Microsoft Q&A: Office 2010 War with Google Has Three Fronts

In its current battle to maintain Office’s hold on the enterprise, Microsoft is pushing more modern social networking tools and cloud-based apps to enterprise users, while trying to curb the rising tide of Web productivity apps from Google, Zoho and OpenOffice.

With the wide consumer release of Office 2010 and its accompanying Web Apps due on June 15 [Office Web Apps are available for businesses as of May 12], Microsoft is following through on its promise to bring a richer Office experience to the PC, phone and browser.

At the Office 2010 business launch event last week at NBC Studios in New York City, Senior VP of Microsoft’s Business Division Chris Capossela sat down with CIO.com’s Shane O’Neill to discuss Google Apps, the increasing consumerization of IT, and how Microsoft will use Office and SharePoint 2010 to give enterprises the cloud on their terms.

Here is an edited version of the interview.

What are the big problems that Office 2010 and SharePoint 2010 will solve for enterprise CIOs and their users?

CIOs want to give users social networking tools and Web apps and bigger mailboxes, but they want to do it in a secure and compliant way.

So we’ve done a lot of work in Office 2010, with Exchange and SharePoint as core parts of the solution, to give users modern productivity tools: social networking with adult supervision, as some people call it. We’re also giving them the ability to work anywhere on any PC connected to the Internet with a browser with Office Web Apps.

Outlook Social Connector is a big employee boost too. In Outlook, when I’m looking at an e-mail from you I can see all the things we have in common and all the e-mails and attachments you’ve sent me. Also a plus is the ability to use SharePoint as a social network inside the firewall, so you’re not letting employees share company information or documents on Facebook. That’s a no-brainer.

All this fits into the larger theme of the consumerization of IT. Employees want to have tools at work that are as good the tools at home.

You or I can go buy a Windows 7 machine for $600, pick up a copy of Office with it, sign up for Windows Live and we’ve got 25GB of mail through hotmail; we’ve got 25GB of storage through Skydrive; we’ve got Windows Messenger to do IM. And then we go to work and we’ve got 50MB of mail that our IT person has given us! This tiny little mailbox. It’s crazy. So employees are starting to expect and demand that CIOs and IT give them modern tools and Office 2010 delivers on that need.

How do Microsoft’s cloud offerings for Exchange, SharePoint and Office factor into all this?

IT obviously wants to save money. No IT person I know wants to give their employees old, bad stuff. They all want to provide modern tools, but they want to do it cheaper. This is where the cloud has entered the equation in a big way since the economic reset. IT got a lot more interested in the cloud when budgets got demolished when the economy imploded.

[ For complete coverage of the Cloud Apps Wars — including a complete guide to the business war, the competing products including Google Docs and Office 2010, the implications for users and IT, and more — see CIO.com’s Cloud Apps Wars Bible. ]

The cloud is viewed as a real way to take the mundane tasks of running servers, patching servers and upgrading servers out of the cost of the business and putting the burden onto Microsoft. We’ll run your SharePoint and Exchange servers for you. You won’t have to buy hardware anymore [Note: Online versions of SharePoint 2010 and Exchange 2010 are due sometime before the end of this year].

How are companies that want some cloud and some on-premise management approaching these options?

We talk about it as giving customers the cloud on their terms. Some customers are ready to move all their e-mail users to the cloud. Coca-Cola Enterprises is moving 70,000 people from Lotus Notes to Exchange Online. They’re not using any servers anymore.

Other companies like Starbucks tell us that for their headquarters employees they don’t want cloud. They run Exchange server. They like it. They run it cheaply. They have the latest software. But they’ve never provided the baristas in stores with e-mail and they want to do that and they want it to be on Exchange Online. So now 18,000 Starbucks cafes in the U.S. are using Exchange and SharePoint Online. They’re taking the hybrid approach, which is to run on-premise for headquarters employees and to use the cloud for the remote and distributed workforce.

Other customers will tell us, “Some day we’ll go the cloud, but we’re just not ready.” So by buying the Exchange and SharePoint servers, they know they can move to the cloud when they’re ready because they are the exact same products: Exchange Online is powered by Exchange server.

Competing products like Google Apps may not be a direct threat to Microsoft’s Enterprise customers, but they have forced Microsoft to adjust its business model by going online and dropping prices. How will Microsoft stay ahead of its various cloud and non-cloud Office competitors?

The best way for us to beat all of our competition is to build a productivity experience that spans the PC, the phone and the browser. Take any one of our competitors and they don’t provide at least one of those experiences. Google [Google Apps] doesn’t do the PC; they do the browser, that’s it. OpenOffice doesn’t have a browser or a phone story. Period. Old versions of Office don’t have a browser story.

One of the key differentiators for us versus all the Web competitors is that you can take any Office file, stick it up in the cloud and view it with Office Web Apps and it will look perfect. And none of the other guys do that well. It’s the number one complaint about Zoho and Google and OpenOffice. An Office file looks weird there because they are importing from our files to their format and in any translation from one format to another, things get screwed up. When Google Apps users try to share back and forth with an Office user, it can be a disaster.

We know that Office 2010 works well on Windows Mobile phones, but what’s the plan for Office Mobile 2010 on other smartphones like the iPhone or BlackBerry?

Our approach is really to make Office best on a Windows phone, but we also want to provide a rich set of capabilities with Office 2010 for all different phones, whether it’s the iPhone or BlackBerry or a Nokia phone.

There have been third-party tools that allow you to open Office docs on a BlackBerry and other non-Windows phones. But with Office 2010, you can view docs on a BlackBerry or others without a third party and you’ll be able to view and navigate through SharePoint sites as well, but you won’t be able to edit them. When you use a Windows phone, you’ll be able to do all that navigation, and editing.

As we look down the road, as more cloud-based productivity applications are used by enterprises and they possibly back off pricier desktop-bound software, what will that mean for the Microsoft Office client suite, which now generates almost one-third of Microsoft’s revenue?

I challenge the premise that if the cloud becomes prevalent then rich clients aren’t interesting anymore. Let me give an example: iTunes. When you use iTunes you’re using a service to buy songs. You use a rich client with that service. You download iTunes and you install it on your machine. It’s still a cloud app, it’s just not used in a browser. Also, when you use Facebook on your iPhone, do you use Facebook in the browser? No, you download the Facebook mobile app. Apple has a massive ad campaign saying “There’s an app for that.” Every one of those apps is a rich client that connects to a service.

The notion that cloud equals no software is a Salesforce.com propagated notion. It doesn’t stand up in the face of what people actually do today with the most popular services on the planet: iTunes, Facebook, Xbox. They all have rich clients.

So we’re a big believer that Office over time is just a rich client to a service, called Exchange Online, SharePoint Online, BPOS [business productivity online suite], what have you.

But you have to admit it’s a pretty pricey rich client compared to the alternatives.

It’s a lot less pricey than it was when we started 30 years ago. I think the cost of Office for Office Home and Student when you buy a new PC is about 100 bucks. It’s not 100 dollars a month or 100 dollars a year. It’s 100 dollars and you own it forever. I think 100 bucks for the value we deliver is a steal.

So I actually think we have a very rosy future. But it means we have to deliver killer value. We have to do demos and have people say, “I can’t wait to have video editing in PowerPoint. I can’t wait to have the Ignore button in Outlook. I can’t wait to use Power Pivot in Excel.” I think that over time that value will move from being in clients and servers and it will be more of a service, and as part of the service you’ll get a rich client for when you want it. And when you just want to have lightweight software in the browser, that will be part of the service too.

So we challenge the notion that the cloud equals browser. There’s plenty of cloud innovation to do outside the browser. But the service is absolutely what people will buy over time. I just think the service will still include rich client software that you can download.

Shane O’Neill is a senior writer at CIO.com. Follow him on Twitter at twitter.com/smoneill. Follow everything from CIO.com on Twitter at twitter.com/CIOonline.