In-Depth

Microsoft Exec: Analysts Will Be 'Shocked' When Office 365 Sales Figures Come Out

• December 20, 2011

• Read Part 1 of this interview here.

By Jeffrey Schwartz

Nearly six months after the official release of Office 365, Microsoft Senior Director for Online Services Tom Rizzo says the cloud-based messaging and collaboration service is shaping up to be one of the company's fastest-growing businesses. Just don't ask Rizzo to prove it. Microsoft refuses to give any figures -- revenues or number of subscribers -- that would quantify just how well Office 365 is doing.

The on-premises versions of Office are selling quite well. Microsoft has sold more than 100 million copies of Office 2010 and 61 million SharePoint 2010 licenses. While no such picture is available for Office 365 or its predecessor, Business Productivity Online Services (BPOS), Microsoft has acknowledged that 90 percent of customers are small businesses with fewer than 50 employees.

In Part 2 of the interview (Part 1 is here), Rizzo explained why Microsoft is bullish about Office 365.

RCP: Absent any user stats or revenue reports, some analysts have voiced skepticism as to how well Office 365 is selling. Are there any measures you can share?

Rizzo: I can't share any details. The only thing I will say is I think those analysts will be shocked when we talk about Office 365 and the momentum that is actually happening with our concrete numbers. I've worked on some really great growth business at Microsoft -- Exchange, SQL and SharePoint -- and I'm amazed at the momentum of Office 365. We've only been in market since June 28 but we've been selling extremely well.

How are BPOS-to-Office-365 migrations coming along?

It is going well. It's driven by the customer pace, not by our pace, but the migrations have been going extremely well. We've tried to make sure that we continue to learn from every migration, whether it's new tools that we need or new documentation or new procedures, training, support -- those sorts of things. But the vast majority have gone pretty seamlessly, both from a customer standpoint and from a Microsoft technology standpoint.

There were some initial complaints by existing BPOS customers [and partners] who couldn't migrate right away. Is everyone able to migrate now?

A whole bunch of transitions are in progress as we speak.

You said that 90 percent of Office 365 customers are small businesses. Do you see that percentage holding?

I see that percentage holding for the short term because enterprises take longer for any sort of move. We are seeing some enterprises move, but I would expect we would see over the next year or two years. The majority will be smaller or medium-sized customers. But we will see quickly that enterprises will start to move more wholesale. Enterprises are moving -- it's more of a smaller subset of their users. They're segmenting their users, and moving a subset at first to test it out, and then moving wholesale to Office 365.

I don't expect it to stick, but SMBs make up more of the worldwide ecosystem than enterprises from a sheer number of them. [Still,] I would expect enterprises to quickly encroach on the SMB numbers in the next year to two years.

Next Page: On Advisor and Syndication Partners >>

Allison Watson [corporate vice president of U.S. marketing and former worldwide channel chief at Microsoft] was recently quoted as saying that Microsoft has set goals to sell approximately 60 percent of its total sales volume to small and midmarket accounts online without having a direct sales interface. What is the actual end-goal here?

I can't give you a percentage, but obviously we do sell direct through the Web. The key thing I would say [is], we don't care whether you buy direct or through a partner. It really is your choice -- what works best for you. We have both models, so if you're going to have a relation with a partner who also can either resell it to you or be an advisor to you, we're happy that you buy through that partner or we're happy that you buy directly through the Web site. We don't discriminate either way.

What percentage of Office 365 seats, or revenues, is coming through partners of record, and what percentage is coming direct from Microsoft?

We don't break that out. The two models we have around the partner ecosystem are Advisor and Syndication. Advisors don't sell -- we give them a kickback of the fees that the customer pays us. So we don't break out how much is sold direct or through our partner ecosystem.

What's the momentum around syndication partners such as AppRiver, Intuit, et cetera? Are many of those third-party offerings available in the market yet?

Yes, a significant chunk of them are available today. Telstra, Orange, Telefonica, a bunch of those are available and doing well. If you look at syndication, we would say it's been a success. They've only been in market as long as we've been in market. It hasn't been a ton of time, but those partnerships are working out well for us because those syndication partners target small and medium-sized businesses. They have great relationships with the SMB market and we are happy to see the growth of Office 365 in the SMB market, and that's attributed both to our advisor partners and our syndication partners.

What effect are they having on overall Office 365 sales?

I can't give you a percentage of those but I would say it's both sets of partners that are helping make our sales momentum as great as it is. We are happy with both Syndication and Advisor as a partner program. And we're enhancing it. We're coming out with certification exams for Office 365 so that our partners can get certified and have that badge as part of their IT implementers and IT administrators, so we're doubling down definitely on our partners and partner ecosystem, making sure that they're ready, enabled and competing well in the market.

Intermedia recently joined the syndication program after the first group of partners was named. How much should we expect that list of syndication partners for Office 365 to grow over the next 12 months?

I would say it's [to be determined]. It's really based on a number of different factors. We take a look from a worldwide standpoint because a lot of our syndication partners have worldwide coverage or they're in a particular geography. So we have a process that we go through to understand working with the local subsidiaries that we have to say, "In your area do you have partners that you want to work with from a syndication standpoint? Does it make sense from a business standpoint? Do they have the coverage? Can they meet our requirements?" That sort of stuff.

So I wouldn't say it's a set goal. It really is during our evaluation of the market and the partner ecosystem -- is there a match between partners and the needs that we have in the different geographies that we service. We have great coverage worldwide, so we will always evaluate in those markets whether syndication makes sense or whether our advisor program is good enough.

BlackBerry support recently arrived for Office 365. Did that lead to a bump in migrations from BPOS?

BlackBerry support was one of the key things that customers were asking [for], and it is free to Office 365 customers, so that is a great boon. I wouldn't say it's been rockets to migration. It's something customers have wanted and requested and with this recent release we have to give it time to bake in terms of customers migrating who have BlackBerry services or needs for BlackBerry services. But it is one of the most-requested things, so we expect it to sweeten the migration to Office 365 for a certain class of customers who require BlackBerry services.

See Also:

• Microsoft Exec: Google's Problems in L.A. Wouldn't Have Happened to Us (Part 1 of Interview)