A mixture of intense excitement and skepticism followed the launch a year ago of Office 365, as backers and critics debated whether the cloud collaboration, productivity and communication suite would succeed.
Skeptics said Office 365 was arriving too late as a unifying and superior replacement to weaker and disjointed offerings like Business Productivity Online Suite (BPOS), Office Live Small Business (OLSB) and Live@edu.
Microsoft and its supporters countered that it was still early days in the cloud collaboration, productivity and communication market, and that Office 365 would tower over competitors like Google Apps.
One year later, it’s hard to say whether Office 365 has been a success or a failure, and Microsoft isn’t making the task easier.
“We’re not breaking out customer, user, or revenue numbers at this time,” a spokeswoman for the company said via email, when asked for concrete metrics about Office 365’s sales and adoption. She reiterated the “momentum” statement Microsoft has made previously that Office 365 is “on track” to be one of the “fastest growing offers” ever for the company.
One thing seems clear: Office 365 hasn’t blown competitors out of the water.
“It hasn’t swept the market by storm,” said IDC analyst Melissa Webster.
She expects Microsoft to release concrete data about Office 365 sales once the product makes significant revenue contributions.
“They’ll give metrics when the metrics are meaningful, demonstrating scale and depth,” she said.
Beyond its ability to dominate — or not — the market, Office 365’s success will also be measured against other criteria.
For starters, Office 365, whose most common configuration includes online versions of Office, SharePoint, Lync and Exchange, must help Microsoft make inroads into the small-business segment.
There, most prospective customers have lacked the money and expertise to buy and install in their offices products like Exchange, SharePoint and Lync.
It was in this underserved segment where Google Apps found most of its customers the first three or four years after its launch in 2007, attracting them with a free suite that included email, calendar, IM, productivity applications, a website builder and, for US$50 per user, per year, additional features, including IT management and security features.
Microsoft’s offering, the free Office Live Small Business (OLSB), which focused on website hosting and email, couldn’t hold back Google Apps, which currently is used by 5 million businesses, 66 of the largest 100 U.S. universities and government agencies in 45 of the 50 U.S. states.
It seems in this respect, Office 365 has been effective. According to Microsoft, more than 90 percent of Office 365 customers are small businesses with 50 or fewer employees.
“So many of these wins are new customers for Microsoft,” Webster said.
Suites like Office 365 and Google Apps, which are either free or moderately priced on a monthly or annual subscription model, give many small and medium-size businesses the opportunity to have better email and collaboration software than they’ve been able to afford, and because the applications are hosted and managed by vendors, with much less IT maintenance work, she said.
“Smaller companies can have the same type of environment major corporations give their employees,” she said. “That’s a huge sea change.”
“A real strength of Office 365 is its breadth — voice, conferencing, document collaboration, email, calendar — everything the knowledge worker needs,” she added.
However, it hasn’t all been rosy. Many OLSB customers, faced with a recent deadline to migrate to Office 365 or to another website and email hosting provider, complained that Microsoft could have made the transition smoother.
In discussion forums, blogs and other outlets, upset OLSB users said Microsoft should have automated and handled more of the work, and provided migration tools, especially to transfer websites.
Similar complaints have been voiced by some Business Productivity Online Suite (BPOS) customers regarding their move to Office 365. BPOS was aimed at midsized and large companies, and included online versions of SharePoint, Exchange and Lync based on their 2007 editions. It also lacked Office Web Apps, the Office online version. By contrast, Office 365’s components are based on the newer 2010 editions of the products.
“Yes, I heard from some smaller businesses I’ve talked to that Microsoft could have done more to automate the migration process,” said Michael Fauscette, an IDC analyst. “Microsoft could have made it easier.”
With the recently launched Office 365 for Education, schools and universities that have been using Live@edu will have to engage in a similar transition over the next 18 months or so, so it remains to be seen whether these customers also raise objections to the process.
“You’d hope that Microsoft has learned from the feedback it’s gotten about this over the past year now that the Live@edu migrations are starting,” Fauscette said.
Because Office 365 was designed to work in hybrid cloud/on-premise environments and to thus be able to interact with on-premises instances of Outlook, SharePoint, Office, Exchange, Lync and other Microsoft products, it often requires on-premises upgrades to desktop and server-side software.
The statistic that more than 90 percent of Office 365 customers are small businesses also raises the question of whether Office 365 has been successful in a different but critical mission: protecting Microsoft’s vast installed based of Exchange/SharePoint/Lync/Office on-premises customers as they move to a cloud model for email, productivity apps and collaboration.
“Every CIO in the world is looking at a cloud strategy,” Webster said. “Microsoft needs to be able to answer ‘Yes’ when they ask if Microsoft can help them move to the cloud.”
Anecdotal evidence suggests mixed results in this area for Microsoft.
In January, Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) announced its plan to roll out Google Apps to its 110,000 employees, a project that involves turning off various on-premises email systems, including Exchange, which was used by about 35,000 employees in the company’s headquarters.
Unsurprisingly, Google trumpeted the win, saying that when completed, the implementation would be the largest to date for Google Apps.
In May, the U.S. Department of the Interior announced its choice of Google Apps for about 90,000 users, a loss for Office 365, which was also considered, and for Exchange, which was one of the on-premises email systems replaced. That deal was not only a business win for Google but also a legal victory, because the company sued the agency in 2010, alleging that the contract requirements favored Microsoft unfairly.
Simultaneously, Microsoft has also counter-punched, landing its share of large Office 365 contracts. “Office 365 has been at least moderately successful in protecting Microsoft’s customer installed base,” said industry analyst Michael Osterman from Osterman Research.
The executive branch of the Minnesota state government is an example of a customer that has followed an ideal path for Microsoft. It consolidated about 40 disparate email systems into a single on-premises Exchange 2007 platform and later moved its about 40,000 users to Office 365.
In May, Microsoft announced that it had struck a deal with the Catholic International Education Office to roll out Office 365’s education edition to about 4.5 million Catholic school students this year.
Another recent big win was hardware store chain Lowe’s, which will roll out Office 365 to 200,000 employees in 1,745 stores and corporate offices in the U.S., Canada and Mexico.
Office 365 has also bumped Google Apps from some accounts. Brazilian clothing store chain Renner adopted Google Apps in 2009, but down the line got disenchanted with it and recently decided to replace it with Office 365.
The Microsoft suite is better suited to Renner’s plan to link its cloud email and collaboration platform with a variety of third-party, on-premises transaction systems and enterprise applications, said CIO Leandro Balbinot.
“At the end of last year, we realized Google Apps wasn’t complete enough for that evolution,” he said, adding that Renner historically hasn’t been a big user of Microsoft products.
The company is now in its first phase of Office 365 deployment to about 2,500 employees, and will later expand the project to cover about 10,000 users, he said.
Microsoft did well to design Office 365 with hybrid deployments in mind, Osterman said.
Some companies are more comfortable keeping certain email and collaboration software on-premises, and it lets Microsoft build on its large installed base, he said.
“That’ll work to Microsoft’s advantage,” Osterman said.
Industry analyst Rebecca Wettemann from Nucleus Research concurs. “Most businesses are used to Office and Outlook, and this hybrid approach lets them take advantage of the economies and flexibility of the cloud while working on the environment they’re comfortable with,” she said.
Although Office 365 applications offer a subset of the functionality of the on-premises versions, that subset has been more than adequate, Wettemann said. “The core functionality is there,” she said.
Another particularity of Office 365 is the broad variety of bundling options Microsoft offers, which some have suggested could be counter-productive and confusing to prospective clients.
With its various options, Office 365 is certainly more complex to understand from a licensing perspective, but at the same time it offers customers more flexibility to mix and match versions to better suit different types of users, IDC’s Fauscette said.
“It’s not the simplest thing, but in general, people have gotten it,” he said. “The channel partners are really good about working with the customers and helping them decipher the details.”
Juan Carlos Perez covers enterprise communication/collaboration suites, operating systems, browsers and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.