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Koenigsbauer: E3 Is the 'Hero SKU' but E5 Is the Future of Office 365

E3 is the "hero SKU" for Office 365, Microsoft's top Office marketing executive told financial analysts this month, but the company's long-term vision focuses on the newer and more comprehensive E5 SKU.

In a Barclays Global Technology Conference call, Kirk Koenigsbauer, corporate vice president of Office Marketing, described Microsoft's Office 365 business strategy as being about two things -- expanding "sockets," Microsoft parlance for seats of Office 365 that give the company a beachhead at a customer site, and increasing "ARPU," the abbreviation for average revenue per user that company executives regularly use as shorthand for upselling Office 365 seats with higher-end cloud services.

Koenigsbauer described the socket-expansion part of the business as moving from a phase one, focused on moving existing on-premises Exchange and Office client customers to the cloud, into a phase two aimed at broadening Office 365's customer base.

"With Office 365, of course there is more on-prem to cloud that we feel like we have to go through, but we also feel like...opportunities in emerging markets, opportunities in small business, opportunities serving customers we've not served before, [such as] the deskless-oriented workers. We think there is a big opportunity for us to expand our socket base," Koenigsbauer said according to a Seeking Alpha transcript of the Dec. 7 call.

But the E3 SKU, which adds the Office client rights in a per-user model along with more collaboration value than the baseline E1 package, helped drive the current mix of premium Office 365 SKUs to about 60 percent, Koenigsbauer said.

"Right now, let's say E3 is our hero SKU. It's the one we lead with the most," he said, crediting E3 for much of the ARPU increase for Microsoft over the last two years.

ARPU efforts over the next few years center on "selling the long-term vision around E5" and the year-old SKU's three core components of security, analytics and voice services, Koenigsbauer told the analysts.

"The one that's...getting the most amount of attention from customers right now, not surprisingly, is security," he said.

Posted by Scott Bekker on December 14, 2016


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