Is Office 365 Right for Your Enterprise?

• Company: Microsoft
• Headquarters: Redmond, Wash.
• Employees: 90,400
• 2010 Revenue: $70 billion
• CEO: Steve Ballmer
• What They Do: Microsoft makes a variety of applications and operating systems for consumers and businesses, including Windows, Office, Exchange, Dynamics, SQL Server and SharePoint. The company is now rolling out cloud-based versions of its traditional, on-premise applications.

The Pitch

With Office 365, Microsoft has made a major upgrade to its cloud-based communication and collaboration suite, offering a Google Apps alternative that is stronger than its predecessor, the Business Productivity Online Suite (BPOS).

“Office 365 is the future of business productivity for Microsoft,” says Kelly Waldher, director of Office 365 product management for the company. Among the improvements: Office 365 applications, including Exchange and SharePoint, are now based on the 2010 edition of their on-premise versions.

Office 365 also comes with Lync Online, an upgrade to BPOS’s Office Communications Online that offers IM, presence, Web conferencing and voice communications. Office Web Apps, the online version of Microsoft’s ubiquitous productivity suite, is included, along with the option to subscribe to get the full-featured application.

The Catch

In the months leading up to the Office 365 launch in June, BPOS suffered several significant outages. If they become a recurrent problem for Office 365, sales could suffer, analysts say. Most cloud providers have experienced outages, but Microsoft has created higher expectations for its hosted software by saying it has more experience and a better understanding of business needs than its rivals.

Unlike cloud-only suites such as Google Apps, Office 365 is designed for hybrid environments. To use it both in the cloud and on the desktop, CIOs would need to deploy compatible versions of Microsoft’s desktop and server products.

Forrester Research analyst Rob Koplowitz notes, meanwhile, that it’s hard to integrate on-premise third-party tools with cloud suites. Therefore, CIOs must weigh the benefits of cloud suites against the difficulty of integrating them with software from other vendors.

The Score

“There is no doubt that Office 365 is going head-to-head against Google Apps,” Gartner analyst Matt Cain said via email. “It is a savage competition that will pay benefits for the industry,” such as faster innovation and lower prices.

Small companies may opt for a cloud-only Office 365 implementation, but midsize and large businesses are likely to pursue hybrid deployments for now, analysts say. That’s partly because on-premise software provides functionality not yet available in cloud-based versions.

Cornerstone Mortgage Company is pursuing this hybrid approach. Rather than upgrade its on-premise Exchange server, Cornerstone is deploying Office 365 to about 900 employees throughout the United States. The company is using SharePoint Online and the suite’s videoconferencing, IM and Web meeting capabilities, while maintaining custom applications in-house.

CIO Christopher Meyers expects to save 40 percent on infrastructure costs for communication and collaboration over five years. But he’s not rushing to move more on-premise software to the cloud.

Meyers would like Microsoft to draft a strategy for financial companies using Office 365, to ensure that the product always complies with government regulations. “We’d like to make sure we get something that works for us long term,” Meyers says.