Microsoft announced their business cloud offering Office365 yesterday. In keeping with Microsoft’s installed software offerings, it has 3 components: Microsoft Office, Exchange and Sharepoint. The natural question is how does it impact Zoho? What do we think of this at Zoho?

I believe Microsoft’s offering will be successful. Microsoft is a formidable competitor, and when they focus, they tend to get things right. They have been lukewarm about the cloud in the past, but that strategic ambiguity is firmly in the past – with Office365, they are making that loud and clear.
From our perspective, Microsoft getting serious about the cloud brings both opportunities and challenges. I will first outline the short to medium term effects. The obvious first effect is that the entire cloud ecosystem benefits due to Microsoft’s arrival. This is the well known “anchor tenant” effect in shopping malls, where every store benefits from the increased traffic brought by the anchor tenant. Microsoft has signaled that the cloud is the future of all software, including their crown jewels. The future is here and now. It is a rising tide and that clearly benefits Zoho. We don’t have to sell why the cloud is better for apps that were traditionally thought of as firmly wedded to the desktop, we just have to articulate why our cloud offering is better.
On the challenges, clearly Microsoft is going to have a formidable presence, due to its sheer installed base, and the incumbency advantage Microsoft enjoys at its installed base. Again, the challenge for us it to clearly articulate why we offer a better value proposition. In a nutshell, we bring a sharp focus, a comprehensive product strategy and vision that integrates traditional document oriented apps with database oriented business apps, opening new avenues for business productivity and finally, we bring better pricing. As a nimble company that has no corporate ego, we will integrate our offering with Microsoft wherever possible, just as we do with Google Apps today. Google has been exemplary in their openness, and we hope that Microsoft will be as open in allowing third parties to integrate into their stack. For example, we would seek to integrate our CRM with Microsoft’s cloud Exchange and Sharepoint offerings. 
Looking ahead over the long term, I want to make an important point: software in the cloud is going to be more competitive and more open than software on the desktop. The analogy here is the wireline to wireless transition in telecom. Not long ago (thought it feels like ancient history) there was really only one phone company in each country, often known as “the phone company” – because no further qualification was needed. Today, there are very few places in the entire world where there is not a choice of 3 or 4 wireless providers. It is one of the most dynamic markets in the world, as in if you blink, you missed a product turn.
Looking at the cloud ecosystem, we have major forces operating that practically ensure that we are not going to have a monopoly. We have a competitive service provider market, an ultra-competitive data center market, and we have infrastructure offerings like Amazon that make it easy for cloud software vendors to scale up quickly.  Consider the crucial client operating system market, which no longer means just the desktop and laptop, with mobile and tablets being where the action is. The mobile OS landscape is a real horse race between Apple, Google, Microsoft, Blackberry, Nokia and Palm/HP – the only certainty here is that it is not going to be a monopoly. Even on the business desktop, Mac OS, riding on the astounding success of the iPhone and the iPad, is making strong inroads, and it is unlikely Microsoft is going to be able to stop Apple from making its presence felt in business computing. This is not to say that Microsoft won’t remain a formidable player; I personally think Win Phone 7 is a serious and credible offering, and will gain reasonable share. My point is that the client operating system monopoly is over. The constellation of forces, from carriers to device vendors, from application developers to consumers and businesses, precludes that possibility.
Why is all this relevant? If Microsoft cannot consolidate the client operating system market, it cannot monopolize the cloud. It was the Windows monopoly that practically ensured the Office monopoly. If the cloud apps market is not an inevitable monopoly, by definition, many vendors are going to flourish, and there will be many opportunities to differentiate and add value. Microsoft has made it clear it is not going away, Google is not going away, and we want to be clear that Zoho is not going away. While the short to medium term impact of Microsoft’s strong cloud showing is actually a positive for us, we strongly believe we have a really good long term opportunity here. Of course it all comes down to execution and we like our chances at Zoho.

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  1. Raphael Volz

    Sridhar, good points, but I see more of a competitive thread for Zoho by the fact that Office 365 is available both on premise and in the cloud.The enterprise business is where Microsoft really makes money. This money is used to cross-finance many other activities. From my perspective, the really interesting observation is that Microsoft has bundled into Office 365 capabilities in markets where Microsoft does not dominate.Basically Microsoft hands out things “for free” where enterprises currently pay for other products such as WebEx.For end users and small businesses Microsoft has lowered prices to compete with the much cheaper prices offered by Google Apps and Zoho, but I would classify this merely as a competitive response against new contestants in a secondary market (the online office space) and is an extension of what has been done with Works for a long time already.What would Zoho do, if Microsoft would offer Office 365 for free for your main audience SME and private users ? What is your competitive response to address the real cash cow (large enterprises) of your competitor ?

  2. Raphael Volz

    Sridhar, good points, but I see more of a competitive thread for Zoho by the fact that Office 365 is available both on premise and in the cloud.The enterprise business is where Microsoft really makes money. This money is used to cross-finance many other activities. From my perspective, the really interesting observation is that Microsoft has bundled into Office 365 capabilities in markets where Microsoft does not dominate.Basically Microsoft hands out things “for free” where enterprises currently pay for other products such as WebEx.For end users and small businesses Microsoft has lowered prices to compete with the much cheaper prices offered by Google Apps and Zoho, but I would classify this merely as a competitive response against new contestants in a secondary market (the online office space) and is an extension of what has been done with Works for a long time already.What would Zoho do, if Microsoft would offer Office 365 for free for your main audience SME and private users ? What is your competitive response to address the real cash cow (large enterprises) of your competitor ?

  3. Sundar Ramanathan

    The Cloud Services aka Software as a Services – SaaS model breaks down the barrier to ENTRY for Solution providers – so there will be a large set of solution providers and at the same time provides “low risk, low entry cost” for small/medium and large enterprises. Business Soluton landscape will be benefiting a lot with assimilation of SaaS /Cloud Services. Let the Game begin!

  4. Sundar Ramanathan

    The Cloud Services aka Software as a Services – SaaS model breaks down the barrier to ENTRY for Solution providers – so there will be a large set of solution providers and at the same time provides “low risk, low entry cost” for small/medium and large enterprises. Business Soluton landscape will be benefiting a lot with assimilation of SaaS /Cloud Services. Let the Game begin!

  5. Lakshmi Narasimham

    @Sridhar Yes you are right .. differentiators are the key. You wrote about Zoho CRM integration with MS products. Curious to know how your integration will have edge over the on demand MS Dynamics CRM solution integrated with Cloud Exchange and Sharepoint solutions?
    I could see a major advantage for MS with their cloud efforts is customer can chose to shift between on-premise and SAAS models with least efforts (hope MS offers this business model).

  6. Lakshmi Narasimham

    @Sridhar Yes you are right .. differentiators are the key. You wrote about Zoho CRM integration with MS products. Curious to know how your integration will have edge over the on demand MS Dynamics CRM solution integrated with Cloud Exchange and Sharepoint solutions?
    I could see a major advantage for MS with their cloud efforts is customer can chose to shift between on-premise and SAAS models with least efforts (hope MS offers this business model).

  7. ata

    Well, referring to their promotion it obviously seems like an impressive and useful software for small businesses:
    http://www.youtube.com/watch?v…But it seems to be monthly subscription instead of a one time fee which would have been convenient. But not yet available for purchase until 2011!

  8. ata

    Well, referring to their promotion it obviously seems like an impressive and useful software for small businesses:
    http://www.youtube.com/watch?v…But it seems to be monthly subscription instead of a one time fee which would have been convenient. But not yet available for purchase until 2011!

  9. Brent Frei

    Sridhar, well said all the way around.

  10. Brent Frei

    Sridhar, well said all the way around.

  11. Sridhar

    @Lakshmi, then it is the job of the neighbors to figure out how to differentiate and add value to their offering, so that customer would stop by at their store.

  12. Sridhar

    @Lakshmi, then it is the job of the neighbors to figure out how to differentiate and add value to their offering, so that customer would stop by at their store.

  13. Lakshmi Narasimham

    Nice to read the article. Good that you have seen the positives of the Microsoft cloud efforts to your business. But if anchor tenant in shopping mall has all the offerings what neighbour tenants offer then what happens to the neighbours?

  14. Lakshmi Narasimham

    Nice to read the article. Good that you have seen the positives of the Microsoft cloud efforts to your business. But if anchor tenant in shopping mall has all the offerings what neighbour tenants offer then what happens to the neighbours?