Microsoft Goes Live With Long-Awaited Office 365 Cloud Apps

Microsoft took a major step in its cloud computing efforts today, going live with the company's much anticipated Office 365 cloud application service in 40 markets around the world.

CEO Steve Ballmer, in a press conference in New York Tuesday morning, emphasized the expected demand for Office 365 among small and mid-size customers and said Microsoft's channel partners will play a critical role in bringing the service to SMBs.

"We know we need to engage our massive global partner ecosystem of systems integrators and resellers," Ballmer said.

Microsoft has struck deals with 20 service providers who will make the Office 365 service available to their customers, packaging it with their own services for SMBs, Ballmer said. Those telecommunications and Web hosting companies include Bell Canada, Intuit, NTT Communications, Orange, Telefonica S.A., Telstra and Vodaphone Group.

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But smaller solution providers are also working with Office 365. Chicago-based Slalom Consulting, which already works with Microsoft's BPOS (Business Productivity Online Services), will work with the new on-demand Office 365 applications. "It takes the BPOS model to a whole new level," Slalom General Manager Dave Cutler said in an interview.

"Twenty-five percent of our business this year will be cloud," Cutler said, adding that Office 365 will be a major part of that. While Slalom earns some revenue from selling on-demand software, Cutler said his company's model is to provide business consulting, technical migration and training services around the cloud applications.

As with the BPOS service, Microsoft channel partners who resell Office 365 will earn 12 percent of the value of the contract's first year and 6 percent of subsequent years, said John Betz, product management director with Microsoft's business online services group, in an interview.

While customers can subscribe to Office 365 directly from Microsoft, Betz said the vendor will likely bring a partner into most deals. Currently, 95 percent of all Microsoft's revenue is generated through the channel "and we don't expect that to change in the world of cloud computing," he said.

NEXT: Reliability Questions, Competitive Challenges

Office 365 has been in limited beta testing since October and widespread testing since April. Of the more than 200,000 businesses and organizations that have tried it out, 70 percent were small and mid-size companies, according to Ballmer, leading to the CEO's emphasis on SMBs during the press event.

"To compete, small and medium-size businesses need an edge that doesn't require a huge, up-front capital investment or complex IT systems to manage and maintain," Ballmer said. "Starting today, Microsoft Office 365 will deliver on those promises."

But Microsoft faces challenges with Office 365, including proving its reliability and security. It's BPOS predecessor has suffered a number of services outages, including one outage just last week, raising questions about how much customers can depend on cloud applications.

Ballmer sought to overcome lingering security concerns about cloud computing. "Our service level agreement policies with Office 365 are absolutely the best in the industry," he said.

The launch of Office 365 brings Microsoft into more direct competition with Google and other suppliers of personal productivity cloud applications. In a pre-emptive attack Monday Google released a list of reasons businesses should avoid Office 365 in favor of Google Apps.

Office 365 bundles Microsoft Office (including Word, Excel, PowerPoint, Outlook and OneNote) with SharePoint Online, Exchange Online and Lync Online.

Microsoft is offering a range of service plans for Office 365 with prices ranging from $2 to $27 per user, per month. As disclosed earlier Microsoft is pricing Office 365 for small businesses at $6 per user, per month. Office 365 for enterprises will have a broad range of options at different price points.

Office 365 will replace BPOS, Betz said, with customers transitioning to the new service during the next 12 months. Current users of Live@edu and Office Live Small Business will also be moved to Office 365.