Google Apps Challage Microsoft

With a $20 billion business selling desktop versions of its Office software, Microsoft Corp has a “cash cow” revenue stream that has allowed it to foray into different markets to expand its base.

Now it finds that base threatened with Web-based versions of office productivity products, notably from Google and from smaller, entrepreneurial companies like Zoho. 
 For businesses considering a move to cloud-based office productivity software, the primary driver appears to be cost, since no one relishes retraining an entire workforce in document word processing, mail, spreadsheet creation, presentation design, or even elementary Web page generation.

Microsoft sells Office Professional to businesses for $350 to $500. An academic version of the product retails for about $100. Meanwhile, Google is rolling out Google Apps at $50/head for business users, with many more Google account holders using the office applications for free; and Zoho is largely distributing free, cloud-based office productivity software, with only a small percentage of its business users paying a fee.

Is the strategy working as a revenue cultivator? At the end of the first quarter 2010, Google announced that 25 million people had “switched to Google Apps,” a 67 percent growth in eight months. Google also acknowledged that paying business users of Google Apps are a small minority (in the “hundreds of thousands”). This means the balance of Google Apps users are individuals with Google accounts who signed up to try the office tools -- many of them casually signing up to “take a look” in the same way that they opted in for gmail.

Nevertheless, the arrival of Google Apps has been enough to prompt Microsoft to offer a free online set of Office Web Apps, which includes Word, Excel, and PowerPoint.

So what does this do for corporate IT? Potentially, more competition will continue to drive down prices for office software, which, although not formally categorized by all companies as “mission-critical,” certainly is crucial in a de facto sense. Organizations without word processing, spreadsheets, and internal email exchanges don’t run well for long.

The rest of the value proposition of Web-based office software goes directly back to cloud computing -- and what enterprises like and dislike about it. When asked about the challenges in getting consumers to try cloud-based software, Zoho founder and CEO Sridhar Vembu answered:

The first and foremost is trust: Can I trust my documents with an online provider? Will they be safe? Will they be secure? What if the service goes down? These concerns are fairly typical of a market in its early stages, and it is our job as a cloud vendor to earn the trust of consumers through actual daily execution, not just talk.

In the IT worlds of mid- to large-sized enterprises, these concerns are multiplied exponentially, since security, data protection, disaster recovery and failover, vendor risk management, enterprise control, and sacrifices in software functionality are worries -- not to mention the