Microsoft enterprise primer on Office 365: Past, present, and future

Office 365 has been making significant inroads into the SMB space. Mary Jo Foley looks at its evolution, the various SKUs, and what to expect down the road from this subscription-based Office model.

Currently, Microsoft's main Office offering for small/midsize businesses (SMBs) is Office 365. Yes, SMBs also can and do purchase local versions of the Office client apps and their complementary server counterparts (SharePoint, Exchange, and Lync). But Microsoft's goal is to get as many of its SMB customers as possible to move to a subscription-/cloud-based Office model. And that means Office 365.

Before Microsoft officially launched Office 365 in June 2011, the company was selling cloud-hosted versions of SharePoint, Exchange, and Lync in the form of a bundle known as Business Productivity Online Services (BPOS). However, BPOS was more of an enterprise-focused offering, in terms of its price and its target audience.

It wasn't until Microsoft began its rollout of Office 365 that it had a collection of cloud-hosted apps designed to go head-to-head with Google Apps in the SMB space. Knowing this, it's not too surprising that about 90 percent of the customers who've purchased Office 365 since launch have been SMBs, according to Microsoft's externally released figures. Microsoft does sell Office 365 to enterprise users, too, but the majority of purchasers of the new cloud-server suite have been SMBs.

So many Office 365 SKUs, so little time

Up until late 2012, Office 365 referred to a specific set of cloud apps: SharePoint Online, Exchange Online, and Lync Online. Users could buy these as a bundle or separately. They had the option to buy plans that allowed them to install locally the full set of Office apps, as well.

There are a lot of Office 365 SKUs, with different offerings positioned for differently sized organizations. These range from Office 365 Small Business to Office 365 Enterprise.

With the launch of Office 365 Home Premium in January 2013, Microsoft muddied the Office 365 nomenclature waters. This new version didn't include Exchange Online, SharePoint Online, or Lync Online -- the traditional Office 365 backbone apps. Instead, Home Premium is a subscription/annuity version of Microsoft's Office client apps.

For $100 a year, Home Premium "renters" can install the Office client apps on up to five PCs and/or Macs. As of June 2013, they also can install Office Mobile on their iPhones as part of this price. If and when Office 365 Home Premium users decide not to renew their subscriptions, they'll have a grace period during which they can save their documents/data. They can then modify them using Microsoft's free Office Web Apps, which have more limited functionality.

While some company watchers had wondered whether consumers would balk at going the subscription route with Office, Microsoft officials announced that in the first 100 days that the Home Premium SKU was available, one million people subscribed. Company officials wouldn't say how many local/non-subscription copies of Office 2013 Microsoft sold during the same period.

Unlike the Office 365 Home Premium SKU, the other Office 365 SKUs all include access to Exchange Online, SharePoint Online, and Lync Online. These more traditional Office 365 SKUs include, but are not limited to:

Office 365 Small Business
Office 365 Small Business Premium
Office 365 Mid-Size Business
Office 365 Enterprise (E1 and E3)
Office 365 Government

Microsoft recently made it easier for these SKUs to be sold via select resellers/partners and for partners to sell SKUs to users, which allows them to upgrade to a more feature-rich version that supports more individual clients.

The number and variability of Office 365 SKUs is a double-edged sword. More SKUs means more customizability. But it also means more complexity for resellers and customers -- something Microsoft officials have admitted could put the company at a disadvantage when selling against its rivals -- especially Google, with its Google Apps offering.

Office 365: The future

For the past year or so, Microsoft has been pushing regular feature updates to its Office 365 SMB and enterprise/government users. While the official word is that new features are delivered on a quarterly basis, the team has actually delivered new updates nearly every month. Microsoft maintains a Wiki where it lists the new features it has rolled out.

The process of upgrading existing Office 365 users to the latest foundational layer of Exchange Online, SharePoint Online, and Lync Online features has been slow and laborious. According to the latest update in the Office 365 Community Blog, 90 percent of customers have been upgraded or been told they would be upgraded in September. The rest are promised an upgrade "in the next few months." The current upgrade will allow all Office 365 customers to use most of the features Microsoft delivered to its on-premises Exchange, SharePoint, and Lync customers as of October 2012.

Once this upgrade is complete, the Office 365 team will be officially on the faster cadence path, along the lines of the ones on which other teams at Microsoft are moving. As part of this new, faster delivery model, there will be no more Office 365 "upgrades" (aka "big bang" releases that take multiple years to develop and deploy). Instead, there will be regular, near-monthly updates. SMBs and enterprise users who opt for Office 365 over the local/on-premises versions of Office client and server will get all the latest features first.

There's a chance Microsoft could someday deliver Office 365 updates even more frequently, similar to the pace that Microsoft's Yammer enterprise social-networking acquisition has achieved and is endeavoring to continue.

In the longer term, Microsoft is still invested in the idea of hosting Office 365 on top of Windows Azure. Currently, Office 365 runs on Windows Servers inside Microsoft data centers, but the underlying infrastructure isn't technically Windows Azure. Microsoft officials have been talking about this plan for the past few years. The idea is that moving the Office service core onto Azure will enable SharePoint Online, Exchange Online, and Lync Online to be updated more rapidly by building on top of the same common set of underlying services.

While Microsoft officials still haven't announced a date as to when this might happen, there are individuals already working on it. But before Office 365 is moved to Azure, the Office and Azure teams plan to deliver on a handful of other integration points, many of which revolve around the Windows Azure Active Directory's single sign-on and federation authentication capabilities.

Another future expectation is that Microsoft will make more of its Office client applications available to Office 365 subscribers -- not just for use on Windows devices, but also on iOS and Android ones. There's still talk that Microsoft may be on the path toward delivering locally installable Office clients for iPads and Android tablets, but with an Office 365 subscription requirement. These iPad/Android clients are expected to come to market some time after Microsoft launches the "Gemini" Metro-Style/Windows Store versions of Word, Excel, and PowerPoint (along with an update to the already Metrofied OneNote), which could happen anytime between late 2013 and early 2014.