Microsoft's move to cut pricing on a number of its online services wasn't unexpected, but could put pressure on its channel partners, according to an analyst. The price reductions are an extension of a promotion that already was garnering success.
"It's not much of a surprise," said Rob Sanfilippo, research vice president for Directions on Microsoft. "The interesting thing about it is that it is cutting margins even more."
Microsoft announces updates to its online services every 90 days. The price cuts, on a per-seat, per-month basis, ran across several products and the comprehensive Business Productivity Online Suite (BPOS) offering as a whole. Exchange Online was reduced from $10 to $5, SharePoint Online from $7.25 to $5.25, and Office Communications Online from $2.50 to $2. BPOS now is $10 per seat per month. Microsoft also announced that it has increased mailbox storage to 25GB.
The urgency to become more price competitive was underscored by the loss in late October of a contract to provide services to about 30,000 employees of the city of Los Angeles. While the winner of the deal -- Google Apps -- has the highest profile, the online productivity sector is rife with established and start-up companies.
The new pricing will impact smaller businesses, though Sanfilippo said the coming versions of the company's dedicated and standard packages will grow more similar as Exchange Server 2010 and SharePoint 2010 --- the technologies underlying the services -- move further into the cloud.
New Countries, New Customers
Dedicated services -- in which the client gets its own equipment in the Microsoft data center -- are aimed at organizations with 5,000 or more seats. The standard package, which is based on shared equipment usage, focuses most strongly on companies buying 5,000 to 30,000 seats. The large overlap, Sanfilippo said, is geared to providing customers with maximum pricing flexibility.
Microsoft also announced that services will be available in 15 additional countries, which brings the total to 36. New countries include Brazil, Chile, Columbia, the Czech Republic, Greece, Hong Kong, Hungary and Israel. Full commercial availability was announced for Singapore. Finally, the company announced several customer wins, including Hofstra University, Lion's Gate Entertainment, McDonald's Corp., and the Swedish Red Cross.
The roiling online corporate productivity category will depend on a strong sales channel as well as the quality of the products. Sanfilippo said Microsoft's price cuts will stress -- but not shatter -- its channel partnerships.
"Since they are partnering more and more with their channel partners to distribute and provision services, it could pinch them on how much money they are able to make, although most of those partners will be making money by providing additional services, support and things on top of the Microsoft services," Sanfilippo said. "This will not break the model of partners being able to work with Microsoft."