Microsoft's Office 2010 to be its last?

Packaged software — namely Windows and Office — are huge profit centres for Microsoft. Cloud computing is not.

commentary Sitting in the audience for the Australian press launch of Microsoft Office 2010 it was pretty obvious that Microsoft sees cloud computing as the way forward for its products and services.

Speakers used the word "cloud" at least two dozen times during the presentations, and it seemed to be very much at the heart of much of the innovations highlighted in the new products.

But such focus on cloud computing also highlighted some of the fundamental issues that Microsoft faces. Packaged software — namely Windows and Office — are huge profit centres for Microsoft. Cloud computing is not.

Microsoft is a company forged in the era of client/server computing — in fact, it was one of the primary drivers of the model. Unlike its new nemesis Google, cloud computing is something that it has had to learn.

Many cloud providers are doing a good job of educating users that the cloud is not free. Software-as-a-service applications such as Salesforce.com, Xero and Saasu have built solid and profitable business models out of the cloud, proving that customers will pay for cloud services where they see value.

Microsoft has shown it understands this with Office Web Apps, which is available free of charge for volume licensing customers or for an additional subscription through Microsoft Online Services. In days past, Microsoft might have given this away for free to crush a smaller rival, but the subscription model does show it sees the cloud as part of its future revenue. But Microsoft Online Services is very different to offering Office itself as a cloud-based application. For access to the full functionality you still need to buy the desktop application.

The real issue for Microsoft, however, is one of innovation. Salesforce.com and other cloud service providers have demonstrated that innovation should be constant — not something delivered every three to four years. Salesforce.com is updated every six months, with users getting access to new functionality that they themselves have often demanded.

Anyone using Outlook 2007 that has cursed its lack of integration with social media tools has had to use a third-party application such as Xobni to get the desired functionality — or wait three years for the release of Office 2010.

When asked whether Microsoft would rethink its release strategy to better reflect the new expectations that the cloud has produced, Microsoft's VP of Office business productivity Kirk Koenigsbauer said no decision had been taken on future release cycles.

It is pretty much certain, though, that Microsoft will continue to innovate on the web, with users of Microsoft Online Services likely to see to a stream of new features and functionality over the next few years.

So what of those users who have paid for Office on the desktop? Will they face another three or four years of application lock-in while technology evolves around them?

Koenigsbauer said the word from corporate customers was that they were not interested in constant refresh cycles for applications such as Office. While this is understandable, it does not represent the entire Office user base, many of whom are small businesses and individuals that have become accustomed to ongoing software upgrades through the many patches that Microsoft distributes for its operating systems.

It also shows the basic conundrum that Microsoft faces. There are many large corporations using cloud applications already — and part of their reasoning is the cloud means they do not have to worry about managing upgrades. This is all handled by the cloud service provider. There are no software deployments to manage or changes to the desktop image, as it is all happening in the cloud. This again shows the restriction of the desktop model.

The desktop version of Office is going to be with us for many years yet. Some users are far from ready to move to cloud-based applications, and networks are far less reliable and accessible than an application installed on the machine sitting in front of you.

But over time Microsoft is going to have to wrestle with some significant issues regarding innovation and consumer expectations. The days of the Big Bang integrated application suite that better suits the product maker than the product purchaser appear to be numbered.

A three-year innovation cycle simply won't cut it in a cloud-based world.