Each time Google Apps faces off against Microsoft Office 365 for a big customer deployment, Google shifts the cloud conversation to price, according to several Microsoft channel partners. Instead of battling on Google's terms, it's time for Microsoft to more aggressively promote the value of Office 365, those channel partners say.
Price wars are nothing new in the cloud computing and cloud services market. The showdown occurs in the SaaS wars (Office 365 vs. Google Apps) and in the IaaS and PaaS wars (Microsoft Windows Azure vs. Amazon Web Services and soon, Google Compute Engine).
The Old Pricing Wars
For most of its corporate history, Microsoft has used price to disrupt entrenched rivals. Windows NT around 1993 originally cost $1,000 per server with no client access license (CAL) fees, far lower than Unix and Novell NetWare. Microsoft Office bundled Word, Excel and SharePoint together to upend rival offerings from WordPerfect, Borland, Lotus-IBM and others. And Internet Explorer -- bundled with Windows 95 -- ultimately destroyed Netscape's cash cow web browser business.
But this time rivals are using price in a bid to disrupt Microsoft's entrenched on-premises software business. Why spend thousands of dollars to deploy Exchange Server on premises when you can pay about $50 per user per year for Google Apps, the search giant argues. Microsoft has responded for the past year with Office 365 starting at about $6 per user -- but there have been price cuts along the way.
Lessons From Linux
Microsoft has successfully battled low-cost options before: Windows Server sales, for instance, continue to grow despite the growing popularity of Linux -- which either involves subscription pricing or no fee at all. In that market, Microsoft successfully communicated the value of integrated solutions (Windows Server, Exchange, SQL Server, SharePoint, etc.) over open source offers that are often bolted together but not necessarily integrated.
Apply that example to the cloud computing model, and Microsoft must more effectively communicate the value of each Office 365 component -- SharePoint Onine, Exchange Online, Lync Online, etc. -- especially as Google Apps itself continues to gain more and more feature enhancements.
Microsoft must also promote its Office 365 channel partners more effectively. Most of the company's big Office 365 wins typically lack any partner mention -- a reality that won't inspire channel loyalty.
Google, Microsoft's channel partners allege, wants the cloud conversation to focus heavily on pricing. Will Microsoft continue to take the bait?