Nick Carr has a lead on the story that we all knew was coming eventually: Key Microsoft applications, including Office, may be moving online, soon. Carr’s source says to look for enterprise applications to move online as web services with Salesforce-like usage fees, popular PC applications to move online with advertising support, and expansion of its data center network to provide storage for everything.
In short, they’re responding to Google Apps and Google Docs, which now account, according to analysts, for up to 2-3% of Google’s total revenue (call it $400m a year, up from $40m a year ago) (note: I can’t find a source for this, but it was quoted to me by a senior Google employee last week). That’s still pennies compared to Microsoft’s $16b or so in annual Office revenue, but the trend is pretty clear – users like free, and they like the ability to collaborate on documents. Today, Google offers what is in many ways a superior product to Office and they don’t charge users for it.
That’s created a textbook Innovator’s Dilemma for Microsoft. And the people up in Redmond are probably smart enough not to simply roll over and die.
The obvious time to do it is at the Mix conference later this week. Where, we hear, Microsoft may also be announcing an offline version of Silverlight to compete with Adobe Air. Would Microsoft release online versions of office via the Silverlight platform? Perhaps… Adobe has their own version, called Buzzword.
In the middle of this sits Salesforce, the king of software on demand. At some point Google or Microsoft will make a serious move to acquire them, and at that point the other will respond with a counter. That at least partially explains why Salesforce continues to be valued by the market at an absurd P/E ratio of over 600 (their continued revenue growth is another reason).
i really hope to see MS acknowledging new tech trends and releasing products competing with google but they should not be as live hotmail vs gmail, where live hotmail sucked big time, look even scoble moves away from hotmail to gmail:)
Interesting you mention the Innovator’s Dilemma. What Google is doing with its Apps and Docs platform is a brilliant example of Christensen’s ‘Low End Disruption’ – by continuing to focus on the high end of the market and enhancing Office, Microsoft missed out on all the consumers who wanted just a ‘good enough’ product as long as it was online and free. Looking forward to seeing Microsoft’s response.
BTW, P/E of 600 is ridiculous. On the other hand, its ‘only’ 46 times trailing free cash flow.
#2, You have a point.
Microsoft: Pay Less, Get More
This is only semi-related, but I think Microsoft should go the route of the Yahoo-MySpace speculated deal: combine Yahoo and MSN into a separate company (including a cash infusion). Take a controlling 51%+ interest, but let it maintain its autonomy. Give Yahoo shareholders and BOD the higher valuation they are looking for ($50-60 billion) and give the new company an opportunity to improve and compete against Google. This will decrease Microsoft’s risks, help the Yahoo & MSN brands endure and flourish, and it is a more progressive strategy.
Hostile takeovers are so antiquated. Can’t we just evolve?
As alluded to above, P/E isn’t totally fair way to look at SFDC. Look at free cash flow for SFDC in particular the last few quarters and you’ll see something rather much more impressive and really clicking. Even if the cash is prepaid, they often have to spread revenue (and profit) recognition over many years of contract term.
+1 to #2
The silverlight technology is definetely going to bring on a new model for deployment of there existing suite of office products. BUT it’s still going to be a while till these online versions are realized.
Buzzword pales in functionality to what you get with office 2008 desktop. It will be years till it has the same features, and there are certain office functions that are just impossible to bring online (things that require hardware requirements like graphic card related features etc)…
A silverlight version of office products (competitor to buzzword and other google online products) will be possible but not for a while. I think Microsoft are going to concentrate there efforts on SaaS and Silverlight functionality & penetration first, build out the infrastructure and framework, before they build the truly rich applications like (office online).
As for offline silverlight, they’ve already announced something called Microsoft Sync Framework which is in early beta. It is a strategy they are researching for building offline solutions. This will probably form there offline strategy for there online initiatives (like silverlight).
They’ve also got something called Astoria which is an online database where people can create data structures for consumption by there online apps, even ones written on silverlight.
Anyone that follows the microsoft dev track and are keen on the online world knows of these pieces that are in the works. It’s just pieceing them together that is the challenge. But once you understand the pieces it’s clear that Microsoft are building something massive, beyond what Google and it’s other competitors have… After all Microsoft know software better than most people, they are after all a software first company.
It’ll be interesting to see how Microsoft’s long legacy affects its online strategy. For example, Google Spreadsheets recently added the new feature of “share this spreadsheet as a form” hinting at features typically in the domain of Microsoft Access.
Will Microsoft try to rectify the age old tension between Excel and Access with some new online app — or will it move into the online space with two separate applications that will be as confusing to users as the desktop apps are today? The same can be said for other apps. Take Word and Publisher for example — you can use both to create a brochure, letter, or report. What do these apps look like online? Sure they have different markets. But if starting from scratch, would you really create two apps or one with some different templates?
And then there’s the question of fidelity. People expect Google Docs and Spreadsheets to ’suck’. After I create some complex conditional formatting in Excel, I’m going to expect it to work just great in the online version. And I want the charts to be as slick and as flexible as the desktop version. Furthermore–I’d want some integration, as I probably have copy of MS Office on my machine…
Anyway I can’t wait to see how MS moves in to this space–exciting stuff!
I’d like to see an official source which states that Google Apps bring in $400mln a year. Without that this is a guesswork. Furthermore, Office revenues have never relied on the low end of the market, and Google Office is definitely not ready for enterprise use. Try loading a 2MB spreadsheet in Google, or open 10 spreadsheets. I suspect Google is making money on its Apps product, which is actually great since you get a free Postini integration, so no spam emails.
Without an official source though this is all guesswork, seems like a lot of hype without concrete evidence.
I sure hope Microsoft has had some rockstar programmers in a back corner coding up an ass kicking online office product in silverlight…
If not, then they are truly in head in the sand mode.
And this is coming from a big Microsoft fan.
To #9, the fact that google office products do not yet compete for the higher end office products is pure Innovators Dilemma scenario. And your comment is the standard reaction of the company being attacked “ahh, that stuff, it can’t do what the our real market, it’s only for the low end”…
Read the book…truly remarkable chronicles of industries that got flipped on their asses by upstarts that initially only served the low end (at a much much lower cost) and then ate their way up the tailpipes of the big guys.
Mike,
Just to be clear, the stuff about business models – usage fees, ad support – was purely my own speculation and didn’t come from any other source.
Nick
@#9, you can get Postini for free via Gmail anyway
http://www.iopu...spam-filter.htm
As a user I don’t want “all the functionality” of Word, or Access or Outlook in the online product.
Most people use less than 10%, many use less than 1%, of the features.
What I want online is “good enough” and I want it FREE. And I want it Yesterday.
My online product, SaaS mantra:
1. Free.
2. Now.
3. Good Enough.
#14 there are free ones out there .. Go use them ! (buzzword for example)…
In my opinion MS should launch a basic version (free) followed by so additional extensions (online realtime downloadable pieces) that we will be asked to pay for..
All the current free versions I’ve played with fall way short of what I would want to use in a day to day basis (Google docs, spreedsheets, powerpoint app, buzzword) they are good but not ready for me to use in my day to day business work.
Also I am willing to pay for premium online software, as long as it will give me something benefitial. I would prefer to pay for an advert free experience over aN advert trashed version.
Man the problem with today’s world is the mentality of
1. ask for everything and pay for nothing
2. complain about anything untill you get your way
3. talk about things that you have no clue about because you can
what a world we live in!
The one problem I have with the online applications is speed, They are too slow so I don’t use them. If office is done in “silverlight” that might solve the speed problem.
+1 more to #2. Every time I see somebody bashing the online services, i.e., Google Docs, Zoho Office, Editgrid, etc, etc, I always wish there were a way we could stop all further discussion until everyone has read the book.
As someone who’s followed the space since the very beginning, I think this is exactly what Silverlight was created for. Microsoft had to have an online strategy and the technology that underpinned that had to be very rich so they could create a comparable experience to their desktop clients. The only thing that came close was Flash and they couldn’t afford to build their entire online strategy on a technology that Adobe owned. Finally, 2 years later, they’re about to release a version of Silverlight that can handle the requirements for rich Internet applications based on Microsoft brands. MIX is where it will all start.
http://blogs.zd.../Stewart/?p=769
=Ryan
rstewart@adobe.com
Good enough.
Michael,
Did you really mean to say “superior” here: “Today, Google offers what is in many ways a superior product to Office and they don’t charge users for it.”
I would love to smoke what you’ve been smoking, man!
AS.
Where will zoho stand a year from now?
Offline silverlight is essentially WPF, something that I believe you can run on XP via .net extensions 3.5 and something that ships with vista. There are a few restrictions on a web app (I have used LiquidBoy’s flickr tool, he posted above) such as managed storage saving to file system reading filesystem etc.
What most people are missing is the parallels between programming wpf w/ C# codebehind and Silverlight with C# code in the dll. It really could be game changing.
As #2 (Shafqat) mentioned, and Damon has alluded to, the Innovator’s Dilemma is that disruptive technologies do a bad job of serving the existing market.
Google Apps does a terrible job of serving the existing market. I know. I tried using their spreadsheet product for collaborating planning, and the damned thing was impossible to use for someone who was experienced in Excel.
But, for someone who is looking to do something simple, and isn’t an Excel ace, it’s probably perfectly adequate.
The trick is that SaaS services will continue to improve, and at some point, they will cross over the “good enough” barrier. At that point, additional functionality doesn’t really factor into the purchasing decision. I’m sure I only use 1% of the functionality in Microsoft Word.
In fact, I often complain that the version of Word I used in 1990 served me well enough for hundreds of term papers…all the extras since then have simply served to justify the purchase of every faster computers.
If microsoft finally enters the online apps market, competing against google, it will be the end of google trend (except for search). I hope MS releases better apps, with greater functionality and better integration with MS products like office and windows, that would be a serious blow to google, which releases all its apps with alpha quality and takes many years to mature enough to be usable with basic feature set
Please, stop this pathetic online office applications hype!They’ll never catch on, just like Net PCs and many other flops in recent IT history. (They’re flawed in the same way)
MS has nothing to bo worried about. Desktop Office program will always have 90% and more of the office market. And saying that Google Apps is somewhat superior to MS Office is one of the most ridicolous claims ever heard by mankind!
Google is just filling a small niche market of families and houshold people who need a really minimal write and do-some-calculations program.
The penetration into the real office market is and will always be near zero. Forever! I bet whatever you want against you, mr Arrington!
Yet more un -researched rubbish about AIR and Silverlight,
techcrunch monkey writers didnt get their bannanas today did they?
As for offline office apps being the next best think stop smoking pot!
seriously has anyone used GoogleDocs for any lenght of time? its plagues with issues and i have a semi-decent Internet connection
to #26
We use google docs for everything, including contracts. We don’t email contracts around anymore, we share them. All versions tracked. No more contract1.doc, contract2.doc, contract80.doc in everyones filesystem and email.
And we don’t even smoke pot.
Perhaps you should get your head out of the sand or elsewhere.
If Microsoft is going to move in this direction they should improve their MS Live spaces etc… sites to obtain the confidence of its consumers FIRST because at the moment these services are not up to par!
Perhaps they should consider buying Pageflakes and integrate this platform to help them with this endeavor.
My two pesos….
Mike –
If you didn’t have time to do a side-by-side comparison of Google Apps to MS Office, your readers would have been better served to be pointed here: http://www.read...p#comment-47436
Google may be generating decent revenue off their apps, but I agree with this poster – when was the last time you were using Word and said, “gee, this would be a great application if only it had advertising in it.” You get (or don’t get) what you pay for.
Damon -
If you have “contracts1.doc” and “contract2.doc” that were different versions of the same contract, you obviously don’t know how to use Word.
I mean come on… “Track Changes” has been around for ages.
There are alot of amazing features that are just too difficult to find, that’s what the ribbon is designed for to expose alot of the cool features that make word what it is to the general user.
Just because you use 1% doesnt mean that the other 99% is useless, eg mail merge stuff, graphic annotations, templates, themes ….
also you 1% is not another person’s 1%, when you add up all the potential users of online apps MS will probably require 50% functionality to meet the needs of all users (hypothetical, just proving a point)…
online apps are reaching a fork in the road where they will be as rich and quick as desktop apps (not 100% but nearly there)…
Microsoft’s approach in there new technologies (including Silverlight) has this in mind and anyone that has followed the SL development track can see this..
Mike, I think you might want to check those numbers again… seems a bit difficult to believe that Google Apps & Docs is doing $400M / year. Are you sure your contact did not include Google’s total enterprise revenue (e.g., enterprise search, search appliances) in that number as well?
to #30, and you have never done contracts, customers return things in umpteen ways, and almost never with track changes … most common is a 2nd file, then the most common is yet another doc with a list of requested changes …
Anyway, just as with the book, there is no convincing the company/market/space/people that are being dilimma’d, at least until its too late.
Again, this book is a great great read, especially for technology people.
The current fascination with everything Web is humerous. For those of us who are old enough (not THAT old…mid 40’s) to remember using mainframes or mini’s, we remember what it was like having all of the data stored in centralized machines and accessing that data from dumb terminals. I have news for you: the Web apps you’re all drooling over are the modern day equivalent. Sure, they’re somewhat better (AJAX! WOW! NEATO!). We’re starting to see some offline capabilities (gee…not a new idea) but they’re still all pretty lame compared to a good Mac or PC application. The sad thing is that the reason we’re in this situation is that Macs and PCs are so hard to maintain and update and data stored on them isn’t available everywhere and the apps that run on them aren’t available everywhere. Well, we might as well just give up, right?
Well, no. Maybe smart people can solve the problems with PC/Mac’s and even smart phones and then we can actually USE some of the trillions of dollars that we’ve invested in local processing power. What a thought. Some of these problems shouldn’t be that hard to fix. For example, as storage gets cheaper and bandwidth increases and synchronization technology improves it shouldn’t be that hard to maintain copies of my data in lots of places…on my laptop, my Mac desktop at home, my phone and on the Web. Then if I change a file using one of those devices it gets updated everywhere. Not a huge challenge. The bigger challenge is doing the same things with applications. If I have an application on one machine, shouldn’t I be able to use that same application when I’m using other machines? Not an insurmountable hurdle.
I guess I’m an optimist. I think smart people can figure out a way to give me the superior experience that I get using my Mac or PC or iPhone AND the things that the Web is good at: storing data and letting people and applications access and use it. I can tell you one thing for sure. I have much higher aspirations for my computing life than Google Apps. Reminds me way too much of using an IBM mainframe 25 years ago.
“users like free, and they like the ability to collaborate on documents”
There are various ways Microsoft can deliver on these requirements.
As I discuss in my blog entry at http://dev.plut...ce-online-soon/ I wonder whether this will extend to Mac OSX and Linux clients?
My guess is Mac: yes, Linux: no (or at least no fanfare – even if Silverlight on Linux soon makes this possible).
We’ll see.
@34 Mark Ashton – there are only 12 basic problems in computer science. Each generation solves them over again and, in the process, renames them and considers themselves brilliant for doing so. We did that too…
Michael, don’t count Cisco out in the SalesForce sweepstakes. Rumor has it they had a deal lined up at the end of last year that didn’t quite take off, hence the tin cupping at Larry’s place
The reason Salesforce probably didn’t get sold and is having a hard time now is that the economy is slowing and all the potential buyers know they can get it cheaper down the road. Their valuation is sky-high and can’t stand in a bear market.
Yes ! Microsoft will follow up in the path of Google. This is when it will become interesting. A Real clash of the titans.
We all know open source has already won.
It just needs to be user friendly
Microsoft and Google are silently clashing in business.