be as profitable as Microsoft has been with the old locally installed model?

Second, what are the implications for its partners? In today’s press announcement we were told that customers migrating to BPOS report a 10%-50% cost saving. The implication is that these companies are spending less money on IT than before – so who is losing out? It could be Microsoft, it could be hardware suppliers, it could be integration partners. Microsoft does include potential for partners to profit from Office 365 migrations, presuming it follows the BPOS model, but partners could still be worse off.

For example, if support requests diminish,because cloud services are more reliable, and if Microsoft does some support directly, there is less opportunity for partners support services.

Finally, what are the implications for developers? The main one is this. Organisations that migrate to online services will have little enthusiasm for locally installed custom applications, and will also want to reduce their dependence on local servers. In other words, custom applications will also need to live in the cloud.