28 Things Partners Should Know About Office 365 (UPDATED)

Microsoft just launched the much-anticipated successor to BPOS. Here's what every partner needs to know. (Previously "25 Things Partners Should Know About Office 365.")

  • Read our in-depth review of Office 365 here.

Microsoft has just launched Office 365. It's a big deal for customers, but perhaps an even bigger deal for partners. Here are the key things every Microsoft partner should know about Office 365 as the service becomes available.

The Basics

1. The Next Version of BPOS
Office 365 is the next version of Microsoft's Business Productivity Online Services. Where BPOS came in one primary SKU, Office 365 comes in five major business SKUs, which bring both a lot more capabilities and flexibility to BPOS and also a big opportunity for partners to engage customers in conversations about the best way forward.

2. Upgrades the Servers to 2010 Versions
One of the biggest features of Office 365 is that it upgrades all the underlying servers to their most current versions. Where BPOS used Exchange Server 2007, SharePoint Server 2007 and Office Communications Server 2007, Office 365 steps the service up to Exchange Server 2010, SharePoint Server 2010 and Lync Server 2010. Because they are designed with a multi-tenant architecture, Office 365 should be more reliable than BPOS.

3. Includes Standalone Office Capabilities
The new version of the suite brings capabilities from Microsoft's desktop productivity crown jewels into the online suite of capabilities -- from Office Web Apps to the full desktop suite, depending on the Office 365 SKU. Sorting out the Office-related details of Office 365, customer-by-customer, will be one of the most pressing tasks for partners in the coming months.

Key Product Details

4. Comes in Small-Business and Enterprise Versions
The main SKUs for partners to be aware of are Office 365 for Small Businesses and Professionals, called Plan P1, and the four information-worker SKUs, also known as the Plan E Family or E1 through E4.

(There are at least six other SKUs, as well, although we'll focus on the above SKUs for the rest of this article. There are two SKUs for kiosk workers, K1 and K2. In the BPOS era, Microsoft referred to those users as deskless workers. Also, Microsoft is transitioning the Live@edu offering for education into at least three Office 365 packages for education and has a version for government users, as well.)

5. Works with Some Office Suites
Those who plan to use Office 365 the same way they used BPOS -- creating and editing documents with separately licensed Office desktop suites -- will need to keep a close eye on system requirements for Office 365 at the full release. Office 365 only works with Office 2010 or with Office 2007 Service Pack 2 or later. Other commonly used editions, such as Office 2003 and earlier, aren't supported.

6. Office Web Apps Only Come in Certain Versions
One of the main new features of Office 365 is Office Web Apps, the online companions to Word, Excel, PowerPoint and OneNote, that allow users to access, view and edit documents in a browser. This capability didn't exist in BPOS, and it won't be in all editions of Office 365 either. The small-business plan supports it, but the least expensive information-worker plan (E1) doesn't include Office Web Apps. On the information-worker plans, it's essentially a $6 per user per month capability, bundled into the higher-priced plans.

7. Office Professional Plus Is Only Available in the Two Highest-Priced SKUs
One of the most buzz-worthy features of Office 365 is the new ability for customers to purchase the Office suite through the monthly Office 365 subscription. Those who want Office Professional Plus need to buy the E3 or E4 information-worker SKUs. The price differential from E2 to E3 indicates that customers are essentially paying about $8 per user per month for the full Office suite, although Microsoft has thrown in a couple of other features at that level, which make the price of Office a little fuzzy (voicemail, advanced archiving and services for forms, Access, Excel and Visio.)

8. Customers Pay for Office Professional Plus in a Subscription But Install It the Old-Fashioned Way
Subscribers to Office Professional Plus aren't getting some kind of streaming app version that's dependent on a good network connection. This Office suite is the old-fashioned kind -- loaded on the desktop via sneakernet or however the organization normally deploys Office.

9. Rights to Office Professional Plus End When an Office 365 Subscription Expires
Enough said, and something to keep in mind. However, Microsoft has also made some interesting moves with the Office Professional Plus license, by making it a per-user rather than a per-seat license. A user can install Office Professional Plus on up to five devices and log in to any of them. Unlike other versions of Office, however, Microsoft will not support server-based access to the suite through Remote Desktop Services, Virtual Desktop Infrastructure or Citrix.

10. Prices Range from $6 to $27
The small-business version (P1) will cost $6 per user per month, which is a bargain compared to the information-worker side, where you pay that much for Office Web Apps alone. The biggest limitation in P1 is the 50-user cap. For information workers, the bare-bones E1 costs $10 per month, E2 with Office Web Apps included is $16, E3 with Office Professional Plus is $24, and the Lync voice-enabled E4 is $27.

11. Some Small Businesses Should Go with Enterprise Plans
Microsoft recommends several scenarios where small businesses should consider an information worker/enterprise version. Top candidates are organizations that need: Active Directory synchronization, archiving, BlackBerry Enterprise Server, headroom for more than 50 users and 24x7 phone support as opposed to community support.

12. E1 Is the Most Like a Straight Upgrade of BPOS
The edition that is most similar to BPOS is Microsoft Office 365 E1. At $10 per user per month, it upgrades all the servers but doesn't include any Office functionality -- Office Web Apps or Office Professional Plus. The price is even the same.

13. Lync Voice Functionality Is Available in one SKU
In the move from BPOS to Office 365, Microsoft upgraded the communications back end from Office Communications Server 2007 and Live Meeting in the old system to Lync Server 2010 in the new. That includes things like IM, presence and conferencing for all editions. Voicemail kicks in at the $24 per user per month E3 level. But users who want Lync Voice will need to pay $27 per user per month. By price, Lync Voice is essentially the crowning feature of the entire suite.

14. The Top Lync Functionality Is Not What Your Customers Probably Think
Yes, Lync Voice allows PC-to-PC calling, but this isn't renting your full telephony services from Microsoft. Here's how the Unified Communications Group blogged about the distinction:

"Full telephony will not be part of the initial Lync Online offer, but we are committed to bringing a richer voice experience -- beyond PC-to-PC audio -- into Office 365 in future updates. And, with Office 365, customers can get licenses to on-premises Lync voice functionality in some offers. So, customers can use on-premises Lync technology to replace their existing PBX systems, and use Lync Online in the cloud for IM, presence and conferencing.  And, they have the additional option of having their Lync voice solutions hosted by one of our partners, including BT, Intercall and Verizon."

15. Feature Parity -- Closer But Not Quite
The move from the 2007 generation of servers to the 2010 generation of servers goes a long way to close the on-premise versus online gap. Beyond the core edition upgrade, Microsoft has made significant efforts to narrow the feature parity gap. Nonetheless, differences remain. In a review of the beta for RCP's July issue, J. Peter Bruzzese noted a few key differences: Public folders aren't supported, some SharePoint search features aren't included and Lync, especially, has more capabilities on-premises than online. Partners will need to spend a lot of time in the documentation of both online and on-premise editions to be able to steer customers in the right direction.

16. Storage Limits Are Under Microsoft's Control
With an on-premise solution, administrators make their own decisions about storage infrastructure and user limits. In Office 365, those decisions are Microsoft's to make. Some examples in the enterprise plans include limits of 25 GB per mailbox, 25 MB per attachment, 500 recipients per day and a rate of 30 messages per minute.

17. Upgrade Options Exist
Users looking for more than the base functionality can expand beyond the suite for a few Microsoft services. The most expensive service in beta release documentation was BlackBerry Support, priced at about $10. However, in March, Research In Motion and Microsoft announced that the service was free immediately for BPOS customers and would continue to be free for Office 365. That service will not be available until later in the year. Other add-ons from Microsoft include SharePoint Online Storage at $2.50 per GB and extranet support for $2.

18. Outages Matter
Many of the uptime agreements that you see bandied about with Office 365 and its competitors are not what you'd call enterprise class -- 99.9 percent uptime is in the extremely low end typical of serious high-availability offerings, where four nines and five nines are common. That said, three nines of uptime is a step up for many customers with even fairly reliable in-house installations. Current BPOS customers have experienced a few highly public outages in the lead-up to the Office 365 launch. Partners will need to be ready to lead a level-headed discussion with customers about whether the risks of having outages that are out of their control outweigh the benefits of having back-end administration out of their hands.

Next Page: Nos. 19 to 28

Partner Business Model

19. Partner Payout Model Is the Same
Pre-release indications are that the partner payout model will remain the same from BPOS to Office 365. Starting in the Office 365 beta, partners have been able to get customers to sign them up as the Partner of Record. As with BPOS and other Microsoft cloud offerings, the payouts are 12 percent for net-add seats and 6 percent in annual recurring fees. The 6 percent fee starts paying in the first year, making the first-year fees 18 percent.

In an interview earlier this month, Microsoft's top partner executive, Jon Roskill, said the structure, which applies across several Microsoft cloud services, is working for Microsoft and partners. "Having simplicity across cloud offerings is good for partners. Having product A look like product B look like product C is generally a good thing," he said.

20. Non-LAR Partners Can Make Direct Money on Office Licenses
No one disputes that the Microsoft Office suite is a huge opportunity for partners. But when it comes to making money off the actual license sales, that's always been the territory of large account resellers and distributors. Solution provider partners had to make their money on consulting, integration and other add-on services around that licensing revenue. The Partner of Record fees on Office 365 E3 and E4 subscriptions potentially start bringing some Office licensing revenues directly into solution providers' pockets on a regular basis, as opposed to through short-time promotions.

We should note that this entry and the next two are extrapolated from previous Microsoft public statements. A Microsoft spokesperson declined to confirm these conclusions by noting that Microsoft doesn't provide that level of detail publicly.

"There are no changes to the partner compensation model. Office 365 creates new growth opportunities for partners to reach more customers, deliver more complete services including Office, and unlock new business," the spokesperson said.

21. The Max Per User Per Seat Revenue Nearly Triples
With BPOS, the maximum revenue a partner could earn from a seat per month was $1.80. That's the $10 customer cost with the 12 percent net new seat fee and the 6 percent renewal fee for the first year. With Office 365, the top SKU, which includes Office Professional Plus and Lync Voice, comes in at $27 per user per month. The corresponding partner fee per user per month would be $4.86.

22. Average Revenues Will Probably Be More of a Wash
For many deals, the $1.80 in fees that partners could get in fees per user per month in the first year (see No. 21 for details) probably won't change much. For customers that do the straight upgrade to the Office 365 E1 SKU, the price is the same. E2, which includes Office Web Apps, costs $16 per user per month, which would bring partners $2.88 a seat each month in the first year. When Microsoft talks about how Office 365 extends the opportunity into small businesses, though, that's a smaller revenue opportunity, and not just for the number of seats per engagement. At just $6 per user per month, it's going to be attractive to customers, but good only for $1.08 per user per month for partners.

23. About 60 Percent of BPOS/Office 365 Deals Go Through Partners
One of the big questions with cloud-based e-mail is whether the channel will be cut out. From the beginning, Microsoft has said no. Currently, Microsoft officials say about 60 percent of its cloud computing deals go through the channel -- a relatively low percentage for Microsoft, with its commonly cited figure of doing 95 percent of its business through the channel. On the other hand, given the ease with which a customer could buy BPOS without a partner, the percentage is fairly high. Microsoft officials are also fond of saying how much larger the deals tend to be when a partner is involved.

24. License Mobility Kicks In on July 1
In a boon for large customers that coincides with the Office 365 launch, they'll soon be able to buy cloud licenses through their Enterprise Agreements and deploy licenses on-premise or in the cloud -- and switch those licenses back and forth relatively painlessly, in theory. The license mobility options apply to customers with Volume Licensing agreements with an active Software Assurance benefit. This could remove a major barrier to cloud deployments for enterprise-class customers.

25. Services Multiples Are Available
As with any Microsoft offering, there's an opportunity for partners to make money on services. How much? The multiples available vary wildly and widely by service, vertical and geography. It's way too early for hard-and-fast rules, although Microsoft executives have suggested that some early adopter partners were making five to six times the subscription fee in services revenues from BPOS deals.

26. Direct Billing Is Standing Pat for Now
Expect your customers to get their Office 365 bill from Microsoft and expect to get your Partner of Record fee checks from Microsoft, as well. In other words, no billing contact with the customer. In the BPOS timeframe, Microsoft has touted the arrangement as a feature, although many partners say it's the reason they won't even consider selling BPOS. In an interview in advance of the Office 365 launch, Jon Roskill held out less hope than he has in the past that the billing arrangement would change in the Office 365 timeframe. Stay tuned for possible updates from the launch event on Tuesday or to the Microsoft Worldwide Partner Conference in mid-July. [UPDATE: At the Office 365 launch June 28, Microsoft announced 20 syndication partners will be able to bill their own customers. For everyone else, it's the same deal as BPOS. Click here for details.]

27. How To Start Selling It
There are as many ways to sell Office 365 as there are partners in the Microsoft Partner Network, but one of the simplest -- and cheapest -- is to sign up for Microsoft's Cloud Essentials Pack. The free program provides Internal Use Rights for 250 seats of Office 365, as well as other Microsoft cloud products, marketing benefits and other business tools.

28. Office 365 Isn't Microsoft's Whole Cloud Strategy
The temptation is to equate Microsoft's cloud efforts with Office 365, but it's only a major part in a much larger story. Microsoft's biggest bet in the cloud may well be the Azure platform. Meanwhile, the company has two other major online services packages -- Dynamics CRM Online and Windows Intune. Online ERP is also on the way.

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