Office 365: After one year, how's Microsoft doing?

Microsoft is betting big on cloud computing, and its biggest stack of chips is on Office 365. One year after the biggest launch in its history, how's that gamble working out?
Written by Ed Bott, Senior Contributing Editor

Microsoft Office is celebrating a very important anniversary.

Office 365 Home Premium, a subscription service aimed at consumers, debuted on January 31, 2013. In one year, it’s grown to 3.5 million paying customers, each shelling out $99.99 for a 12-month subscription that includes the rights to download and install the latest version of Office on up to five PCs or Macs, as well as 20 GB of extra online storage and 60 minutes of Skype calling time each month.

The corresponding Small Business and Enterprise editions of Office 365 debuted a month later, with new versions of Office client programs and business-focused services beginning their rollout on February 27, 2013. Microsoft says over 15 percent of the Exchange installed base is now on Office 365, up 9 points in the past year. Based on an estimate of roughly 500 million Exchange mailboxes worldwide (on-premises and cloud-hosted), that’s a shift of as many as 40 million business mailboxes to Office 365 in the last 12 months. That’s one reason commercial cloud revenues were up nearly 30 percent for Microsoft in its most recent quarter.

I’ve spent the past year using all three services, both as an administrator and as an end user. What I’ve seen during that time is a steady progression of improvements (including important new features) and a service that has been consistently reliable across the board.


That reliability shouldn’t be a surprise. Microsoft has been running high-volume cloud services for many years, and the bundle of business services we know today as Office 365 – Exchange Online, SharePoint Online, and Lync Online – debuted in 2008 as the Business Productivity Online Suite (BPOS) before being rebranded as Office 365 a few years later.

But the changes introduced in 2013 really were a sea change for Microsoft. What's the big deal? Six factors have helped transform Office 365 in the past year.

Software as a subscription option

There's plenty of skepticism and suspicion over the shift from perpetual licensing to a subscription-based service. (For more, see "Big changes in Office 2013 and Office 365 test Microsoft customers' loyalty.") Wisely, Microsoft has chosen to continue to offer both license types. That will undoubtedly change over time, but for now at least business customers and consumers still have a choice.

Support for multiple devices

It's a multi-device world. We have multiple PCs, tablets, and smartphones, and we expect to be productive from any of them. Not only that, the lifespan of devices is being compressed. Every edition of Office 365 that includes the Office desktop programs also includes the right to install that software on up to five devices (PCs or Macs) as well as the ability to stream Office apps to an unlimited number of devices. Not having to squirrel away installation disks and manage activation keys means a huge reduction in frustration and fewer calls to the corporate help desk.

Automatic updates and upgrades

From a technical point of view, the Click-to-Run technology that drives the subscription-based Office editions is perhaps the most impressive part of the package. Every month, subscribers get a new version of Office, with security updates, bug fixes, and new features. Technically, all of the current versions of the Office programs are part of the Office 2013 family, but that can and will change one of these months. And subscribers won't have to ponder whether to pay for an upgrade. It'll just happen.

Business-class services for any size business

Exchange Online is a remarkable accomplishment, well tested in millions of enterprise installations and now run in the cloud by Microsoft's engineers. What remarkable about this piece of Office 365 is that this enterprise-class service works so well for even very small businesses. How small? A sole proprietor can set up Office 365 Small Business with a single user account at a cost that won't break anyone's budget. 

Slick integration with cloud storage

Whether you're on the consumer or business side of the fence, you have a cloud storage option included with an Office 365 subscription. Consumers get an extra 20 GB of storage in OneDrive (the new name for SkyDrive). Business plans offer 25 GB of SkyDrive Pro storage (soon to be rebranded OneDrive for Business). In either case, my experience with both cloud options has been flawless, integrating smoothly into Office apps and also working well in a browser with Office Online, the new name for Office Web Apps.


Smarter segmentation

Microsoft has a well-deserved reputation for creating too many editions. With this generation of Office 365, the lines between consumers, small businesses, and enterprises seem to be drawn with rare sanity, both in terms of features and in pricing. The Small Business edition might still be a bit daunting for anyone without a solid grounding in IT, but the consumer and enterprise editions are ideally suited to their audiences.

It's amazing to consider that more than a billion people worldwide use some version of Microsoft Office. There's no guarantee that those customers will come along for the ride as Microsoft moves from a traditional licensing model to on driven by subscriptions. But the experience of the past year suggests that Microsoft just might be able to pull off that move.

The fact that more than half of Office 365 revenue comes from international markets, with an especially impressive triple-digit growth rate in emerging markets, should give Redmond even more confidence.

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