Tech News and Opinions (by Paul Spain)

Massive drop in price of Microsoft cloud offerings - what does it mean?

, posted: 3-Nov-2009 19:51

Today Microsoft have announced dramatic reductions in the price of their hosted editions of Exchange Server, SharePoint and Office Communications Server.

Microsoft's reductions in the cost of BPOS (Microsoft Business Productivity Online Suite) which consists of Exchange Server, SharePoint and Office Communications Server are by 33%, and they are reducing the price for hosted Exchange Server by 50%. Discounts refer to pricing for commercial customers - I am still investigating whether there is any additional discount being offered to not-for-profit organisations. At they same time they are increasing the size of hosted mailboxes to 25gb per user.

While the market for cloud hosted email, file storage and associated services is far from mature, it appears Microsoft is committed to positioning themselves as the market leader and 'default choice' as the market grows. Current estimates indicate it could be some years before even 5% of business email is hosted in the cloud.

Within the next week it is expected Microsoft will make Exchange Server 2010 available for download. Organisations signing up for BPOS and Exchange Hosting from Microsoft in the U.S. will be delivered Exchange Server 2010 going forward. It is understood however that customers in other countries such as New Zealand may have to wait up to 9 months before they can access the hosted edition of Exchange Server 2010.

Microsoft's huge pricing restructure is expected to have a big impact on the competition - especially Google who's hosted Email is now only fractionally cheaper than hosted Exchange (though it does include hosted apps also).

Competitive cloud based email and applications vendors have been pushing hard to get organisations to adopt their hosted email/office products - especially Google who are rumoured to be giving away their products in order to 'win' reference customers. My experience however is that there is a lacking in functionality, performance and ease of use of Google's offerings compared with the newest offerings from Microsoft. This is not a surprise as the web is a fairly young platform for applications and many apps have yet to be well translated to the web.

A key that Microsoft holds is a large user base - and users are very familiar with their products as most have been using Microsoft Outlook and associated products for years. Naturally many are not keen to move from powerful PC based applications to dulled down web based products which don't have the look and feel they're used to.

In time the picture of web based apps and cloud offerings will change, but my immediate predictions for now are:
- Most existing businesses will keep the majority of their applications and data hosted in house
- As time progresses organisations will move more data to the cloud
- Organisations who are already running Microsoft Servers and products in house will typically choose to move to Microsoft hosted services. They will do this as they recognise productivity benefits of current versions of Exchange/Outlook, Microsoft Office, OCS, etc when compared to competing applications.
- Small organisations and start-ups who are more cost conscious rather value focussed are likely to choose Google Apps rather than Microsoft's hosted offerings despite the disadvantages
- Businesses started by those who use Gmail for their personal email so are already familiar and comfortable with the Google online offering
- Traditional hosting companies (Application Service Providers) and 'break fix' IT support firms will suffer

Certainly we're entering an exciting time as the pace of technology development and competition will continue to increase in the coming years. Who will actually lead the market in years to come is not clear. But I would suggest those predicting troubles for Microsoft should look at the last decade or so where they have competed aggressively with various Linux and Open Source vendors. They seem to have seen solid profits and steady market share in that period. I am certain they will be even more aggressive as they face off against Google and other providers in the Cloud arena over the next decade. And who's complaining because we'll all benefit from the incredible advances that competition brings between now and 2020.

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Comment by Project Pankaj, on 5-Nov-2009 08:17

The price cut is obviously in reaction to Google Apps breathing down Microsoft's neck. But Microsoft needs to do more. Inspite of the price cuts, the total cost of Microsoft BPOS still comes out to be more than its alternatives.
That is because BPOS needs additional implementation support. One VAR was able to make $167 per seat by offering implementation and other services with BPOS.
See the following comparison between Microsoft BPOS and competitors.

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