Microsoft's Office 365 Faces Challenges, Google in Cloud Battle

Microsoft's Office 365 faces challenges from Google Apps, and from businesses perhaps not used to the concept of cloud productivity.

Microsoft's Office 365 release intensifies its competition with Google. The question now is whether the Office 365 platform, as the cloud-based extension of Microsoft's long-running Office franchise, actively threatens Google's work in the cloud-productivity arena.

Microsoft would certainly like that to be the case. During its June 28 launch event in New York City, CEO Steve Ballmer claimed Office 365 will give SMBs (small to midsize businesses) an "edge" in competing, without the burden of complex on-premises systems. Perhaps not coincidentally, SMBs also represent a significant audience for Google Apps.

Certainly the competition between Microsoft and Google has intensified in recent months. Tom Rizzo, senior director of Microsoft Online Services, insisted in a May 17 interview with eWEEK that businesses were trying Google's business-cloud offerings before shifting back into Microsoft's camp. Google executives took strident exception to Rizzo's assertions, arguing that Google remains the leading choice for businesses interested in cloud-based email and collaboration.

And so it's gone on, for some time. But now there's Office 365: Microsoft Office, SharePoint Online, Exchange Online and Lync Online unified onto a cloud platform available for between $2 and $27 per user per month. It's a rebranding of Microsoft's BPOS (Business Productivity Online Suite) and a shot across the bow of Google Apps.

However, early analysts seem to think Microsoft has some distance to go before it poses a serious threat to Google's position in cloud productivity.

"While Office 365 does put Microsoft in mortal combat with Google," Matthew Cain, an analyst with Gartner, wrote in a June 28 email to eWEEK, "it is not really an existential threat for Google since Microsoft is essentially validating the model that Google pioneered with Google Apps."

"I would expect that Office 365 actually heightens interest in Google Apps," he wrote. "The first ingredient we need for companies to wholly embrace cloud-based personal productivity and collaboration tools is time. Time-and I mean 3-5 years-will prove or disprove the soundness of the model in terms of economics, security, stability and functionality."

Indeed, even as Office 365 expands to 40 markets, it could face something of an uphill battle itself.

"Microsoft is struggling to show value given that Google is preaching -free,'" Rob Enderle, principal analyst of the Enderle Group, wrote in a July 27 email to eWEEK. "They need to reeducate their market quickly, but don't see this as a marketing but a product problem, and are playing Google's game as a result."

In May, research firm Gartner suggested to eWEEK that around 2 percent of organizations will be using Google Apps by the end of 2011. That's nothing compared with the enormous market shares held by the various editions of Microsoft's Office. But it hints at the challenges that await Microsoft as it attempts to establish its own presence in the space.

"In some ways this is the reverse of what [Microsoft] did to Netscape on browsers being done to them," Enderle added. "They actually have the advantage, they just don't see or understand it and thus can't communicate it or resource the effort. It'll be an interesting business case someday."

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