In-Depth

BPOS Gets a New Brand with Microsoft Office 365

When Microsoft overhauls the Online Suite as Office 365 next year, it will include Office desktop products in the subscription. An analyst calls the change a "mixed bag" for the channel.

• By John K. Waters
• December 01, 2010

Microsoft released a beta of a new cloud-based version of a suite of productivity tools that combines the core Business Productivity Online Suite (BPOS) -- SharePoint, Exchange and Lync (formerly Microsoft Office Communications Server) -- with the Office Professional Plus desktop client, which features Office Web Apps.

Dubbed Office 365, the suite went into beta in late October, and the company plans general availability to come sometime next year. The 2011 release will also mark the official upgrade of the back-end servers in the Microsoft Online Service datacenters from the 2007 versions of SharePoint, Exchange and Lync to the 2010 versions.

Speaking to reporters and partners at a public unveiling in San Francisco, Kurt DelBene, the new president of the Microsoft Office Division, characterized the offering as "a progressive approach to cloud applications."

"Every single person in the Microsoft Office Division is now thinking about what cloud services mean to our customers, our business and our products," DelBene added. "We are unequivocally at a pivot point in the adoption of cloud services."

Microsoft launched SharePoint, Exchange and Microsoft Office Communications Server as online services in 2009, calling it the Business Productivity Online Suite, or BPOS. That launch, DelBene said, "sent a strong signal, both to our teams internally, and to the market, that we would move our core applications to the cloud and that we would put the cloud at the center of our strategy moving forward." Microsoft customers are currently sending and receiving 167 billion messages every day from its cloud services, he said.

Chris Capossela, senior vice president of the Microsoft Office Division, was also on hand at the event. "You should think of this as everything we know about productivity brought to the cloud as a great service hosted by Microsoft," he said. "By bringing Office, one of the most popular and widely used applications of all time, completely into the cloud era with Office 365, we are throwing down the gauntlet. When it comes to the cloud, we are all in, and we are bringing our very best with us -- the very best applications and the very best partners."

Capossela said Microsoft has created what it feels is a highly competitive pricing structure because it really wants to capture the small business market. Microsoft plans to offer Office 365 to businesses with less than 25 employees for $6 per user per month; larger companies will pay between $2 and $27 per user a month. Microsoft is including single sign-on access to all of these services, Capossela said. Enterprises also have the option to get Microsoft Office Professional Plus desktop software on a pay-as-you-go basis.

Kurt DelBene, Microsoft Office Division president, at the Office 365 unveiling in San Francisco: "We are unequivocally at a pivot point in the adoption of cloud services."

"I think this is a good move," says IDC analyst Melissa Webster. "Microsoft needed to rationalize its separate cloud offerings [BPOS, Office Live Small Business, Live@edu] and gather them together under one, clear and easy-to-remember brand. Customers should appreciate the inclusion of Office [desktop] in the deal, and I think it makes very good sense to add Dynamics [for the small to midsize business market] as soon as it's ready."

"As companies figure out what to move to the cloud, productivity tools [authoring, collaboration, communication] should be high on the list," Webster added. "This is an area where solutions are converging, and converged solutions make great cloud candidates when the vendor can deliver them as an aggregated stack. Integration between the components that make up Microsoft Office 365 has been a very strong focus for Microsoft the past two Office waves."

But Gartner Inc. analyst Jeffrey Mann sees the announcement as a "mixed bag" for the Microsoft channel. "There will be a need for services providers to help with migration, onboarding, user management, etc.," he says. "But the partners who were hosting Exchange and SharePoint will find this formidable competition for that business."

In a blog posting, the head of the Microsoft Worldwide Partner Group, Jon Roskill, laid out some of the opportunities for partners.

"As Advisors today, the new SKU line-up allows partners to extend their services by offering a broader portfolio of solutions to organizations of all sizes. Partners can grow revenues by upsellling through Office familiarity and managed services. Partners of all sizes can leverage Microsoft's investment in the new brand, demand generation and awareness to educate customers faster to increase sales velocity with an online solution," Roskill wrote.

Another new opportunity comes on the licensing side for enterprise partners, distributors and LARs. "Customers with Enterprise Agreements [EA] can easily acquire Microsoft Office 365 through an update to the EA. The Enterprise Agreement now provides the flexibility to combine on-premises software and online services into a single volume licensing agreement," Roskill wrote.

Marco Limena, vice president of the Microsoft Business Channels group, sought to reassure hosting partners with another Microsoft blog post, "Office 365: What Does It Mean for Hosting Providers?"

Chris Capossela, SVP of the Microsoft Office Division, calls Office 365 "everything we know about productivity brought to the cloud."

"[H]osting provider partners have a major role to play in expanding the [Office 365 value] proposition by offering value-added services that extend beyond the features offered in Office 365 Small Business," Limena wrote. "Those services could include things like customized services, IT tools, phone support, the ability to grow beyond 50 users, sync with Active Directory, advanced IT management, enterprise-class e-mail, Web content management, business intelligence, additional storage, security features, archiving and the full Microsoft Office suite."

E-mail in particular seems likely to present a partner opportunity, Limena suggested. "In the small and midsize business (SMB) segment, hosted e-mail is extremely fragmented -- with Microsoft Hosted Exchange accounting for only a small percentage of the space -- and this is where we see a huge opportunity for both Microsoft and its hosting provider partners to grow," he wrote. "Within the current landscape, we're continuing to see significant growth rates of partner Hosted Exchange seats, with an 18 percent increase worldwide last year."

Analyst Michael Cote of The Cote Collaborative in Chicago agrees. "E-mail is the big thing here," he says. "It's sort of a low-value, low-margin service, but it's the foot in the door for doing all sorts of other interesting things. The fact that people 'live in their e-mail' makes it the primary point to do integrations to higher value Enterprise 2.0 things ... E-mail is, of course, a core application for most every business, but that technology has been around long enough to be more or less solid in outsourced -- or 'cloud' -- situations. Except for companies with luxurious e-mail needs and budgets, it's starting to look absurd to run your own e-mail server."

From a customer perspective, Rob Franch, director of Collaboration Services at risk brokerage firm Aon Inc., is willing to give up running e-mail servers. Franch, who "owns" the BPOS product suite at Aon, said that Office 365 fits into his company's corporate IT strategy of moving the "right workloads" into the cloud. "It makes a lot of sense to put e-mail and collaboration services into the cloud and let Microsoft manage it for us," he explains. "At the end of the day, we're an insurance company, and we don't want to run our own datacenters for everything. This lets us pick the right service for the right product."

Gold Certified Partner Mamut Software Ltd., a Norway-based provider of CRM, Internet, accounting and business software for SMBs, sees the Office 365 offering as an opportunity to add an enterprise-standard set of productivity apps to Mamut's own software bundle.

"If you can combine Office 365 with the line-of-business app, which we provide, and package that together, you really start to take the pain out of IT and how people consume the services as a customer," says Mamut's president, Eilert Giertsen Hanoa, who attended the event. "This is something we would not be able to deliver if we weren't using Office 365."

Microsoft's Roskill said that 16,000 partners have signed up to sell Microsoft Cloud Services, such as BPOS, so far. One of those partners selling BPOS aggressively is Chicago-based systems integrator Slalom Consulting. Dave Cutler, managing director at Slalom, said that his company has been working with Microsoft BPOS online services for about two years. He sees Office 365 as the right expansion of those capabilities.

[Click on image for larger view.]

With Office Web Apps, users can review documents and do lightweight editing from virtually anywhere and on any device with a browser.

"Most companies' core business isn't running e-mail, or SharePoint or Office. It's running their business, so letting the experts take care of this stuff allows them to get back to their business," Cutler said. "And who knows Exchange better than Microsoft?"

Eron Kelly, Microsoft's senior director of product management, said that within the company, Office 365 is "a huge deal."

"We're taking one of the flagship products of the company -- one of the crown jewels -- and putting it into the cloud. But we're doing it in a way that combines the familiar client experience that everyone knows and loves with a rich back-end."

The Office 365 beta is limited to seven languages and 13 countries.