Does Office 365 signal the end of Small Business Server?

Office 365 is being touted as the perfect solution for the same small businesses currently using Microsoft's Small Business Server to get Exchange and SharePoint. Will the cloud kill SBS?

On June 28, Microsoft officially launched Office 365, the cloud-based service that serves as the successor to BPOS (Business Productivity Online Suite). It's designed to provide Exchange, SharePoint, and Lync (formerly Office Communications Server) to small and mid-sized businesses as hosted services. It also includes the Microsoft Office desktop applications (equivalent to Office Professional Plus edition). Office Web Apps, the online versions of Word, Excel and PowerPoint, can also be used.

There are three different plans available:

  • One for small businesses that don't have an IT department
  • One for mid-size organizations and enterprises that do have IT staff, and
  • One that's directly targeted at educational institutions

If the small-business version sounds a lot like the same market Microsoft targeted with Windows Small Business Server (SBS), that's because it is. SBS 2011 is an "all-in-one" server product that integrates Windows Server with IIS Web Server, Microsoft Exchange Server, and Windows SharePoint Services (and, with the Premium add-on, SQL Server, Hyper-V, and Remote Desktop Services).

Microsoft released the latest version of SBS last December, but I've heard rumblings in the small business community about whether it might be the last one. Like the fears for the future of Forefront Threat Management Gateway 2010 (TMG), this is fueled by Microsoft's big push toward cloud computing, and the cloud is something that many see as a particularly compelling option for small businesses -- the very organizations that currently use SBS. Are those fears unfounded?

The small business dilemma

SBS 2011 Standard Edition is designed for (and limited to) no more than 75 users and devices (more about SBS 2011 Essentials later). Companies of that size often have no professional IT staff. They may have a person who does IT duties on a part-time basis along with his/her primary job, or they may have an independent contractor who comes in to do periodic network administrative tasks (and is called in a panic when something goes wrong). Either way, unless the business itself is IT-related, maintaining on-premise servers involves a substantial "hassle factor."

SBS takes some of the complexity out of setting up and maintaining a functional company network with enterprise-class components such as email and collaboration, as well as lowering the licensing cost for small organizations. But even administering SBS is too much work for some companies with limited personnel resources. In fact, many small businesses have used hosted services for at least some of their IT functions for many years. Hosted web services and hosted email services have been most commonplace.

SBS to the cloud -- only half in?

Microsoft addressed this by coming out with an edition of SBS 2011 called "SBS 2011 Essentials." It's a hybrid solution that aims to ease very small businesses into the cloud, by integrating on-premise and cloud-based software. The SBS on-site server acts as a domain controller that authenticates users and then passes them through to hosted Exchange and SharePoint services that are accessed over the Internet -- i.e., Office 365. Thus you get single sign-on for on-premise and cloud-based applications. When it comes to administration, simplicity is the name of the game, with the server using a dashboard console that's very similar to that of Windows Home Server.

Image courtesy of Microsoft

Because it is limited to 25 or fewer users/devices (no CALs required), the Essentials edition won't be an option for those organizations with between 25 and 75 users. They'll need to stick with the Standard edition, which doesn't provide the cloud integration.

Given Microsoft's "all-in" commitment to the cloud, you have to wonder why they imposed the 25-user limit on the cloud-based version of SBS. What happens if a business with fewer than 25 users grows so that it now has 30 users? Does that mean they have to switch from the cloud-based networking model to an on-premise model? Assuming they want to keep using SBS, it would seem to. How does that make sense?

And to make matters worse, there appears to be no upgrade path from the Essentials edition to the Standard edition. Of course, you can still use Office 365 if you have a network based on SBS 2011 Standard edition, as well, but you don't get the out-of-the-box integration and you pay for the on-premise versions of applications that you aren't going to use.

Is SBS Standard on the way out?

Some of the folks who have been happily using SBS to service their small businesses and who aren't particularly interested in going to the cloud are worried that the debut of Office 365 signals the beginning of the end for their simple, low-cost server solution. There does seem to be more excitement around the Essentials product than the Standard, and I've noticed that the Microsoft web sites often put Essentials first when they discuss the editions. Is that a subtle clue that they're planning to eventually throw the traditional (non-cloud) version of SBS under the bus?

That notion might seem a bit more outlandish if not for the demise, in June 2010, of SBS's "mid-size sibling," Essential Business Server. EBS (also known by its code name, Centro), was released in 2008 with much fanfare and was designed for organizations with 250-300 users. It included Windows Server 2008, Exchange Server 2007, ISA Server, and Forefront Security. One reason given by Microsoft for killing EBS was a desire to streamline their product lineup.

You can't blame people for wondering if more streamlining is about to take place. With rumors swirling around the future (or possible lack thereof) of other non-cloud products such as TMG and indications that the company is trying to regain more focus by reining in its recent "finger-in-every-pie" strategy, SBS (or at least the Standard edition) looks like a logical candidate to get the axe.

SBS fans may take comfort in the statement in the EBS TechNet blog post that announced the end of that product, which assures us that "we are working hard to build the next version of SBS and look forward to a second decade of success with this award-winning small business offering" [emphasis mine]. Pessimists will point out that this was written before the "all-in-with-the-cloud" philosophy came to dominate.

Reasons to let it die

Many will argue that SBS Standard has outlived its usefulness. They believe the cloud is the only sensible choice for small businesses, and they point to:

  • cost savings (especially up-front costs and unexpected emergency maintenance costs, as well as personnel costs)
  • the ability to cut the cord of dependency on IT consultants (on which many small organizations rely because they don't have in-house IT staff)
  • more reliability and less downtime due to the hardware/software, including redundancy and multiple frequent backups that cloud providers implement as part of standard operating procedure and that small businesses often can't afford to implement (or don't implement well) on their own.
  • better security, due to standard practices and more money to invest in security measures on the parts of cloud providers

Microsoft's Office Division president, Kurt DelBene, expects that more than half of small businesses will adopt Office 365 within ten years. And you have to admit that for a small company, it's pretty compelling. For $6 per month per user, you get a lot: an Exchange account (with 25GB mailbox), Office Web Apps, SharePoint Online, even Lync instant messaging, and online meetings. That last one is especially interesting. An OCS server is something that few small businesses can afford or have the expertise to support on-site in the past.

Despite the early start enjoyed by Google Apps, many agree with Gene Marks at Forbes, who believes Microsoft will win the small business cloud war. But in a sense, on-premise solutions such as SBS compete with Microsoft's cloud offerings. The company might not want to fragment its efforts to put more development resources into SBS if it's a shrinking market.

Reasons to keep it alive

All the arguments above sound good, and if IT decisions were made by robots, dropping SBS Standard might make a lot of sense. However, those decisions are made by humans, and there is still a great deal of human resistance and distrust of cloud computing -- perhaps especially among small business owners.

Corporate decisions are made by managers who report to officers who report to boards that are concerned primarily with the bottom line. Those officers and managers have, by necessity, gotten used to delegating responsibilities and trusting others to carry out various tasks. They probably have experience with outsourcing some duties.

Image courtesy of Microsoft

The entrepreneurs who run most small businesses tend to be control freaks (and I don't say that in a derogatory way; I am one of those entrepreneurial control freaks). We worry a lot, and we worry more when we can't see what's going on. We hate to fly -- not because we're afraid of heights but because the plane is controlled by a pilot we don't know, whose competency we can't be sure of, sitting behind a locked cockpit door, and who we have no power to fire in mid-flight if he doesn't do a good job.

Likewise, having our data and applications living in some remote data center and being managed and manipulated by persons unknown makes us very uncomfortable. We may come around to the cloud idea, but we'll do it slowly. In the meantime, we like having a cost-effective, relatively easy-to-maintain solution to meet our somewhat modest IT needs.

Another reason Microsoft should keep investing in SBS is choice. Even if they weigh the options and decide that the cloud makes sense for them, small businesspeople like having choices. We don't want to be tied in to just one possible way to do things, even if that would simplify our lives. If Microsoft doesn't give us choices (that we can afford), we might just look elsewhere for them.


Office 365 is an exciting option for many small businesses, but I hope Microsoft doesn't decide it's such a great choice that it should be the only choice and doesn't discontinue the Standard edition of SBS, which has served many companies well for many years. While, in general, I think Microsoft should stop trying to be all things to all customers and stay on a strategic business course that will unify its product offerings, I think they also need to recognize that the migration to the cloud may come about more slowly in the SMB market than they're anticipating. In the meantime, more choices mean more customers and more customer goodwill. And speaking of choice, how about increasing the user limit for SBS Essentials so companies with up to 75 users can choose whichever of the SBS 2011 editions (cloud-based or not) best fits their needs?