When Microsoft announced the release of a lightweight web based Office suite along with Office 2010, pundits were busy calculating the hit it will have on Google’s marketshare in this space and, also, writing an obituary for companies like Zoho (disclaimer: Zoho is the sponsor of this blog but this is my independent opinion). I had a totally opposite take on this topic. I was pretty sure that the release of web based office suite is just the beginning of end of Microsoft’s dominance in the office productivity space and not the demise of its competitors. My reasoning was as follows
- Office is Microsoft’s cash cow. By offering the web based suite for free, Microsoft is competing with themselves. Consumers and Small Business were used to spending big bucks to buy Microsoft Office Suite. Once Google, Zoho, Adobe and Thinkfree started offering free online versions of Office Suite, these users were slowly adopting these web based apps. When Microsoft offers their own Office Suite for free, it is quite possible that that some of them will move to their online apps instead of Google, Zoho or other players in the space. The gain in the online web office marketshare for Microsoft is, actually, a loss in their traditional Office Suite marketshare. Whether people adopt Google or Zoho’s or Microsoft’s Online Office Suite doesn’t matter because it is anyhow eating up Microsoft’s share.
- My second reasoning was that there is no way Microsoft can offer this suite for free to enterprise customers. That will mean committing suicide. Their pricing has to be in such a way that it doesn’t make a big dent in their current profits. This implies that they cannot match the pricing of either Google or Zoho or Thinkfree. The pricing structure has to be considerably high compared to other players in the field to minimize the impact on their cash cow. Under such a scenario, enterprises are going to move away from Microsoft Office Suite sooner than later. Depending on whether Google can convince them to move to their on demand option or Zoho and Thinkfree can convince the enterprise users to use their On Demand/On Premise option, the enterprises will slowly move away from Microsoft Office Suite.
I was pretty convinced that it is a Fail-Fail situation for Microsoft in spite of what tech pundits and research firms make us believe about their online offering. Well, it appears my thinking is not all that wrong. Michael Hickins writes on BNET about Microsoft’s pricing strategy
It’s true that Microsoft will offer consumers a free “lightweight” version of Office 2010 through their Windows Live (formerly Hotmail) accounts. But that largess doesn’t extend to business customers, who will either have to pay a subscription fee or purchase corporate access licenses (CALs) for Office in order to be given access to the online application suite. Microsoft already does this with email – the infamous Outlook Web Access (or OWA, pronounced ow!-wah! because of the painful user experience).
But wait – there’s more! A Microsoft spokesperson told me that customers will need to buy a SharePoint server, which ranges from $4,400 plus CALs or $41,000, all CALs included if they want to share documents using the online version of Office 2010.
Well, that explains everything. There is no way Microsoft can compete with either Google or Zoho or other players in this market on price. With the economy continuing to be so harsh and the trust in cloud computing growing among the enterprises, I don’t see any reason why enterprises will hesitate to make a switch from Microsoft products to one of the SaaS players. As far as Microsoft is concerned, their strategy in this space can only be a losing strategy.
PS: Contrary to what some people would like to believe, the release of online Microsoft office suite cannot be a hit on companies like Google or Zoho. All of us know that it is not their core business and this division doesn’t play any role in their balance sheets at present. I want to, once again, highlight the fact that Microsoft is competing against themselves in this space.