CurrentAnalysis-ShowdownCloud - Google vs Microsoft

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Google vs. M icrosoft:Showdown in the Cloud

Advisory Report

September 30, 2010

Issue

Forget the desktop; the I battle today is for the entire workplace. T is presents some interesting oppor-tunities for competitors able to deliver the kind of fl exible productivity solutions businesses look for now.However, the fi ght is complicated by the explosive growth in the use of mobile computers, sophisticatedsmartphones, and other handheld devices that has transformed a workplace that once was largely con-

fi ned to the four walls of an offi ce into a more elusive space one which can be virtually anywhere, froma meeting room down the hall or a home offi ce to an airport, a customer site, or anywhere in between.

So, while the core feature set requirements of offi ce productivity applications are not radically diff erentfrom what they were fi ve or ten years ago, the expectation for access to these capabilities is. T is needfor greater accessibility, combined with some severe I budget pressures in recent years, translates intogreater pressure on even the most dominant provider Microsoft to transform how it delivers offi ceproductivity and collaboration solutions.

Simply put, customers fed up with complex and costly licensed software deals are now pushing applica-tion providers to rise to the occasion by delivering the collaborative and productivity features associatedwith traditional licensed applications through the cloud using more cost-eff ective subscription-basedpricing models. T is has opened up the gate to a host of new competitors, most notably over-the-topplayers such as Google that are plying the advantage excess capacity gives them in terms of scale to at-

tempt to unseat Microsoft from its reign as king of the offi ce suite market.

Microsoft, which has long dominated the desktop with its conventional software licensing model, hasstepped up with its low-cost Business Productivity Online Standard suite (BPOS) and a very aggressivechannel strategy. T e result is a highly charged and very dynamic competitive space where two compa-nies Google and Microsoft are defi ning the playing fi eld. T e two providers are proving to be mastersof the game as they rework pricing, extend security and stability controls, and continue to innovate theirfeature sets. But buyer be aware; Google Apps and Microsoft BPOS are not the only games in town.T ere is plenty of room for other providers, including some big names such as IBM and Oracle, to play aspoiler role.

T is report looks at how Google (See Google Google Apps, September 17, 2010) and Microsoft(Microsoft Microsoft Business Productivity Online Suite (BPOS), September 17, 2010) are craftingtheir respective go-to-market strategies to expand their reach in the still developing market, as well as thepart alliance partners and other competitors may play in the future in further transforming the market.

Amy LarsenDeCarloCurrentAnalysis

Principal Analyst,

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Current Perspective

Cloud services are seemingly everywhere now, but our arrival at this point was hardly an overnightjourney (see Playing in the Cloud: New I Services Reality or More Vapor in an Already FoggyEconomy?, March 19, 2009). Looking back just ten years, many businesses saw applications

outsourcing as an all-or-nothing proposition. Public and private sector organizations were oftenreluctant to let an outside provider manage discrete applications because of dual reliability andcontrol concerns.

However, continued cost pressures and limited internal resources forced companies to give discretehosted application service options a second look. Messaging and other collaboration applicationsthat play a crucial role in corporate productivity were obvious candidates for outsourcing, becausethough the communications they support are operationally important, they do not represent a corecompetency for the business ready to turn over their delivery and management to a third-partyhosting provider. Even some companies reluctant to hand over the keys to applications to a thirdparty saw the upside to out-tasking the delivery and management of e-mail and collaborationsoftware.

T is acceptance paved the way for many providers such as Apptix, Intermedia, and Rackspace to

build thriving hosted messaging practices over the last decade, many of which employed virtualizedinfrastructures to help the cost and capacity requirements of price-conscious clients (see HostedMessaging Grows Up, July 29, 2008). T ough the these hosted solutions were typically targetedtoward small businesses, I solution providers and carriers won some substantial contracts tosupport thousands of seats for large corporations that ran the numbers and saw the opportunityto take out capital expenses, cut support costs, and eliminate licensing headaches by going with asubscription-based service.

Continued advances in virtualization, security, and other supporting technologies, along withincreased consumerization of I and maturing provider business models, made the emergence ofsoftware-as-a-service (SaaS) a natural progression. As a layer of the cloud, SaaS employs many ofthe elements that defi ne this on-demand service model, including an infrastructure that uses onlinedelivery and virtualization to increase accessibility and effi ciency, bring down costs, and off er self-

service capabilities and predictable pricing.Collaboration suites and their companion offi ce productivity applications are especially wellsuited for SaaS delivery in that these are mature categories of standard software solutions withminimal customization requirements, and they have associated data that is far more portable thansome enterprise applications. Existing customers of the Microsoft Offi ce/Lotus Notes offi ce suitemodel were also more than ready for a less expensive alternative to traditional hosted or do-it-yourself (DIY) delivery. Add a big installed base and an even bigger prospect pool of customers inemerging markets and moving the workplace apps to the cloud became a no-brainer.

Projections of a booming multi-billion SaaS market had a diverse set of software vendors and Iservice providers lining up to deliver cloud-based collaboration and productivity applications.Microsoft and rival Google are front and center in the market today. T e two are laying thefoundation for a dynamic if still young market, beginning with Googles disruptive $50 per user,

per year pricing model, which upended more conventional schemes almost overnight. WhileGoogle is often derided as being too consumer-focused to be taken seriously as a contender in theenterprise space, the company has the scale and some engagements with large customers to counterthat attack. Microsoft for its part is furiously building out a channel to support global deliveryof its BPOS off er. Similarly, Microsoft, which was ridiculed initially for being too slow to SaaS,has played a fairly fast game of catch up even as, like Google, it continues to work to improve thestability of its delivery and refi ne components of its business model.

o the point on service stability, both companies have come under fi re in the last year for service

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instability, including most recently a series of high-profi le outages that plagued Microsoft BPOSin the summer of 2010. T ese incidents point out infrastructure weaknesses that could put futuregrowth at risk.

However, there is no reason to think that with all the resources at their disposal, Microsoft and

Google will not be able to overcome their technical issues. T us far, all signs point to each gain-ing some signifi cant traction in the segment. T ough both off er only general information abouttheir respective installed bases (e.g., 40 million for Microsoft Online Services, which in additionto BPOS includes Microsoft Live Meeting among other services) and how revenues segmentby customer size and geography, Microsoft and Google appear to be steadily gaining enterprisecustomers. T ese include some large engagements such as Genentech, Ahold, and Salesforce.comfor Google and SADA Systems and Scripps Network Interactive for Microsoft.

T e resulting showdown is emblematic of the SaaS segment as a whole contentious but less vola-tile than in the past. While the workspace SaaS market is still evolving, the segment is approachinga phase of new maturity where customers are expecting if not necessarily getting enterprise-grade service.

Collaboration and Productivity

So, how do the companies approaches to the cloud stack up against each other today, starting withthe packaging, features, and capabilities of their online productivity suites? E-mail is at the heart ofboth BPOS and Google Apps, with the now very-familiar Outlook and Gmail messaging applica-tions serving as foundational elements for the Microsoft and Google online suites, respectively.Both off er comparable storage (25 GB per account) and similar mobile device access. However,they diverge in the specifi c applications they include and the way they are packaged.

Microsoft off ers three variations of BPOS; two versions, BPOS Standard (BPOS-S) and DesklessWorker, are delivered from a multi-tenant infrastructure, while BPOS-D runs in a dedicatedenvironment. BPOSS and BPOS Dedicated incorporate e-mail, instant messaging, calendaring,document sharing, and conferencing with Exchange Hosted Services, SharePoint Online, ExchangeOnline, Offi ce Live Meeting, and Offi ce Communications Online. T e Deskless Worker versionwhich includes just messaging, Calendaring, and team portals, is aimed at task workers.

Google also has a number of diff erent editions of its Apps suite, including one specifi cally forgovernment, one for non-profi ts, and another for the education market. T e companys enterpriseoff er, Google Apps Premier Edition, includes messaging (e-mail, instant messaging, and calendar),collaboration (document creation and sharing; Google Groups), message security (e-mail fi lteringand message security), and message compliance (e-mail archiving, search and discovery), as well asWeb page creation and video hosting and distribution (Google Sites, Google Video).

T ough the two suites are comparable with respect to messaging and collaboration applications,Google has an edge on the word processing, spreadsheet, and presentation front with the inclusionof Google Docs, which allows users to edit and share Web-based documents. Microsoft BPOS doesnot now include Word, Excel, or PowerPoint, though this should change soon. Microsoft BPOSdoes work with older versions of Microsoft Offi ce such as Offi ce 2003. It appears that Microsoftis not eager to cannibalize sales of Offi ce 2010; nor does it want to invite criticism in the event aservice interruption interferes with document editing.

Connectivity is the biggest issue with both packages, limiting the capabilities of each suite whenthe user is offl ine. Gmail relies on Google Gears, which downloads a local cache of mail to theusers computer and automatically shifts to offl ine mode in the event of a service interruption.Once the user is reconnects to the network, that cache is automatically synchronized with Googlesserver. Google Gears no longer works with Google Docs, though the company plans to introducea substitute at some point in the future. Microsoft BPOS has similarly limited offl ine capabilities,with only Outlook mail available when the user is not connected to the Internet.

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Delivery M odel/I nfrastructure

Microsoft BPOS high-profi le service outages in late summer 2010 put an unwelcome spotlightback on the reliability question, which remains one of the major obstacles to broad corporateadoption of cloud services. T e incidents, which occurred in late August and early September, wereapparently related to network infrastructure upgrades gone wrong. Google has also dealt with itsown fair share of service issues as well, casting a dim light over BPOS, Google Apps, and similarpublic cloud off ers.

Part of the challenge for businesses trying to assess whether Google Apps or Microsoft BPOS mightbe a good fi t for their organization is simply coming to terms with whether the underlying infra-structure the companies use to deliver the suites is stable enough to provide business-class service.At the moment, the jury is still out on that front.

Both rely either exclusively (in Googles case) or almost exclusively (in Microsofts case, a few selectpartners do host BPOS for Microsoft) on their own hosting facilities to deliver their respective ap-plications. Neither is particularly forthcoming with information on where data is stored except forpublic sector clients (see Microsoft BPOS and Google Apps: Bringing the Cloud Down to Earth,March 26, 2010), or what architectural measures they take to ensure resilience beyond some fairly

general assurances about system redundancy and data replication. Microsoft does provide somemore specifi c information with respect to dual power feeds, multiple backup generators, batterybackup, and failover to a secondary data center in the event of data center connectivity problems.

With respect to data center security, both do boast a signifi cant number of the requisite securitycertifi cations. Both Microsoft BPOS and Google Apps are delivered from SAS 70 ype II-compli-ant data centers. Google Apps is FISMA-certifi ed. Microsoft BPOS data centers are also ISO27001-certifi ed.

Microsoft does off er an obvious alternative to enterprise customers concerned about the stabil-ity of the cloud with its BPOS-D off er. T ough it does not technically adhere to the NationalInstitutes of Standards and echnology (NIS) cloud defi nition, as it is delivered from a dedicatedinfrastructure, the solution is similarly delivered using a low-cost, online model. In addition to theSAS 70 ype II compliance certifi cations that Microsoft BPOS-S facilities claim, BPOS-D hosting

centers also meet FIPS 140-2 standards and trusted Internet connection (IC) specifi cations.

Both off er extensive local language support and broad geographic availability. Google Apps isavailable virtually anywhere in the world with message security support for 14 languages. Microsoftcurrently delivers BPOS to clients in 40 countries, with various applications in the suite availablein as many as 45 local languages.

Admin istrative, Security and Support

While incidents such as the recent Microsoft BPOS outages raised red fl ags, what most enterprisesfear is the unknown of a cloud incident that could potentially be much worse. Specifi cally, com-panies express concerns around legal and competitive issues which could arise if data is breached.T at concern alone is enough to keep some of the most risk-intolerant enterprises out of the cloud,at least for now.

T at said, both companies have instituted enough measures to reassure public and private sectorclients alike that they can deliver a stable and secure application suite. Google does confi ne data tothe U.S. for Google Apps for Government clients, and it reportedly extends the same courtesy toother clients if the contract size is large enough.

Microsoft has set up a number of security controls, including via HPS. Microsoft includesmultiple layers of anti-spam and anti-virus fi ltering. BPOS includes FOSE protection, which scansall e-mails, attachments, and documents to look for malicious code. Microsoft also assesses threatmodels and conducts proactive security tests such a secure code reviews, pen testing, and continu-

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ous security monitoring.

Google, which acquired hosted mail security company Postini in 2007, off ers similar inbound andoutbound fi ltering protections, though the company does not specify any additional steps it takeswith regard to data security. T e company also recently took a big step forward on the access man-

agement front with the September 2010 introduction of two-factor authentication. Google Appscustomers can choose to require two forms of identifi cation (e.g., a password or PIN plus a specialverifi cation code sent to the users iPhone or another device). Google also announced support forthe OAuth token-based authorization scheme on Google Apps APIs.

Google Apps administrators actually have a fair degree of control over user access rights. T roughan online control panel, administrators can classify users into organizational units and add, remove,or modify user accounts. Microsoft off ers migration and co-existence tools that work with ActiveDirectory and Microsoft Exchange Server to synchronize user accounts, contacts, and groups.

With respect to compliance, both companies off er retention plans. Microsoft will retain customere-mail and instant messages for up to ten years; Googles default is only 90 days, but that can beextended on a custom basis.

On the SLA front, Microsofts standard availability guarantee which was reportedly breachedduring the recent outages, requiring the company to pay customers credits is 99.9%. Googleoff ers the same SLA, with the promise of providing customers credits if they report a breach.

Both companies have migration service programs off ered through third parties to help businessesmake a successful transition to the cloud. Of late, Google has been particularly assertive in this areawith migration programs for businesses moving from Microsoft Exchange and Lotus Notes.

T ough both companies provide help desk services, neither is exactly making a name for itself forstellar support levels. Instead, each company takes a similar tactic in relying on third-party partnersto deliver the level of support business customers expect. Microsoft, in particular, has come underwithering criticism for stepping over its long-time channel partners to take on a new role as serviceprovider, only to abandon customers when they really need support.

Go To Market/Sales Model

Partners play a critical role in both Google and Microsofts go-to-market strategies, fi lling inresource gaps both have in appealing to customers across the size spectrum, as well as helping themextend their reach into new markets. Microsoft has long relied on resellers, hosting providers, andother partners to provide a channel to business customers which it would have otherwise beenunable to reach, and it has been successful in building out a strong BPOS channel. In Microsoftscase, the companys aggressive incentive program, which recently doubled margin incentives from12 to 24%, has thus far attracted 16,000 partners and counting.

Microsoft woos partners in part by promising signifi cant net new customer signings. T e company,which claims to add as many as 100 new channel partners each week, tells resellers to expect up to70% of the BPOS customers they pick up to be new.

Google and Microsoft share a determination to maintain account control, both preferring to hold

responsibility for hosting, delivering, and billing for their services, with partners playing a sales andpost-deployment service role. T is position has resulted in signifi cant resistance from prospectivepartners that want to keep control over billing, including telecom providers which have played animportant role delivering hosted Exchange that could be replicated for BPOS. However, over time,Microsoft has refi ned its partner strategy to allow key partners such as Orange Business Services,elstra, and Vodafone to host the service and bill for it.

Google has been less open-minded about the role telecom providers can play in delivering itsservices, typically relying on third-party I solution providers such as CSC to provide the integra-

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tion and transition support to make through a complex migration. T is said, the company has alsobegun to experiment more with the roles its partners can play in expanding its presence in newsectors. Relationships such as its alliance with ata Communications, where the provider plays aprimary role in the ordering and post-transition support process, could serve as a model Googlecould replicate in other countries or regions.

Endgame

T ough they are locked in a fi erce battle for market supremacy, Google and Microsoft have risen tothe role of partners advancing the value proposition for SaaS-based productivity applications specif-ically and cloud services in general. In a manner of speaking, each is an eff ective counterweight tothe other. Google arrived on the scene as the bold innovator, promising a full-featured offi ce suitefor a fraction of the price of a conventional one. Microsoft has played the role of the modernizingstandard, refi ning its application suite while aggressively extending its channel.

T e result is a market that, while still young, is on track to grow exponentially in the coming years.For all the discussion about agility and access, SaaS most appealing quality may be cost. As long asproviders are able to continue to capitalize on the cost-effi ciencies of virtualized infrastructures tomeet their business customers requirements, the cloud services segment will continue to thrive and

grow.Yet, however prominent a role Google and Microsoft play in shaping this market, it is importantto note they may soon have company in outlining the landscape. Providers such as IBM, whichnow claims (an often disputed) subscriber base of 18 million, and those utilizing VMwares Zimbrasubsidiary and even Cisco WebEx Mail have a role to play too in defi ning business on-demandworkspace requirements and delivering on those elements.

Much is still unknown about how the market will ultimately shake out. What is clear is that thespace will likely be as dynamic as the services being delivered, with no single provider ruling theroost.

Recommended Actions

Recommended Vendor Actions

Partners will continue to play a crucial role in driving broader business adoption of cloud-basedproductivity services, particularly in emerging markets. Both Microsoft and Google need tocontinue to invest in building out these relationships that will help the companies overcome thetrust factor.

Google and Microsoft need to continue to position their Google Apps and BPOS suites as high-value, low-cost enterprise alternatives to more traditional productivity applications. T e companiesshould tout both their customers successes and the success of partners in expanding their customerlists.

Microsoft is wise to maintain an open-minded approach to alliances, allowing trusted partnerssuch as Vodafone a greater degree of control in delivering and supporting BPOS. T e company

should look at adding partnerships that mirror the model Microsoft is applying to relationshipswith telecom providers, including alliances with hosting specialists with strong presences in emerg-ing markets.

Google needs to reconsider its go-it-alone delivery approach and evaluate whether adding newtelecom provider and hosting partners might help the company expand beyond its traditionalborders. Google can potentially use the ata Communications relationship as a model for futurepartnerships both inside and outside the Asia-Pacifi c region.

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While providers of on-demand productivity applications are making great advances in theirdelivery models, they have not necessarily kept pace with fast-changing end user requirements.Providers should look at ways to improve on their existing feature sets and innovate their capabili-ties to meet the needs of end users that are trying to produce more with fewer resources.

Recommended User Actions Prospective cloud customers need to have a reasonably quick payback period to make the cloudmodel work successfully for them. Organizations should look for prospective providers to off erthem quantifi able returns that go beyond the savings associated with the low per-seat models,factoring in business improvements such as the ability to provide task workers with greater func-tionality.

Business customers looking for a cheaper alternative to traditional offi ce productivity applica-tions should consider a careful transition to the cloud services, starting with departments that maynot require the same rich functionality and resiliency associated with conventional products. Forexample, businesses may look to migrate help desk workers that require only limited documentcreation functionality to an online productivity suite.

Some enterprise customers may be wise to wait it out as cloud providers work out the kinks intheir delivery models. Businesses will need to press Microsoft and Google for fi rm guarantees thatoff er stronger reassurances and remunerations around security and performance.

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