The road to Microsoft Office 365: The past

I'm kicking off a three-part series on the road to Office 365. Today, I'm looking at the early history of the products and people that put the cogs in motion for Microsoft's software-as-a-service play.
Written by Mary Jo Foley, Senior Contributing Editor

I'm kicking off today a three-part seriesabout Microsoft's Office 365, the company's software-as-a-service offering.

When Microsoft announced its plans for Office 365 in October of this year, few were cognizant of the five-plus years of groundwork that preceded the launch of its hosted-application platform. Few also seemed to understand why and how Microsoft is attempting to coalesce its varied hosted app offerings under a single brand and infrastructure. I'm hoping with this series to explain the past, present and future of one of the most important elements of Microsoft's cloud strategy.

Office 365 is the new name for the Microsoft services offerings currently known as Business Productivity Online Suite (BPOS), Live@edu and Office Live Small Business. Office 365 is in limited beta now and will be available to customers in the first half of calendar 2011. More nuts-and-bolts details about Office 365 are available via my ZDNet Webcast, "Office 365 Essentials," which is downloadable for free (with registration).

Laying the Office 365 Foundation

The idea of a suite of Microsoft-hosted applications isn't something new that the Softies dreamed up in response to Google Docs. Microsoft execs were pondering the possibilities of hosted applications as far back as 2003 to 2004, when Microsoft began making a handful of key strategic acquisitions in this arena.

Different business units at the company were pursuing parallel strategies. The reseller-channel-focused part of the company had fielded a hosted Exchange offering at the start of the decade, via which it was offering certain resellers and integrators the ability to resell to their users partner-hosted Microsoft Exchange. The Windows Live team had developed a hosted offering focused at the academic community, known as Live@edu. And the Office Live team had fashioned a small-business-centric set of Microsoft-hosted wares, known as Office Live Small Business (OLSB), which included e-mail, domain hosting and Web-site development tools.

(click on the timeline image above to enlarge)

Eron Kelly, Senior Director for Office 365, remembered Microsoft was looking for ways to grow its Office-centric businesses around mid-decade. Hosting seemed like an attractive option, but the question was whether Microsoft should buy or build -- or do a little of both -- to get more deeply into this arena.

Microsoft's real-time communications unit already had purchased hosted conferencing vendor Placeware in 2003. In 2005, the Redmondians bought FrontBridge, a secure-messaging service provider.

"By late 2005/early 2006, we saw a clear value proposition in running Exchange for our customers," Kelly recalled. "We could offer customers economies of scale and skill, and also make more money for Microsoft."

Microsoft execs already were envisioning the business and technical opportunities of providing not just hosted e-mail, but also instant-messaging, presence, and other related services, Kelly said. Microsoft officials were referring to this concept as CCS, or communications and collaboration services.

While the product teams were launching their fledgling hosted offerings, things also were happening internally -- on the Microsoft Information Technology (MSIT) side of the house. By 2005, explorations had begun around the idea of Microsoft running multiple services for large customers, including Microsoft itself. MSIT was testing a pilot of Microsoft-hosted Exchange, SharePoint and Live Communications Services with Energizer Holdings.

The primary champion behind Microsoft's burgeoning Online Services push was the former president of Microsoft's Business Division, Jeff Raikes. But Microsoft's outgoing Chief Software Architect Ray Ozzie played a role in the company's .hosted services push, as well, according to Kelly.

Ozzie joined Microsoft in 2005, and his subsequent "Internet Services Disruption" memo "was wind in our sails," Kelly said. "His view was closely aligned with ours and we met with Ray often, even though he was spending a lot of time on the consumer side (and on the Live@edu piece) of Microsoft's business," Kelly said.

"We talked at the early stage about decisions and their long-term impact on Microsoft. We spent a lot of time early-on with (CEO) Steve (Ballmer), Raikes and (former Office chief Steven) Elop," said Kelly. "The thinking was this (Microsoft's Online Services) was the first instance of what Microsoft would ultimately become."

Late 2008: BPOS is Born

By the time 2007 rolled around, Microsoft quietly was offering Microsoft-hosted versions of Exchange,  SharePoint and Live Meeting (the result of Microsoft's Placeware acquisition) to the first few paying customers, which included Energizer, XL Capital and a handful of other enterprise accounts. It wasn't until late 2008, however, that Microsoft officially launched BPOS, its bundle of these services, as a package.

At this stage in Microsoft's Online Services life, BPOS was a side business for Microsoft. The company was still leading with software, not services. And no one was talking (yet) about being "all in" with the cloud.

The Microsoft product teams delivered its on-premises versions of Exchange, SharePoint and Communications Server to its Online Services teams and those teams then began work on bringing a subset of the services in these products to customers who were willing to try using them in the form of Microsoft-hosted services. The lag time between the time a software feature was available as a service feature was (and still is, at this point), substantial. The majority of current BPOS customers don't have access to the features Microsoft rolled out months ago with Exchange 2010 and  SharePoint 2010, for example. (Those features are now slated to debut when Office 365 launches next year.)

Going forward, however, the plan is to develop software and hosted services in tandem, Kelly said. By getting new features into services more quickly, new advances in each of the piece parts of BPOS/Office 365 will be available to customers more immediately.

"As the Exchange, SharePoint and Communication (Lync) teams take more ownership, once a server is ready, we expect the delta (between software and service delivery times) to diminish," he said. "The idea in the future is to have things come out at the same time, but not to force all (teams) to be on the same train."

How is Microsoft planning to speed up its delivery schedule? What's changing, besides the brand names, as Microsoft moves from BPOS to Office 365? I'll tackle these questions and more in tomorrow's installment of this series.

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