What's Microsoft's Office Web Apps strategy?

Last week's addition of real-time collaborative editing counters Google, but positioning of the browser-based Office remains unclear

Microsoft's addition of real-time collaboration to its free Office Web Apps last week was necessary in the short term to counter Google Docs, analysts agreed.

But the company's longer-term strategy for the browser-based Word, Excel and PowerPoint apps remains less clear.

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"Real-time collaboration is what got Docs on the map. And Office didn't have it," said Michael Silver of Gartner in an interview Friday.

Wes Miller, of Directions on Microsoft, agreed. "It's really important that they added [real-time collaboration] for those who were looking right-left, right-left at comparisons between Office and Google Docs," said Miller. "This was a counterpoint to Docs."

Last Thursday, Microsoft began rolling out enhancements to the browser-based apps, notably real-time collaborative document editing. Previously, users could simultaneously edit documents but needed to save the changes before others could see them.

Office Web Apps can be used free-of-charge, but they are also included with Office 365, the software-by-subscription service that Microsoft has been aggressively promoting and selling to businesses. There, Office Web Apps are linked to SharePoint, the Redmond, Wash. company's collaboration platform and central hub for storing, accessing and sharing documents.

But Microsoft's overall strategy with Office Web Apps has always been something of a mystery.

Clearly, one reason for their existence has been to defend against customer defections to Google Apps for Business, the $50 per user per year service that includes Docs. Microsoft currently counters Google Apps for Business with a pair of Office 365 plans built around Office Web Apps: One, aimed at small businesses with 25 or fewer employees, is priced at $5 per user per month ($60 annually); the second, targeting larger firms, runs $8 per user per month ($96 a year).

Beyond that, however, its purpose has been debatable. Is it an eventual substitute for Office on the desktop? A loss-leader aimed at consumers? The cross-platform Office for tablets running Android or iOS?

At the center of that debate is the central dilemma of Office Web Apps: Microsoft must walk a line between not offering enough functionality and offering too much. The former would negate its ability to compete with Google, the latter could prompt businesses to dump the higher-priced Office perpetual licenses or Office 365 plans that include rights to the desktop suite.

Rivals don't have to join that high-wire act, since their business models don't rely on software sales, but on advertising (Google) or devices (Apple).

In the past, Microsoft has done little to promote Office Web Apps. Anecdotally, many consumers and businesses, for instance, don't even know they exist. That hints Microsoft has been more afraid of the second pitfall -- putting too much in the apps -- than in failing at matching Google.

The inclusion of real-time collaboration -- which is, as both Miller and Silver said, the defining feature for Google's suite -- and some statements by Microsoft officials, may signal a turn-about.

"When we launched Office Web Apps in 2010, we positioned them as a companion to the desktop Office experience," Amanda Lefebvre, an Office Web Apps product marketing manager, told Paul Thurrott of WinSuperSite last week. "[But] our intention is to shift Office Web Apps to a real, standalone Office experience on the Web."

The experts weren't buying the implication -- which has been forwarded by some pundits -- that Microsoft has long-range intentions to use Office Web Apps as an eventual substitute for Office. Not only is the latter much more powerful than the browser-based tools -- and likely to remain so as long as there are PCs -- but Office is the foundation of a very profitable business, one of Microsoft's core revenue-generating franchises that involves a host of other products, including server software, services and user- and device-based licensing fees.

It would be insane to give that up in the hope that something free, like Office Web Apps, could produce equivalent revenue through secondary sales of, say, add-ons or services, or that subscriptions to the least expensive Office 365 plans built around Office Web Apps could compensate for large-scale desertions from the pricier programs.

"Office Web Apps are an important piece longer term to Microsoft, but will remain a complement to the commercial Office," Silver maintained.

Miller saw Office Web Apps, and the improvements and additions Microsoft debuted last week, not as an end to themselves, as Lefebvre and others hinted, but as a more powerful sales tool for SharePoint, itself a multi-billion dollar revenue source. "It's SharePoint value that's important," Miller argued. "They have to keep adding value to SharePoint to continue to make it relevant."

Things are much more fluid on the consumer and very-small business sides, where alternatives to Office are plentiful and customers are far more willing to switch if they see a better value elsewhere.

"Microsoft is buying share, and trying to keep Office relevant for consumers, especially in places where they may not have [Office] installed," said Miller of the free Office Web Apps. If consumers aren't buying Office, the browser-based programs may prompt some customers to pony up for more storage space, which like its rivals, Microsoft sells. "[More capable Office Web Apps] add value to SkyDrive, and hopefully some become a paid SkyDrive customer," Miller added.

Silver echoed Miller, speculating that improved-but-still-feature-light browser apps might tempt some consumers to try out Office 365.

One problem Microsoft faces in the consumer space, unlike the enterprise, is that there is a danger of cannibalization if Microsoft improves Office Web Apps enough to make them adequate for the more casual document creation needs of a household. "Longer term, Microsoft has to worry about cannibalization," said Silver. "But the revenue involved [in consumer sales] isn't significant."

True. Microsoft recently said it has 2 million subscribers to Office 365 Home Premium, the consumer-grade subscription plan, which translates into annual revenue of approximately $200 million. But that's just 3 percent of what the Office group pulled in last quarter alone.

The risk of losing that revenue may be less important to Microsoft than staying in front of consumers, who in the workplace part of their lives increasingly choose their own productivity tools. In fact, other analysts have opined that Microsoft may have already lost the consumer battle because of its hesitancy to deliver an iPad edition, and thus the future battle in business. They've pointed to moves by rivals such as Apple and Google as evidence.

By more prominently publicizing Office Web Apps, which Microsoft has promised to do, perhaps Redmond could put a stick in the spokes of those theories.

On one front -- tablets -- it's already tried.

Microsoft's stock answer when asked about Office on rival platforms' tablets, especially the iPad, has long been Office Web Apps. Even CEO Steve Ballmer has leaned on that crutch when Wall Street and industry analysts have brought up Apple's tablet.

There's been no sign, however, that the pitch has met with any appreciable success. "Office Web apps serve until there's an iPad version, but how many users want that?" Silver asked. "It doesn't give you an offline mode or a touch experience."

Microsoft itself seems unsure of the answer. Last week, Microsoft again pledged to bring Android within the Office Web Apps support fold in the coming months. But it's also promised to deliver a touch-enabled Office for other platforms, including, Ballmer has said, the iPad, after it ships the same for Windows 8.1.

So where does that leave Office Web Apps? Good question.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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This story, "What's Microsoft's Office Web Apps strategy?" was originally published by Computerworld.

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