Microsoft slices Office 365 costs to woo enterprises

Cloud costs are falling across the board, but cloud efficiencies alone don't explain Microsoft's generous discounts

Hungry to expand the Office 365 customer base beyond small businesses, Microsoft has announced price cuts of up to 20 percent on subscriptions for enterprises. Whether a dip in prices is sufficient to lure large organizations to Office 365 remains to be seen -- more likely, Microsoft will need to make good on its vision of bringing more sophisticated, enterprise-oriented tools to the service first.

To its credit, the company has gone six months now without a service outage to Office 365, according to Windows IT Pro, which could also bolster confidence among would-be customers to step into Microsoft's cloud.

Since introducing Office 365 last year, Microsoft has struggled to keep pace with Google Apps in terms of gaining users, especially large organizations. As of late last year, small businesses made up 90 percent of the Office 365 user base, though Redmond has pointed to enterprise wins such as Campbell Soup and JetBlue. Google has reported greater success with signing up big customers.

Microsoft announced the price cut in a blog post by Kirk Koenigsbauer, VP of Microsoft's Office division. Koenigsbauer framed the news in the context cloud efficiencies: "We can deliver economies of scale through our worldwide data centers and economies of skill with our engineers, administrators, and support teams operating the service," he wrote. "With these efficiencies, we're able pass on savings to make it even more affordable for customers of all sizes to move to Office 365. So, I'm thrilled to announce that we're lowering the prices of most of our Office 365 for enterprise plans by up to 20 percent."

Under the new plan, subscriptions for Office 365 that used to cost between $10 and $27 per seat now cost between $8 and $22 per seat -- a drop of around 20 percent. Microsoft slashed SharePoint storage costs by 92 percent, from $2.50 per gigabyte to just 20 cents per gigabyte.

Microsoft's claims that efficiency-borne savings are driving the price cut are difficult to swallow. Microsoft, Google, and Amazon have all made similar cases for cutting the prices of their respective cloud-based platform and storage services. One contributing factor for these across-the-board cuts: Users say they haven't seen the savings they expected from the cloud.

That reasoning doesn't carry over as plausibly to SaaS. The reality is Microsoft has thus far enjoyed less success than it had hoped with Office 365, especially with enterprise companies, but both Microsoft and Google have been working to strengthen their respective offerings for large companies. For example, with the next version of Office 365, external developers will be able to build more sophisticated applications and tools for the service.

Microsoft doesn't have its sights set on luring only enterprise companies, but also academic institutions and government organizations. The company is making its A2 service plan -- which includes basic Exchange, SharePoint, Lync, and Office Web -- free to not only students, but also to faculty and staff. The company this month announced a government-only cloud option for Office 365, where customers would have their data stored in a separate cloud environment.

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