Microsoft’s New Mixology: Cloud and Desktop Must Be Balanced

As companies of all sizes consider what portion of their IT infrastructure and business applications to move to the cloud, Microsoft has one word of advice: Balance.

In an interview this week, Stephen Elop, president of Microsoft’s Business Division, which produces the Office software, stressed that companies will find the most success by accessing data through Web browsers and mobile devices when appropriate, in balance with desktop applications on a PC.

“The best experience will be the combination of the PC, phone and the browser. That’s essentially the focus of what we’re doing,” Elop said in a phone interview with CIO.com. “What we are not saying is, hey, everything is going to go up into a browser and that’s the way people are going to get everything done. We disagree with that.”

Hence the Microsoft-coined term “software plus services,” a slight rephrasing of the software as a service (SaaS) model, where companies such as Google, Amazon and Salesforce.com host software applications on their own Web servers and provide them to customers as a service on demand.

Google Apps Showdown Heats Up

Microsoft Office has long been the king of business productivity applications and e-mail. Roughly 80 percent of businesses that run production tools use Office, according to data from research firm Forrester. But Google’s Web-based Google Apps software, which includes Gmail, looms as a threat to the Office empire as businesses recognize the cost reductions and convenience of accessing productivity apps and an e-mail system in the cloud.

Not surprisingly, Microsoft’s Elop downplays the Google Apps threat to Office, saying that “the high bar for Microsoft is not to surpass the capabilities of some browser-based, simplistic piece of technology for word processing. Our challenge is to make sure that we continue to innovate beyond what we’ve already delivered with our products.”

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Ironically, that Office innovation comes in the form of Office Web Apps, the very thing that Google already does. Elop sees the upcoming Office Web Apps — out now in technical preview and releasing in tandem with Office 2010 early next year — as a complement to the Office Desktop suite, but says that Office Web Apps can compete directly with Google Apps on their own.

“If it’s someone who just wants simple access to basic capabilities of word processing, spreadsheet, PowerPoint capabilities, on the day we release these products [Office Web Apps] there will be about 500 million Windows Live ID users and volume license purchasers who will have no-cost access to comparable capability [to Google Apps],” says Elop.

Office 2010’s One-Two Punch

Industry analysts have noted that Microsoft’s hand was forced to create online versions of Office because of the early success of free Web-based alternatives such as Google Apps and the Zoho suite.

Sheri McLeish, analyst at Forrester Research, says that Microsoft’s expansion of Office was necessary and will provide Microsoft with a worthy one-two punch.

“If we didn’t have these free alternatives from Google and Zoho, surely Microsoft would not be doing this,” says McLeish. “But all the competition in the productivity tools space benefits businesses and consumers.”

Google Apps, targeted by consumers and enterprises, is now being used by approximately 1.75 million businesses, according to Google. Some of these users value having a Microsoft alternative.

But in Microsoft’s favor: some consumers and business users may be more likely to use Office Web Apps because Microsoft Office already has a broad reach on computers everywhere, says McLeish.

What kind of work with Office apps is better served in a browser than through a desktop application? Microsoft’s Elop says a good scenario is a salesperson sitting in a parking lot of a customer site going over some numbers in an Excel spreadsheet using a netbook connected to the 3G network, and simultaineously editing the spreadsheet with someone in his finance department on the other end.

On the other hand, says Elop, inserting video into a PowerPoint slide and editing it would work better on a PC.

SMBs Move Faster into the Cloud

For the time being, most Microsoft customers are juggling a mix of desktop and hosted Web applications, says Elop, and he expects this mix to continue with online versions of content collaboration software Sharepoint and e-mail server Exchange now available and Exchange 2010 and Office 2010 (both to come packaged with desktop and online versions) due to ship in the next six months.

“We see organizations where, because of their corporate structure and geographic locations, they have a blend of on-premise and cloud. A big part of our value proposition is to support that diversity.”

Enterprises are likely to move slower to cloud-based services because they have more users and complicated applications and privacy issues, but small and mid-sized businesses have been moving data to the cloud more spontaneously, says Elop.

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