Microsoft (NASDAQ: MSFT) on Tuesday released Office 365, the cloud-based evolution of its ubiquitous office and email tools. Office 365, like its predecessor, comes in a number of different packages, albeit priced as subscriptions. Small and large businesses alike can now access Office document programs — Excel and Word are now referred to as Web Apps — and conferencing tools as well as email and calendar services. All of these are stored on Microsoft’s servers and are accessible from any device, from PC to smartphone.
Of course, Google (NASDAQ: GOOG) already offers all of these services through its Google Apps business — and its beefing up its attack. The New York Times reported Tuesday that Google is stealing a number of corporate and government clients away from Microsoft. The National Oceanic and Atmospheric Administration is converting its 25,000 employees from using Microsoft’s Office tools to Google Apps. The InterContinental Hotels Group (NYSE: IHG) is converting its 25,000-strong work force over as well. The State of Wyoming’s 10,000 employees are doing the same.
Those three clients are significant, but they represent a mere drop in the bucket for Microsoft’s Business Division, the segment that includes Office, its suite of attendant business tools, and now Office 365. That division pulls in $20 billion per year, more money than the Windows division and its multiple operating systems. Drop in the hat or not, the rise of cloud-based business services rather than applications sold at retail reliant on user-controlled storage means that, for the first time in 20 years, Microsoft’s biggest businesses has serious competition. What can Microsoft do to make sure that Office 365 maintains the prominence of its Business division?
Push the brand
Nothing is more valuable than the Office name itself. Not just as a brand that potential Office 365 customers are familiar with. The Office name represents a set of tools that an entire generation of workers is trained to use. Even though Google’s Web Apps are largely similar to Office in terms of basic function, Microsoft must emphasize the familiarity of its tools as a chief selling point. Office 365 needs to be the cloud-based business services package that keeps productivity solid as the work force moves away from locally stored data and applications.
Keep pricing fluid
The big concern beyond consumer migration away from Office is gauging how much consumers and businesses are willing to pay for Office 365. Microsoft’s Business Division pulls down $20 billion per year because of the high cost of its software for anyone besides students. People are turning toward Google’s services because they are comparatively cheap, just $50 per user a year compared to the multiple hundreds of dollars for Office. It’s unclear, though, how many of Google’s purported 30 million Web Apps users pay that fee at all. Microsoft needs to find the perfect price point for its services that convince people to pay for Office 365 without considering competing product. This may take some experimentation, and Microsoft needs to be unafraid of playing with price over the next twelve months.
Separate Office from Windows
That the Business Division earns more than the Windows division at Microsoft is telling. Office and the company’s other business tools are even more widely used than the world’s most recognizable operating system. Microsoft is heavily invested in promoting new Windows products right now — the Windows Phone 7 operating system and its new place with Nokia (NYSE: NOK) as well as the impending announcement of Windows 8. The company’s marketing force will be tempted to tie Office 365 to these new products, but this is a mistake. Microsoft needs to heavily emphasize that Office 365 is available for any platform, from Google’s Android phones to the Apple (NASDAQ: AAPL) iPad. Keep businesses and consumers aware that Office is its own product, and it’s available wherever and whenever they want it.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
