Office 365 Earns High Marks in Education, Struggles in Enterprise

Microsoft's cloud-based productivity suite is getting impressive grades with educational customers in its first year, but the software-as-a-service offering is struggling to gain traction with enterprise customers.

By Paul Rubens
Tue, August 28, 2012

CIO

Microsoft Office 365
Office 365 celebrated its first birthday in July, and the cloud service has attracted an impressive list of educational customers over the last year. But when it comes to gaining traction in the enterprise, the picture is far less encouraging for Microsoft.

That's not to say that Office 365 has been a failure—far from it: Microsoft recently introduced its Office 365 service to 46 new markets, and it has been adopted by high-profile conpanies including Burger King, Japan Airlines, Hallmark Cards and Origin Energy.

[Related: Microsoft Office 365: Your Guide to a Slew of Versions, Prices]

[Related: 13 Cool Features of Office 365]

Despite those marque wins, overall enterprise adoption has been sluggish, and a round of price cuts of up to 20 percent in March—perhaps in response to Google's aggressive pricing for the cloud-based Google Apps service—has so far failed to make much of an impact.

Anecdotal evidence suggests that not surprisingly Office 365 is faring best in the small office / home office (SOHO) market. Yet despite the big names that have adopted the service, Microsoft has found the enterprise market a far harder nut to crack. "Microsoft is certainly not happy with the speed that Office 365 is being taken up in the enterprise—it has fallen short of the company's expectations for the service," says Hans Koehler-Kruener, a research director at Gartner.

For many enterprises, the potential cost saving of moving to Office 365 are simply not enough to offset the time and effort of migrating to a cloud-based system, says Wes Miller, an analyst at Directions on Microsoft. "The migration is costly, complex, and fragile—and risks downtime with some of the most important services within an organization," he says. "These can't be underplayed, and for a lot of organizations, it just isn't worth the pain of migration to save the money."

Miller says it typically takes more than two years to recoup any operational savings following a migration to Office 365, and pointed out that projects that risk so much near-term disruption for gains that far into the future are unlikely to be a high priority for many CIOs. "In many ways, Office 365 suffers from the fact that the on-premises services are "good enough," and the operational costs are already understood and part of the organization," Miller says.

[Related: Office 365: It's Not Just for SMBs

Another factor weighing against Office 365 that shouldn't be underestimated is that, in many cases, the operational teams that could be reduced if Exchange, SharePoint and Office are moved into the cloud are the same ones that have a role in making the decision to migrate to Office 365. Few people make decisions that are likely to make themselves redundant.

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