In 2011, Microsoft Began Its Comeback in the Cloud

In these run-together, workaholic days, I occasionally miss the irresponsibility of youth, when I could while away a day tossing around a ball with friends and pausing only to lie in the grass and try to find familiar shapes in the clouds. Today, the cloud has taken on a whole new meaning. And when my mind does wander to these ever-shifting and ever-changing wisps of vapor, a clear pattern is starting to emerge. And it's in the shape of a Windows flag.

For all of the uncertainty that Microsoft faced in 2011 -- concerns about its lateness to market with a tablet iPad competitor, the decreasing relevance of the traditional PC market, the weakness of Windows Phone, and questions about the performance of CEO Steve Ballmer -- I look back on this year and I see something different. I see a turning point for Microsoft between the past -- traditional software delivered in traditional ways -- and the future, where Microsoft's strength in platforms expands to cloud-based services and the mobile devices by which most customers will eventually access them.

If Microsoft is successful in this transition, it will emerge as a very different company. But the way it gets there, intriguingly, is by bringing its core competencies to this new world. And although there are many examples of the software giant's transitionary moves, two stand out for me. And both of them are tier-1 cloud services: Office 365 and Windows Intune.

These products are similar in that both are cloud services that effectively and successful bring core Microsoft corporate capabilities to the cloud. And they do so in that all-too-familiar way that is, I think, Microsoft's greatest strength: the company's ability to make previously expensive and complex but useful capabilities available more cheaply and simply, and to a much broader audience. The wonder of Office 365 and Intune, if you will, is that they're available even to individuals and to the smallest of businesses. A year ago, neither was possible. Today, they're becoming commonplace.

Office 365 is the more obvious success story, if only because its core services -- email, calendar, and contact management through Exchange Online -- are so obviously necessary for virtually anyone. I spoke with Microsoft Senior Director Tom Rizzo last week about Office 365, and he said that Office 365 wasn't just going gangbusters, it was on a trajectory to become Microsoft's fastest-growing new product line ever.

"Today, SharePoint is our fastest-growing product, because it hit $1 billion in annual revenues faster than any previous Microsoft product," he said. "And while I don't have exact numbers for Office 365 yet, it will absolutely surpass SharePoint. It's selling quite well, and better than we ever anticipated."

A number of things are amazing about Office 365. First, it's doing this well while the on-premises versions of its services -- Exchange, SharePoint, and Lync -- are all experiencing double-digit revenue growth as well. It's not replacing traditional versions of Office, and indeed, the current Office suite, Office 2010, is the best-selling version of this software ever, having sold over 100 million licenses since mid-2010. And finally, Office 365 is a hit with small businesses: 90 percent of customers are with businesses of 50 employees or less.

That last bit is a big deal. Small businesses and individuals is a category where Google was supposed to at least be competitive. But according to Rizzo, now that the Office 365 sheriff is in town, Google's alternative, Google Apps, is being drummed out of town. Er, out of business.

"Three to four years ago, Google was running roughshod over small businesses, terrorizing them really," Rizzo told me. "But now that Office 365 is in market, we're seeing lots of Google defections. We hear less and less noise about Google from our accounts. Customers kick the Google tires but don't want to buy. Our biggest competitor is on-premises Office servers, not Google."

When I asked about what I perceive to be Office 365's biggest -- perhaps only -- weakness when compared with Google Apps -- the lack of a free option -- Rizzo said this wasn't an issue.

"We price Office 365 attractively for individuals and small businesses," he said. "Our [small business/individual version] is just $6 per user per month. I spend that much at Starbucks every single day. I spend 12 times that much every month on my cell phone. But we're offering Exchange, SharePoint, and Lync for just $6. That's a fire sale for small businesses. And they're gobbling it up."

As interesting, perhaps, Office 365 is always improving and in addition to its regular and predictable capabilities updating schedule, there are a number of other issues related to Office 365 that put it over the top.

Some of these involve compliance, privacy, and security. Office 365 is ISO 27001 and ISO 27002 compliant and thus independently verified to be secure and reliable every year; customers can request a copy of the latest audit under NDA. Office 365 also conforms to European Union privacy and security standards and is part of an EU 27-member state data protection agreement to ensure that it meets the regulations across those countries, for any users from individuals to the largest corporations. It's HIPAA compliant, so it meets the needs of health care. And it's transparent: At the Office 365 Trust Center, you can view all of the privacy and security practices that are undertaken by this service.

Microsoft has also introduced two certification exams for Office 365, which are currently in beta. You can find out more on the Microsoft website.

I've given short shrift to Windows Intune here, but I've written a lot about this service this year, both in this newsletter and in the Windows IT Pro print magazine. Part of the reason for this level of coverage is that Intune has evolved at an amazing pace: After releasing the very first version of this cloud-based PC management service back in March, Microsoft released version 2 just 8 months later, in November, adding a crucial missing capability -- software distribution -- and some other new features. That's an amazing rate of change. For more information, please check out my Windows Intune 2 overview from October.

Together, Office 365 and Windows Intune provide a deafening one-two punch for small businesses in particular, because they eliminate the need for costly and complex on-premises servers and meet the needs of the changing workforce. And the next time that someone tells you Microsoft is a dinosaur and just can't compete in this new, highly distributed world, just remind them about Office 365 and Intune. That will shut up the ill-informed critics nicely.