Microsoft Announces Cloud-based Office 365

This morning in San Francisco, Microsoft announced Office 365, the company’s new cloud services-based Office product.

Office 365 brings together the Office desktop software with Microsoft Web Apps, Sharepoint, Exchange and Lync. The move is in line with the company’s emphasis on a shift to a hybrid approach to cloud computing, with the combination of the existing Office software and the company’s Web-based applications (in contrast to Google’s cloud-based approach, though Google does sell a business version, Google Apps). “There’s a general assumption that when we talk about movement to the cloud, it’s a business model transformation,” said Microsoft Business Division’s president Kurt DelBene. But Microsoft believes differently. “It’s of the magnitude of a change to the graphical user interface.”

“With the launch of Sharepoint and Lync as online services 2 years ago,” said DelBene, “it was a strong signal that we would move our core applications to the cloud.”

Office 365’s sign-in screen.

The company stressed the importance of targeting small business organizations, which, according to DelBene, have not typically been within the company’s reach; “From Gap to Glaxo Smith Klein,” and directly contrasting smaller businesses like restaurants and food co-ops.

Microsoft also targets academic institutions with the release. Office 365 for education will debut next year.

“We’ve found the hybrid model to be essential,” DelBene told me in an interview. “Especially in terms of acquisitions that may occur. Organizations aren’t static, and while small businesses might have an easy transition with Office 365, larger enterprises may undergo acquisitions, and with that comes migration issues. Our product addresses these issues,” said DelBene.

DelBene also played up the security of Microsoft’s data centers in the announcement. “People have always worried about the safety of their data,” DelBene said. “Microsoft understands security, and our data centers are proof of that. It’s one less thing that IT departments have to worry about.”

The company is also banking on the familiarity of the existing user base with Microsoft’s products. “There’s no learning curve” said Senior vice president Chris Capossela.

Office 365 includes “Pay-as-you-go pricing” options for members of small and large organizations – organizations with 1-25 users (with a maximum of 50 employees) that have less IT resources than a larger organization, are charged at a subscription-based rate of $6 per user per month. “In a few clicks,” said DelBene, “a small business can have 20 football fields of datacenter capacity and a highly experienced IT team at its fingertips.”

For enterprises that already use Microsoft’s Business Productivity Online Suite, which Microsoft also targets with 365, the bump in price is minimal, $10 per user per month. For those organizations which use Microsoft’s Office Desktop Software, the price bump is substantial – $24 per user per month.

For enterprises that have “kiosk workers” who do not have dedicated computers, there are subscription plans which start at $2 per user per month for basic email.

These price points differ somewhat from Google’s business product, Google Apps, which is $50 per user per year.

The product works with “nearly any device, including PC, Mac, Windows Phone, iPhone, Android and Blackberry.”

When Microsoft was only selling software, the company could only profit from “15% of an enterprise’s budget,” according to Capossela. Now that Microsoft has expanded that range, the company claims to increase its opportunity for profit.

DelBene stepped up as president from his previous position as senior vice president of MBD. “The transition has been smooth,” he said. His promotion was announced shortly after Stephen Elop left to become CEO of Nokia. DelBene has been with Microsoft since 1992.

This is a big move for the company; the Microsoft Office Suite has typically been the revenue driver for the business division; Q4 revenues reached 5.25 billion, up 15% from 2009. The boost was attributed mainly to the release of Office 2010. Microsoft Office products account for 90% of the Business Division’s revenue. The company claims Office 2010 is the fastest selling Office product in the company’s history.

At 12 p.m. PDT, Microsoft will launch the web site www.office365.com, where users can sign up for the Office 365 beta. The company expects to ship worldwide in 2011.