Microsoft Office 365 bets on the cloud

Software giant adds Office Web Apps to its bundle of hosted Exchange and SharePoint, and will offer traditional Office as a subscription service, renaming the broader product as Office 365.

Microsoft Office division President Kurt Del Bene announcing the launch of Office 365 on Tuesday. Ina Fried/CNET

SAN FRANCISCO--Aiming to bolster its hosted software for businesses, Microsoft announced today that it is adding Web-based versions of Office to its collection of hosted software for business. The company will also offer traditional Office as a subscription-based service. As expected, the company also rebranded the product.

What once went by the mouthful Business Productivity Online Suite will now be known as Office 365, Microsoft announced at an event at the St. Regis Hotel here. The St. Regis is owned by Starwood hotel chain, one of Microsoft's early customers for its hosted online services.

Newly minted Office unit President Kurt del Bene said that the shift to the cloud is as big a change for computing as the move to a graphical user interface a generation ago. Del Bene noted that Microsoft developed Office 2010, which was released earlier this year, with the goal of having products that could be used both online and as traditional software.

The move is a huge bet for Microsoft. Office, along with Windows, is one of the two big profit centers for the company. Offering it as a subscription has the potential to make the company's total sales larger and more predictable, but also runs the risk of cutting into profits.

For very small businesses, Microsoft is pricing the service as low as $6 per user per month, though that version includes only the Web-based versions of Office. The company is starting a limited beta with a few thousand customers now, with the service planned to be broadly available next year, and it also plans to migrate its service for universities--Live@edu--to a version of Office 365 for education.

Larger businesses will have a range of options, ranging from $2 per month for hosted e-mail only to $27 per user per month for the most full-featured Office which includes the full Office Pro Plus desktop suite in addition to Sharepoint, Exchange, communications server tools and the online versions of Word, Excel, PowerPoint, among other tools.

"We think one size does not fit all," said Senior Vice President Chris Capossela.

As for adding the Web-based versions of Office to the mix, he said that the move will bolster an already strong set of online services for businesses.

"We've had remarkable success and remarkable adoption," Del Bene said.

Unsaid, but clearly in Microsoft's sights, is competing more aggressively with Google Apps, which offers its own set of cloud-based productivity tools for businesses.

Google offers its hosted Google Docs and Gmail for free to consumers, and many small businesses use the free services. Google also sells a business version, known as Google Apps, for $50 per user per year.

Capossela noted that the shift from selling software to running services allows Microsoft to make more absolute profit and revenue.

"We're actually running a company's infrastructure," he said.