Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Office 365 Hits Public Beta Today, So Microsoft's Ron Markezich Gets Seven Questions

A couple months ago, I asked out loud “Where is Office 365?” or more precisely, when will Microsoft’s Web-based version of Office be available to use. Today we got an answer. Microsoft has opened Office 365 up for a period of public beta testing.

This will certainly trigger talk of a showdown in the cloud between Microsoft and Google, whose Google Apps service is trying to win business from large enterprises, including big companies and government agencies. And in some cases the competition between the two has gotten ugly.

Google, you may remember, is suing the Department of the Interior, saying they were improperly excluded from bidding on a big project to provide cloud-based office and collaboration software–after Microsoft won the contract. Microsoft has accused Google of not having the right security certifications for doing business with the federal government. Google slapped back, saying Microsoft didn’t know what it was talking about.

Whatever. The point is, starting today, you can try Microsoft’s cloud-based version of Office for yourself. Still no word on when it will be ready for prime-time. I took the opportunity to subject Ron Markezich, corporate vice president for Microsoft’s U.S. Enterprise and Partner Group, to the Seven Questions treatment. We talked about the state of Microsoft’s cloud application and service offerings, including not only Office 365 but also BPOSS, its Business Productivity Online Standard Suite, which includes a cloud-based version of Microsoft Exchange, SharePoint and other applications. And yes, during the conversation, more swiping at Google–as well as a little at IBM–occurred.

NewEnterprise: Ron, when I think of Microsoft, I think of Office. And when I think of Office, I see it as a box of software that I have to schlep to the a store to buy in a box. I tend not to think about it as something I can get in the cloud. When did Microsoft start thinking about moving its multi-billion dollar software franchise to the cloud?

Markezich: My background is that I’ve been at Microsoft for 13 years. Prior to this I was CIO. And about six years ago Bill Gates and Steve Ballmer called a meeting and said the future of our company is selling our software over the Internet. They wanted to take the operational folks in IT and put them in engineering in order to really combine this online service delivery of our software. And really that was the beginning of what we now call BPOSS and now also Office 365. Six months after that meeting we signed up our first customer, which was Energizer, the battery company, and we serve them today, globally. I soon moved out of the CIO role and into engineering, and built this business based on our traditional software, as the engineering teams re-architected our software like Office and Sharepoint for the cloud.

So who are your customers? And who–obviously Google is one–do you see as your competitors?

If you look at just where we stand now, we have the best set of clients you could ever hope for: Glaxo SmithKline, Ingersoll-Rand, Coca-Cola, Kraft, McDonalds. These are customers who aren’t just using bits and pieces of the cloud. I think its getting hard to tell who’s a customer and who isn’t. In some cases you don’t even have to pay for these services. You might have two or three people inside an organization using the service. But these are all cases where the entire company has moved to BPOSS. They are using it across their entire work force.

As to competitors, I think Google gets a lot more press because it’s a lot more fun to write about than Microsoft and IBM. It surprises me how much Google is visibly going after the enterprise. Frankly it’s nowhere near ready to go after the enterprise. Google throws out a lot of customer references. But when you sign Google’s contract you give them the right to use your name as a customer reference, regardless of how many seats you buy. Our default is we can’t use your name unless we get your permission. In reality we don’t see Google as getting that much traction. If you look at where we battle more in the enterprise, it’s against IBM on Lotus Notes. And so about two thirds of our seats in the enterprise are coming to us from Notes. We see more of a fight there with IBM trying to hold on to their Notes base.

The fact is, Google just isn’t ready for these types of customers. If you go to the RFP [Request for Proposal] and look at all the requirements, there’s many that they simply don’t meet. I think they want to be given a fair shot but they’re really not ready.

What makes Google not ready?

They’re taking a consumer service and trying to provide that to businesses, and architecturally there are a lot differences. As a consumer you probably don’t ask where your data is going to be stored. That’s the first question an enterprise customer asks. They ask what countries their data is stored in and where that data flows. We take our data flows and we make them available to customers. We tell them where and how its stored and what the circumstances are where it can be accessed from outside of that country and moved outside of that country. You’re just not going to think about those things with a consumer service. But it’s one of the reasons that we don’t use Hotmail, for example, as an enterprise service. Hotmail wasn’t built that way. Their mail service is built right on top of GMail. In fact what you’re paying for is support, but even there they fall short. They don’t have the kind of service level agreements that we do. I’d love to be a fly on the wall inside Google right now, because they’re probably sitting back and saying “Wow, this enterprise IT stuff is a lot harder than we thought.” It’s not easy, and the demands are high.

So what are customers telling you? Where are they hurting and what do they need?

Every customer loves the cloud. In fact, a lot of customers are embracing the cloud because their CEO is hammering them, asking for it. But it’s dangerous. What people love about the cloud is the fact that they don’t have to worry about upgrades, they don’t have to worry about hardware, and they don’t have to do a big capital investment. The flip side is that as a customer you’re now one voice of many, and a lot folks don’t realize what that means in terms of support and feature requests. One customer doesn’t get prioritized over another. The other thing is the sense of control. When you’re running everything yourself, you know exactly what’s going on. In the cloud, you’re running with thousands of other customers and you have to rely on the provider to let you know what’s going on. Some customers love it. Some struggle with it at first until they realize, for example, that they’re benefiting from the scale.

I realize this will vary case by case, but by and large, what are customers saving on per-seat cost?

I was with one customer last week who told me they’re saving 50 percent from what it cost him to run Exchange in his data center to running Exchange online. Typically, what we see are customers saving in a range of 30 to 50 percent. We usually see those who come from Lotus Notes save 50 percent. Notes is a little more expensive to run. But this customer was a Microsoft customer saying he saves 50 percent. We’ve also had customers say they’re breaking even, but they’re breaking even with better availability, and with geo-redundant data centers. But the bulk of them fall into that 30 to 50 percent range.

I know what your customers’ pain point are. What are yours?

Once customers move to the cloud they want more stuff, faster. I always liken it to running. The hardest step to take is the first one out the door. Once you get out the door everything is easier. With the cloud, once you take that first step and move a mission-critical system to the cloud, you’re kind of there and you want to move everything to the cloud. So they want Windows Intune faster, they want Microsoft Project faster. I was with Coca-Cola recently, and they said they wanted to do everything they did with Office 365 and do it with everything else. And so keeping up with that portfolio of additional cloud services is tough, and launching a cloud service is not easy. There’s a lot of engineering work, then you have to work out the support model, the regulatory aspects, and the certifications. All of these are things we have to work through before we launch a service. Then you launch and customers want more features. So our big challenge is keeping up with the appetite that our customers have for more services.

With this you’re making fundamental changes to how a key Microsoft franchise that has brought in billions upon billions of dollars is sold. Can this new model ultimately catch up with and supplant the old one?

It’s even more than that. We’ve made a version of Office that anyone can use online for free. But as a business model we see this as something that can be beneficial to Microsoft in a couple of ways. One, every customer that has bought BPOSS, we see their total software spend with Microsoft go up. Even that customer I told you about that saved 50 percent, they still are spending far more than they did before. For one, they were just buying Exchange Client Access Licenses. Now they’re buying Exchange CALs, plus spending some money for the service. Now we don’t make as much profit margin, but we make some profit margin on that. But the biggest reason is that most of the time, they buy other things from Microsoft. They buy new versions of Office, they might be buying Active Directory if they didn’t have it before. They might not have had Sharepoint or Lync, and now they’re buying those. So every one of these customers, we see their total spend with Microsoft go up anywhere from 2 to 6 times what it was before. The other thing is that if you look at the total industry spend, most of it is on activities where there’s no value added. Every dollar you spend on software from Microsoft, you spend $6 trying to get it to do anything. What we’re trying to do is drive that six dollars to zero.

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