Microsoft has made its long-awaited move to package the hosted version of Office with the hosted versions of Lync, SharePoint and Exchange with the unveiling of Office 365.
Office 365 for companies with fewer than 25 employees will cost $6 per user per month in the US. For larger organisations, Microsoft will offer additional options, including for the first time the on-premise Office Professional Plus on a subscription basis for $24 per user per month, along with the other suite components.
Larger organisations can sign up for some accounts that start as low as $2 per user per month for a bare-bones option of basic email for employees who only need that functionality, as well as for more full-featured accounts, such as the one that includes Office Professional Plus, for other types of employees, such as knowledge workers and executives.
The beta programme will be expanded progressively beyond the initial several thousand companies testing it.
Later, Office 365 will also include Microsoft Dynamics CRM Online, and an Office 365 version for educational institutions will also be released next year and will be an upgrade to the Live@edu hosted collaboration and communication suite.
Office 365 is the next version of the Microsoft Business Productivity Online Standard Suite (BPOS), which includes the hosted versions of Exchange 2007, SharePoint 2007 and Office Communications Online but not Office Web Apps.
The hosted versions of Exchange and SharePoint in Office 365 will be based on the 2010 edition of their software, while Lync is the next version of Office Communications Server, and Lync's online version is an upgrade to Office Communications Online.
"Office 365 is based on the 2010 wave of technology, so across the board we’ll be introducing great new capabilities to our cloud services," said Betsy Webb, general manager of Microsoft's Online Services division, in a phone interview.
"This will be a significant step forward for customers of all types," she added.
Office 365 will also act as a unifying brand and unifying technology base for the various cloud-based suites Microsoft has developed in recent years, such as BPOS, Office Web Apps and Live@edu.
"This clarifies some brand confusion," said Guy Creese, a Gartner analyst.
Overall, Office 365 will offer hosted productivity applications - word processing, spreadsheet and presentations - email, calendar, contacts, instant messaging, web meetings, videoconferencing, intranet and website creator tools.
Office 365 also comes with a 99.9 percent uptime guarantee and access via a variety of browsers, computers and mobile devices, including iPhones, Android, BlackBerry and Windows Phone.
At first glance, Office 365 seems a stronger competitor to hosted rival communication and collaboration suites like Google Apps that have in recent years put significant competitive pressure on Microsoft.
"From a competitive standpoint, this helps Microsoft against Google," Creese said in a phone interview.
Rebecca Wettemann, a Nucleus Research analyst, also forecasts a tougher competitive climate for Google Apps.
"Is this the death of Google Apps? Not right away, particularly if [this] ends up looking just like Office with a longer cord," she said. "But this announcement alone will threaten and lengthen every Google Apps deal in the pipeline."
"Without significant effort in improving Apps and more serious efforts around the enterprise, this may send Google back to the back of the class in the enterprise app space," Wettemann added.
However, Microsoft has work to do to deliver on the vision it has outlined for Office 365, she said. "Customers will be expecting rapid response times regardless of their internet connection, a way to collaborate within applications, and features like version control, not just traditional Office over an internet connection," Wettemann said. "Reliability in the cloud is key, and Microsoft hasn't traditionally been known for reliability on the desktop."
In a research note, Gartner analysts Matthew Cain and Michael Silver wrote that while BPOS has been a sales hit, it gets mixed reviews in IT administration, feature set and stability.
Basing Office 365 on the 2010 technology family should improve these weak points and help Microsoft attract larger companies, as BPOS deployments currently average under 50 users, according to Cain and Silver.
At a press event, Microsoft officials stressed that Office 365 is Microsoft's strongest statement yet that it believes the cloud-based software delivery model is the future for its products.
Microsoft customers are no longer asking whether they should move their on-premise software to the cloud, but when and how, said Kurt DelBene, president of the Microsoft Office Division.
"We're at a unique pivot point in the adoption of cloud services," he said.
Office 365 has also been designed to interact natively with the on-premise versions of SharePoint, Exchange, Lync and Office, said Chris Capossela, senior vice president for the Information Worker Product Management Group.
Gartner's Cain and Silver view Office 365 as a turning point for Microsoft regarding the cloud model. "From this point on, we believe that new [Microsoft] application features and functions will appear first in the cloud, while on-premises versions will remain on a three-year release cycle," they wrote.
Microsoft's Webb calls Office 365 a "game changer" for the company.
"It's the next generation of our cloud productivity service that is designed to meet the needs of organisations of all types and sizes," she said.
After Office 365 ships globally in 2011, existing BPOS customers will have a one-year window to upgrade, and Microsoft will work closely with them to educate and assist them in the process, Webb said.