Could Office 365 Be Destroying Microsoft’s Bottom Line?
A recent Forbes article titled, “Cloud Could Rain On Microsoft’s Profit Parade,” takes the pessimistic view that Microsoft Office 365’s recurring operating costs were going to cut into the bottom line of Microsoft’s tremendously popular Office division. To which I have to say: poppycock.
The financially focused Forbes’ argument centers around the idea that Microsoft Office has traditionally been so popular because it doesn’t take much investment to update the legacy, nigh-legendary suite of productivity software between releases. Operating costs are low, so profit is high. But with the Microsoft Office 365 cloud suite, Forbes claims, Redmond has to sink more into operating and maintaining data centers — cutting into Microsoft’s bottom line, and thus, its stock price.
Here’s my take: I’m not arguing Forbes’ premise — it does take time and money to own and operate a data center. But IT is moving to the cloud. The only point of contention there is the rate at which it’s doing so. Maybe Microsoft would have been safer in the short term by sticking to releasing a new version of Office every two years.
But eventually, the company would reach a saturation point, especially in the small- to midsize-business market, where people would stop upgrading and start using free or cheap tools such as, say, Google Apps. And I’m sure service providers would follow the customer demand in that regard, too.
So, yes, in the short term, it’s going to cost Microsoft a little more in operating expenses to go to the cloud. But the reward is the ability to stay relevant in the enterprise market in a market that’s increasingly moving to the cloud service provider channel over the next several years.