Microsoft Office 365 Shows How to Tank the Cloud Concept

Once again, Microsoft (MSFT) has launched a Web-based Office answer to Google (GOOG) Apps. And, once again, Microsoft shows just how little it gets the Web and the people who use it, particularly those who don't want to run desktop software to get full functions in online versions. Corporate management would be hard pressed to plan a more spectacular disaster-in-progress.

Microsoft's previous attempt to put Office applications on the Web, the Business Productivity Online Suite, was disappointing, to say the least. (It was also then the latest in a string of flops, including bCentral, Office Live, and the combination of Windows Live and SkyDrive.) Not only were the available applications woefully limited, but Microsoft made clear that you had to buy a license to Office 2010 -- that is, the packaged software edition -- if you wanted to do anything serious with the system.

New name, same problems

This time, the effort is called Office 365. There's more of what people would expect from Office. Although that's a change and improvement from the previous version, too many major weaknesses still exist because Microsoft finds it impossible to steer away from its historic business strategy of getting everyone in the world to buy Office and Windows.

Microsoft essentially uses cloud services to sell desktop software, and too old a version won't do. For example, individual professionals and small businesses need either Outlook 2007 or Outlook 2010 for access to a 25GB online mailbox.

That's a lot more room than Google offers in Gmail, but, come on, needing specific software to use Web email? Whatever happened to POP access, so any email reader will work? The answer is Microsoft's junkie-like need for another Office fix. To sync between the cloud and a desktop requires Microsoft Office 2007 with service pack 2 at least. (So does any feature left out of the Web Apps part of Office 365.)

Pricing to daze you
The pricing is positively Byzantine. A user might end up paying a monthly charge of $2, $4, $6, $10, $14, $16, $24, or $27, depending on the size and type of the business and what the user needs. Want to figure out exactly what to get and what it will require? Microsoft literally devotes an entire site to Windows 365 transitions:

The abundance of BPOS-to-Office 365 information could be indicative that the migration process may turn out complex, especially for smaller companies with few or no IT employees and little or no resources to hire outside help, said Rebecca Wettemann, a Nucleus Research analyst."If you need an entire website dedicated to explaining to people how you transition to Office 365, you've made things pretty complicated for the customer," she said.
And you thought that understanding whether you could upgrade from Vista to Windows 7 was tough.

No such thing as free customers
Software companies like Microsoft complain regularly that people expect to get everything for nothing. But there's a certain symmetry, as Microsoft wants to regain all the customers it has lost without any investment. Not too likely with this version.

Look at what Google has had to do to attract users. For years, the company has offered free apps. There have been paid versions, but relatively few users pay. Here are the calculations:

  1. Google claims 30 million users.
  2. At $5 a month, or $60 a year, that would be $1.8 billion a year, or $450 million a quarter.
  3. According to Google's last earnings release, all non-advertising revenues were $269 million.
  4. Google has a number of publicly undifferentiated revenue sources that fall into the "other revenue" bucket, including display advertising management services and forecasting and reporting tools for publishers, so the $269 million wasn't even devoted to Apps.
  5. In its FY2010 10-K, Google did said write, "Revenues realized through display advertising management services, Google ads for televisions, Google Checkout, search services, Search Appliance, and Google Apps were not material in any of the years presented."
Taken altogether, that's accounting speak for virtually nada.

For the basic version, $6 a month is already 20 percent more expensive than Google -- if you actually pay. But how many individuals and small businesses will opt for a paid switch from Google Apps to Office 365, especially with Microsoft's emphasis on owning relatively up-to-date desktop software? Especially when Microsoft might decide to junk this particular attempt in a few years?

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Image: Flickr user Undertow851, CC 2.0.