Microsoft Corp. will introduce a cloud version of its Office applications this week, a move that ramps up the software giant’s competition not only with companies such as Google Inc. and VMware Inc. but with itself.
On Tuesday, Microsoft Chief Executive Steve Ballmer is scheduled to launch Office 365, a combination of communication, collaboration and productivity software delivered via the Internet. Microsoft, which is holding an event in New York to celebrate the debut, calls the suite of services the “next generation cloud service.”
Office 365 enters a crowded field. Google Docs from Google and VMware’s Zimbra email, for example, are attracting hundreds of companies seeking tools that work from desktop computers, smartphones or the growing number of tablet computers in use today.
Microsoft’s biggest competitor, however, might be itself. Nearly nine of every 10 office computers runs one of the 14 versions of Office the company has released since the software’s launch in 1989. The company now needs to convince those computer users, estimated at about one billion, to switch to Office in the cloud without disrupting the legacy version that is financing the transition.
It’s a changeover Microsoft has to make. More people want to be able to use mobile devices for work. That allows them to make any environment their office, but requires corporate IT departments to coordinate a growing array of hardware.
Cloud services are growing, in part, because they address this dynamic, providing the most cost-effective way to link all those gadgets.
Microsoft also sees profit in the cloud. The market for cloud-computing services and software is expected to grow more than 27% annually over the next five years and reach $73 billion by 2015, International Data Corp. projected last week.
Cloud computing, which uses networks of computers to store and deliver applications and content, will power a wave of technology expansion, says IDC’s vice president and chief analyst, Frank Gens.
Like the mainframe and personal computers before it, cloud software and services “are merging into the industry’s third major platform for long-term growth,” said Mr. Gens. He estimates that by 2015 one of every seven dollars spent on technology will be connected with cloud computing and “the winners of the cloud platform wars will likely be the new power brokers of the IT industry.”
Microsoft was the power broker in the PC era, but whether it’s able to get on top of the cloud will likely depend on what Mr. Ballmer introduces Tuesday.
Office 365 blends many existing Microsoft utilities, which currently are offered online à la carte, into a single cloud offering. In a major break with the packaged-software era, customers will be able to buy only what they need. A small company, for example, can subscribe to Office 365 for as little as $2 a month for each worker accessing email and little else. An enterprise user who needs the full suite of Office software will pay about $27 a month.
By comparison, the packaged version of Office 2010 for Home & Business retails for $210 at Amazon.com. Office 2010 Professional retails for $408.
Such metered pricing also eases the transition for users running older versions of Office on desktop systems, allowing them to get new features for their mobile devices without the cost of full conversion.
The pricing model also allows Microsoft to generate new recurring revenue from customers who are content with older software.
To sweeten the deal for its biggest clients, Microsoft earlier this year modified its agreements with its largest corporate customers that grant licenses to companies with thousands of users. The changes allow maximum flexibility to switch users from license use, which covers the use of software on company computers, to the cloud service. The feature could allow clients months of Office 365 usage free until their corporate agreements come up for renewal.
Like all cloud providers, Microsoft faces risks. That was evident one morning recently when some subscribers to current Microsoft online services in the Americas region experienced intermittent outages. Other companies, like Amazon, have experienced similar outages.
And while Microsoft has been adjusting its strategy, cloud pioneers such as San Francisco-based Salesforce.com Inc. and Seattle-based Amazon have forged ahead.
Salesforce.com has added a communication technology called Chatter to its service to allow clients to communicate within its sales management cloud service. Amazon’s Elastic Cloud has attracted enterprise customers because of its ability to scale up capacity to match peaks in client demand. And Microsoft’s biggest rival, Google, is encroaching on Microsoft’s core Office franchise with the spread-sheet and word-processing utilities within its Google Docs cloud service.
By 2015, IDC estimates that software-oriented cloud services will account for roughly three-quarters of all spending on public cloud services.
So even though Microsoft isn’t first to the party, the trend in cloud computing is leading to Microsoft’s strong suit—developing software.
The introduction of Office 365 may look
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