Microsoft's Office streaming price too high to compete with Google Apps, some partners say

Pricing through ASPs may be four times or more what Google charges for its applications

As Microsoft Corp. moves toward allowing application service providers to stream Office to their customers, the software vendor still seems to fear hurting itself more than being hurt by Google Inc.

At its Hosting Summit 2008 earlier this month in Bellevue, Wash., Microsoft officials quietly told application service providers (ASP) that they would soon be able to sell subscriptions to Office and then deliver the desktop applications to users via the Internet.

End users would access Office through application streaming, an up-and-coming technology that lets companies store applications on servers and then use the Internet or their own local networks to send the code to PCs. Corporate customers that have purchased maintenance and update contracts under Microsoft's Software Assurance program can already stream Office to internal employees. But this is the first time that Microsoft is extending the capability to ASPs, which have long campaigned for the right to do streaming.

Nevertheless, some hosting providers are unhappy about the price that Microsoft has set for streaming Office, saying it's too high to win over customers that are considering or already using less-expensive online office suites, such as Google Apps.

In addition to a free, unsupported version of Google Apps, Google offers its software in an enterprise version that includes technical support and costs $50 per end user annually. Google is still trying to build up its suite's credibility with corporate users. But early indications from ASPs are that streaming Office 2007 will cost four to six times what Google charges for its applications.

For instance, one Microsoft reseller is charging ASPs $10.20 per month for a streaming client license of Office Standard 2007, according to a price sheet seen by Computerworld. A license for Office Professional Plus 2007 costs $13.23 per user on a monthly basis through the reseller.

"I don't believe that this will attract a large number of customers currently using Google Apps," said Gagan Prakash, senior executive director of engineering at GroupSpark Inc., a Burlington, Mass.-based company that delivers hosted versions of Microsoft products through other service providers. Why does Prakash think that? Because, he said, hosting providers will need to mark up the price between 50% and 150% in order to make a profit, thereby resulting in a monthly retail price of $15 to $25 per user for Office Standard.

"In order to compete with Google, Microsoft should have a lower-end offering that is very, very competitive on pricing," Prakash said. "This [price] isn't nearly aggressive enough."

Others say the cost of the streaming option may also be too high to tempt companies that currently run on-premises versions of Office.

A full-priced retail copy of Office — the kind that is bought by individuals and by some small and midsize businesses — costs about $300. Amortized over three years, that's roughly $8.50 per month.

But even many small companies buy reseller copies of Office, which can be half the price or less, said Paul DeGroot, an analyst at Directions on Microsoft in Kirkland, Wash. Others simply wait four or five years, or even longer, to upgrade Office.

"If you're the kind of person still using Office 2000, then paying even $10 a month is not a particularly good prospect, financially," DeGroot said.

Through a spokeswoman, Microsoft declined to comment for this story.

But sources said that Microsoft has told ASPs that the prices may change and that more options, including a license that charges service providers by the number of server CPUs used to stream Office, should emerge over time. The latter license would enable ASPs to charge customers a price based on their usage of Office — an approach that could give companies whose employees are sporadic or light Office users a lower entry-level cost than the flat-fee subscription price would.

On the other hand, Prakash pointed out that the Outlook e-mail client, which is part of Office, is the kind of application that users tend to keep open all day. That could negate any cost advantages for usage-based subscribers.

For customers, the potential value of a streamed version of Office "isn't so much in the cost savings," acknowledged Danny Essner, director of marketing at Intermedia Corp., a hosting services provider in New York.

Although Essner would prefer that Microsoft offer less-costly versions of Office for streaming, he also said he thinks that users will come, mainly because it's easier — and hence, cheaper — to deploy and manage streamed Office via an ASP. For instance, companies can be sure that they're on the latest versions of Office without having to worry about testing and installing patches or software upgrades, Essner said.

DeGroot doesn't expect streaming Office to catch on widely, at least at the initial price levels. But he identified a number of scenarios where it could make sense, such as at companies whose employees use Office only at certain times of the year. Other examples cited by DeGroot include businesses that need to deploy the Microsoft suite immediately or that have a very small number of users and no in-house IT staff.

Sources have said that Microsoft will confirm its plans to allow streaming of Office by ASPs at its Microsoft Management Summit 2008 in Las Vegas this week. The company hadn't done so as of midday on Wednesday, although it did announce today that the Release Candidate 1 version of its own Application Virtualization 4.5 software is scheduled for a June release. That technology, formerly known as SoftGrid, supports the internal streaming of Office and other products within companies.

Copyright © 2008 IDG Communications, Inc.

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