What Office 365 says about Microsoft

On the day Microsoft announced Office 365, Kurt DelBene, president of the Microsoft Office Division, said: “This resets the bar for what people will expect of productivity applications in the cloud.”

Oh, Microsoft. Why must you say these things?

[ Also on InfoWorld: Read Woody Leonard’s excellent analysis of why Ray Ozzie left Microsoft. | Then have a look at Neil McAllister’s comparative review of “Office suites in the cloud: Microsoft Office Web Apps versus Google Docs and Zoho.” ]

We all know that Office 365 is basically an upgrade and repackaging of BPOS (Business Productivity Online Suite), which consists of Microsoft-hosted versions of SharePoint, Exchange, and Office Communications. The obvious difference is that 365 adds — drumroll, please — Office Web Apps.

In the heat of last Tuesday’s announcement, some people jumped to the conclusion that the addition of Web Apps meant, at long last, that Microsoft had an answer to Google Apps. The truth: Not anymore than it already did. You can already use Office Web Apps and SkyDrive for free on the Office Live site; BPOS is available separately for $10 per user per month. Office 365 wraps the two together — so how exactly is the bar being “reset”?

Cloudy with a chance of misinformation

To be fair, the private beta program for Office 365 has just started, and Office 365 will probably be considerably better than BPOS, with online 2010 versions of SharePoint, Exchange, and Office Communications — the last renamed Lync Server and, according to InfoWorld contributor J. Peter Bruzzese, vastly improved.

But guess what else is part of Office 365? Office Professional Plus, a desktop product. So not only does Office 365 fail to “reset the bar” for productivity applications in the cloud, its main productivity applications aren’t in the cloud at all. As before, Office Web Apps are intended to be browser-based extensions to the desktop version of Office.

Office 365 will actually come in two flavors: an enterprise version that includes Office Professional Plus and a small-business version that does not. Wait, does that mean you can use the small-business version of Office 365 without a locally installed version of Office? Nope. Check the system requirements for the small-business version and you will find the following note: “Office 2007 SP2 or Office 2010.”

How to pay more for Office

What you get with the small-business version of Office 365 is a 2010 upgrade plus a price break: $6 per user per month instead of $10 per user per month for BPOS. The enterprise version with Office Professional Plus will cost $24 per user per month, or $288 per year — roughly double the annual retail price of Office 2010 Professional spread over three years.

So the main value proposition of Office 365 is that customers don’t need to maintain Exchange or SharePoint servers anymore. Not having to pay for that infrastructure — as well as eliminating the overhead of patching and upgrades — should lead to lower cost of ownership, perhaps equaling that of the added cost for Office 365.

But Microsoft isn’t leading with that benefit, probably because it doesn’t want to offend partners that run the plumbing for Microsoft software in small business. Instead, it’s waving its hands and pitching Office 365 like it’s some whole new cloud proposition, which it isn’t because BPOS has been around for two years, and either way, partners know they’re getting the shaft when Microsoft does the hosting.

Tha hazards of half-measures

Meanwhile, we hear from various sources that a number of enterprises are thinking about cutting way back on their Office licenses and — believe it or not — moving to Google Apps Premier Edition for rank-and-file users at a cost of $50 per user per year. For those customers, Office licenses will be left to those who need high-end capabilities.

I get the Microsoft vision: the cloud as extension of the desktop, not a replacement, with more and more collaboration, mobile support, and gnarly server administration moved to Microsoft’s cloud over time. That’s fine as far as it goes. But at some point, Microsoft needs to come to terms with the fact that — whether through licensing or by subscription — desktop software will never again be the cash cow it once was.

Sooner rather than later, at cloud rather than desktop prices, Microsoft needs to start delivering valuable, core productivity services in the cloud that don’t require a big fat footprint on the desktop. If it doesn’t, I know of at least one company that’s happy to pick up the slack.

This article, “What Office 365 says about Microsoft,” originally appeared at InfoWorld.com. Read more of Eric Knorr’s Modernizing IT blog and get a digest of the key stories each day in the InfoWorld Daily newsletter and on your mobile device at infoworldmobile.com.