Walter Adamson: Office365

I like the look of the new Telstra Digital Business bundle, even though like many (most) people I'm not a fan nor an advocate of my telco provider. I'm certainly not about to Like them anywhere in the social ecosphere!

I don't Like you but the others are probably worse - I fear

I'm a "hostage" customer in that I think the couple of other "competitors" are just as bad if not worse. Telstra has earned it's share of the rising number of complaints to the Telecommunications Industry Ombudsman (but to be fair its proportion of the complaints has fallen). And the marketing telebabble which all the players indulge in has been likened to Orwell's 1984 doublespeak - it's decidedly scammy but that's the world in which their marketing departments live.

So despite in the past having to endure up to 6 hours on the phone trying to rectify my accounts (they eventually offered me $500 to "settle" one blunder) I have "registered my interest" in their new Digital Business offer.

What is the real "natural market" for telco business extensions?

The future for telcos is a hot topic and the big events on this get the attention of the top people, especially if Tomi Ahonen is on the stage!

That's because it's not so obvious. For example, personally I don't buy the argument that telcos are the "natural owners" of cloud computing services and that this will be their new salvation.

Over the last decade telcos have said to be the natural owners of many things - web hosting, general hosting, media, entertainment, sports, SMB services, SaaS portals, systems integration services, enterprise software services, buying groups, trade exchanges, trade markets, trade directories, trade forums - but few if any have had any traction despite the billions poured into these initiatives globally.

Let's face it, although the "app store" and "iTunes" was invented and commercialised by Japanese carriers 5 to 6 years before Apple the telco world elsewhere universally proved to be the dead hand which crushed such initiatives, and others such as mobile payments.

Apple didn't innovate iTunes, it innovated out of the dead hand of the telcos

Apple's innovation wasn't in iTunes or the app store, they were proven models in Japan, it was in taking control out of the dead hands of the telcos and music companies. That was a true commercial innovation. And I suspect Apple will also take control of a broader payment system as well. In these respects telcos universally are duds and they've lost those races.

Telco 2.0 provides industry research and strategy, and their model has 6 "opportunity types". Telstra's Digital Business initiative lies across 2 of those types - Vertical Industry Solutions, and Embedded Communications. The bundle comprises:

New voice calling features: including an "Auto attendant" redirecting calls to fixed phones in up to three locations and mobiles;
High-def call quality – SME voice-over-broadband;
Sophisticated voicemail – fixed and mobile voicemail messages are collected in a single hosted voice box and can be forwarded to staff as email or SMS;
New pricing – businesses pay a ‘per user' fee rather than "per phone line", with a flat rate for services including hosted email;
Free calls - all voice calls between phones on a Digital Business account including mobiles are free of charge;
Domain Registration - access to professional email and web addresses;
Hosted email via Microsoft Exchange Online - real-time and synchronised email, calendar and address book information across computers, laptops, tablets or smartphones;
Broadband back-up service via the Next GTM network – can switch businesses automatically to wireless in the event of a fixed network outage.

I'm sure that there are many similar bundles offered by telcos elsewhere, and this stikes me as an attractive package to small businesses like mine. If the rumoured entry price of $120 per user per month is correct then that is attractive, subject to the detail. I'm paying almost that much now just for my mobile phone. (And if Tesltra would add in virtual fax then it would be a real winner.)

Scaling is always the killer because the channel is the choke

The $64 question for Telstra is how can their distribution channel cope with a product of this "complexity". After all just signing up for a mobile phone has the channel extended to its limits. It doesn't matter to me personally, as long I as I can sign up without too much grief. But in order to achieve scale the digital and the retail engagement model will need to be designed and executed with care and a lot of attention to operational excellence and digital engagement.

I'll buy!

I'm not about to Like Telstra, but I am looking forward to the detail of the new offer, and I'll very likely sign up. If they get it right then Telstra will suck the wind from the sails of many of the smaller existing IT service providers to the SMB market, particularly the "Medium", and that's something which which should be keeping these providers awake at night. Don't bet on Telstra's previous incompetence, if nothing else their price point is going to crunch the market.

It's not as if relationships don't have a strong role. The smaller service providers have this advantage with their current customers. It's just that at some stage the value offered by the local service provider falls below the value created by the low price point of offers like Telstras.

I actually hope that Telstra can deliver as if it is well done it will help small business productivity with the suite of integrated services. It's a sign of "cloud" productivity and economics hitting the mass market.

Are you a user of a similar bundle, from your telco or elsewhere?

What natural markets do you see for telcos to extend into?

How threatened should smaller IT service providers feel by these kinds of bundled offers?

Walter @adamson

Folk etymology has it that the Chinese character for crisis 危机 is a combination of "danger" plus "opportunity". Linguists point out that this is incorrect, but its popularity lives on in speakers' repertoires because it's a convenient and perhaps exotic segue.

Now, perhaps the combination of Partners plus Office365 represents "opportunity", or, might it turn out to represent an equally factious interpretation. Certainly in some partner circles and parts of the blogsphere it is seen as a danger.

So let's simplify things, and rearrange the equation into something which is at least more than a truism in that it's not so entirely self-evident as to not be worth mentioning. As far as Partners are concerned, Office365 is a danger and an opportunity. In any case I'm hoping that the "opportunity" component is not self-evident as if it were then I am wasting your time!

Office365 = Danger + Opportunity

Danger

As a Partner I mean a current hosting partner of Microsoft offering hosted Exchange, SharePoint and Office Communications to their clients.

From the "danger" perspective things are clear. Office365 offers the clients of these partners a compelling suite of business IT services at very attractive prices and with a 99.9% service level. In fact if you have 25 seats or less you pay only US$6 per seat. This gives you access to Office Web Apps plus hosted Exchange, Sharepoint, and Office Communications (including Live Meeting, all rebranded as Lync). You can chop this up various ways, and in every way it represents a very competitive offer, serviced direct from Microsoft to client subscribers.

For clients with more than 25 seats, the cost per seat ranges up to US$27 (or for the "E3" plan $24 per user per month without the voice capabilities for Lync - formerly Office Communicator - Online). And this also includes a license for Office Professional Plus 2010 on their desktop, and Active Directory. It also includes telephone support. Office Professional Plus 2010 is a comprehensive suite which is integrated and synchronized with the whole Office365 online service.

Is this Office in the cloud? No, but it is Office "Plus" on your desktop synchronized with the current state of Office Web Apps and supporting remote and mobile access. The fact that it's not yet full Office in the cloud is hardly significant in the value equation given the cost and benefits this enterprise Office365 offers.

It's a Google Apps killer for sure. I use lots of Google stuff, and appreciate their innovation, but let's get real, this is a king hit from Microsoft as far as enterprise and small business apps are concerned. Beyond the intrinsic advantages of Office365, there is the huge partner network (not just the hosters but the developers).

What is the danger that clients will compare prices with their current hosting partner offers and then request Office365 services from their service provider as an agent of Microsoft, or worse still sign up directly with Microsoft?

The danger is clear and present - so how can it be mitigated by the opportunities?

Opportunity

Departing from the Hosting Partner theme for a minute, the opportunity for software developers and systems integrators (ISVs/SIs) is significant - there is now more opportunity than ever to build apps to integrate into the Microsoft Online services (think Sharepoint, Exchange, CRM, Lync) and for SIs a wave of migration opportunities and custom development. Microsoft has a showcase of these which is worth reading, and it's more than self-promotion it is a really good opportunity space for partner solutions.

In fact throw Windows Azure into the mix and solution developers have the opportunity of a lifetime - to develop in the cloud and and integrate into Office365 and offer complete line of business cloud solutions which, marketing-wise, will piggyback on the cloud wave and marketing of Office365.

We'll also see the development of an "Apps Store" for Azure/Office365 using what's called the Sandboxed Solutions feature of Sharepoint Online. This will join the ranks of Google, Salesforce, Zoho, Intuit, Netsuite in having apps stores, but will start with a massive developer base familiar with the Azure environments.

So how about Hosting Partners? How will they fare when Microsoft does all the hosting? The truism is that they have to "add more value". We want to move beyond the pregnant pause which usually follows that statement and examine what that value could be, within the context of the capabilities of hosters.

Marco Limena, vice president of business channels for the Worldwide Communications Sector at Microsoft, recently discussed the Office 365 announcement and opportunities for hosting provider partners. He highlighted these areas:

BREADTH - Growth of the userbase in SMBs, noting that hosted email was extremely fragmented and "with Microsoft Hosted Exchange accounting for only a small percentage of the space", so hosters would go for a volume play to recruit new clients to Office365.

DEPTH - Offering "value-added services" that "extend beyond the features offered in Office 365 Small Business such as customized services IT tools, phone support, the ability to grow beyond 50 users, sync with Active Directory, advanced IT management, enterprise-class e-mail, Web content management, business intelligence, additional storage, security features, archiving and the full Microsoft Office suite".

Now I must admit that not all that made sense to me. For example it seems that he is only addressing one variant of Office365, for Small Business, although he says "Office 365 for small businesses is targeted at customers with up to 50 users" and yet all other announcements say 25 users? And then his "value added" services seem to me to actually be all the services a client gains by signing up to Office365 for Enterprise - and therefore not bringing any direct hosting revenue.

Three opportunity strategies

So that makes my head hurt a little, but not to worry let's assume that I'm missing something and where to from here? The fundamental points I see are these:

Hosters are not going to be able to compete with Microsoft's hosting capabilities, pricing, and financial guarantees against a 99.9% SLA on Office365 or any Microsoft Online products. On the other hand, clients aren't going to shift overnight, and a certain amount of FUD and conservatism will provide adequate time for hosters to plan their way forward.

The most basic strategy is to build a marketing capacity to reach a large number of new clients and sign them up to Office365. This is easier said than done, in primeval terms it means turning into a GoDaddy marketing machine - which hosters can do this, and have the cashflow and talent and can they design and execute the digital engagement strategies?
Another is to build a more complex multi-sourced Go To Market model, whereby hosters aggregate and integrate apps and cloud services and add those into the Office365 offer. The core to this is that hosters have to have or bring on board integration skills, know how to use integration products like IBM's Cast Iron and Cloudburst, and also have migration skills to be sold on a project by project basis to clients to transition them to the cloud.
For example as part of that migration it's possible now for a hoster to add Office Web Apps to their hosted Sharepoint and to take that to customers ahead of Office365's full release.
Here's the trick - you have to be able to select and build a competitive portfolio of apps and cloud services, and be able to do the commercial deals to ensure both viability and servicability (support and end-to-end SLAs). One key to the portfolio is the non-Microsoft linkages which suit the target segment - Blackberry related, iPhone related, field service apps, remote monitoring etc. (Not forgetting Microsoft build-outs like Windows Intune.) Also the management of a mobile fleet can be a good value-added service.
Another of the opportunities, over time, is as clients migrate to the Microsoft cloud and off the hoster's domain that there is a chance to optimize investment and capital in own-facilities to support new hosted offers as part of the portfolio. This will see hosters using a hybrid cloud model.
Finally, hosters can use the cloud transition, what we call the Cloud Shift, as a means and vehicle to engage more closely with their client base. It's an opportunity to talk business, enabled by the technology. Customers will have concerns about moving to cloud, and once beyond the basics these will centre on "how do we make best use of cloud/Office365". Hosters who can help clients extract the most business value from the transition will have the opportunity to claim a fair share of that value for themselves.

Churn ain't churn - it's hoster churn not apps churn

In the general SaaS world, it's crucial to manage customer churn and to optimize renewal rates. With Office365 this has a slightly different flavor. Sure some clients will migrate to Google or Zoho, but in fact Office 365 is the competitive offer to retain them or to bring them back. The real game for hosters is to ensure that their clients renew with them and not a competitive Office365 hoster - that's all about relationships and that's the big story in the future of hosting for SMBs (unless you follow the GoDaddy model).

Conclusion

In conclusion there is both danger and opportunity to Hosting Partners in Office365. To minimize the danger and to optimize the opportunity it is the time right now to start agreeing the business goals and objectives for the next 12 months and 3 years. Once that is settled, which is not necessarily easy, then a path from the current assets and capabilities needs to mapped into the future value equation. It's probably fair to say that there are more dangers than ever, but at the same time more opportunities than ever for those Hosting Partners which get it right.

Do you think that Office365 represents more of a danger or opportunity to Hosting Partners?

Where do you see as the best future model for hosters in a Microsoft Online/cloud world?

What timeframes do you think are crucial in making this transition?

http://xeesm.com/walter