Microsoft Office 365 Adoption Takes Off, War With Google Apps Rages On

Microsoft's efforts to overcome concerns about adopting its cloud-based Office suite seem to be paying off. Now the company is focusing on fending off the challenge from Google Apps.

Office 365 migration path

Microsoft's cloud-based Office 365 is the company's fastest growing commercial product ever, and adoption shows no sign of stalling. The company's cloud revenue (which included Azure and Dynamics CRM as well as Office 365) grew 128 percent in the most recent quarter compared to the same period last year, and the number of Office 365 commercial seats in use nearly doubled.

If there was a suspicion that Microsoft might have picked most of the low hanging fruit -- companies that found a cloud-based Office solution particularly attractive - and that it would now struggle to find new customers, the facts seem to refute this.

The truth is that the number of Office 365 users continues to grow strongly, Microsoft is signing up companies of all sizes and Office 365 revenues are fairly evenly split between domestic and international markets.

"Pretty much everyone is considering Office 365 now," says Jeffrey Mann, a research vice president at Gartner. "They are at least thinking about it, even if they don't end up adopting it. Adoption was going in fits and starts but now it is really starting to take off, and bigger companies are implementing it."

One reason for this may be that as larger companies' Enterprise Agreement licenses with Microsoft run out, many are taking the opportunity to move to the cloud-based system, he believes.

Some highly regulated industries and some specific geographies are still resisting moving to the cloud though, however. "If you are involved in drug safety, or the nuclear industry, or something like that, then you are probably not going to be looking at moving to the cloud," says Mann. And some governments -- particularly Germany, Switzerland, Russia and China -- are also anti-cloud, especially from an American company.

Security Concerns Persist

TJ Keitt, a senior analyst at Forrester Research, points out that suspicion about cloud solutions continues to persist. "There are still concerns about privacy and security in multi-tenancy environments, and Edward Snowden hasn't done anything to reduce this," he says.

Kennametal, a Pennsylvania-based supplier of proprietary materials and tooling technologies, provides a good example. "Our legal department had security concerns about putting our data in a multi-tenant environment," says Steve Hanna, the company's CIO.

But after legal staff participated in some cloud seminars and joint discussions with Microsoft these concerns were addressed, and the company adopted Office 365 for about 7,000 staff members.

Forrester's Keitt adds that many enterprise IT departments also have concerns about the possible ramifications for themselves if they move to Office 365. "What does the transition look like? What happens to jobs? What about control over the IT infrastructure? These are all concerns," he points out.

Getting Used to Frequent Updates

Another concern that many large organizations had in the early days of Office 365 was that Microsoft's policy of releasing regular updates introducing new functionality and bug fixes might break other software that works with the online suite.

But Microsoft has worked to overcome this problem, notably by offering an Office 365 for business roadmap and by introducing programs such as First Release. In some circumstances this can give companies the opportunity to test changes to Office 365 to ensure it doesn't break anything before the changes are rolled out to the rest of the organization.

Gartner's Jeffrey Mann believes that most organizations are now happy with the idea of frequent updates to the Office 365 suite. "I think they are getting used to it, and it has only happened once that an update to Office 365 really broke stuff. Other than that there have not been a lot of issues apart from really obscure ones that only affected companies with specific advanced configurations," he says.

Free Office Apps

Microsoft surprised many observers in early November by offering consumers new, free, Word, PowerPoint and Excel apps for iOS and Android which can create and edit Office documents. Previously these capabilities were only available to users with an Office 365 subscription.

[ Related: Office on iOS, Android is Not Free for Everyone ]

What's not widely acknowledged is that in the license to the new Office apps Microsoft states that without an Office 365 subscription, as well as viewing documents "you may also create, edit or save documents for non-commercial purposes."

That's prompted some people to suggest that Microsoft may be hoping to tempt business users to start using and liking the "free" apps without a subscription and then hit them for Office 365 subscriptions if they use the apps for business purposes.

But Mann believes it is very unlikely that Microsoft will pursue anyone for using the apps for business purposes - - even if their company's own compliance departments might. He says that the reason that Microsoft has started "giving away" basic but functional versions of its Office apps is simple.

"It comes down to competition with Google," he says. "Google gives those apps away, so Microsoft has to too. But if you use Word, Excel and PowerPoint then you are more likely to use OneDrive and Yammer and so on, so you are more likely to end up using paid-for things."

[ Related: Google Wages War on Microsoft's Office with Free iOS, Android Apps ]

Office 365 for Continuity

Talking of Google, Keitt says that while the promise of lower costs was the driving force for many companies moving to the Google Apps cloud office suite five years ago, it's the promise of what the suite can do for the way that a company operates that motivates some companies to choose Google Apps over Office 365 today.

"Organizations look at Google Apps and bet on the idea of something transformational for their business. It forces them to change the way they operate: Their workflows change, their custom apps need to be redeveloped, their integrations change," he says.

This is what distinguishes Google Apps customers from Office 365 today, Keitt says. "Google Apps customers have the idea that they want to change something about their business, while with Office 365 customers there is the desire to have better continuity with the way things have been done in the past and with what employees are used to," he says.

Copyright © 2015 IDG Communications, Inc.

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