One in four enterprises on Office 365 isn't as good as it sounds

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Microsoft yesterday offered an impressive stat on Office 365 uptake: one in four of its enterprise customers has Office 365.

But that stat doesn’t reflect how many end users are actually using Office 365 or which Office 365 services those enterprises had deployed. Chances are, only a subset of employees at those businesses are using a subset of Office 365 apps.

“I would venture to guess that only a small percentage of enterprise customers today are relying entirely on Office 365,” said Wes Millar, an analyst at Directions On Microsoft.

The bulk of the one in four enterprises using Office 365 are probably doing so in a hybrid model, he said. Many may still be using Exchange for email but may use Office 365 for hosted Sharepoint.

Or, they may want to run executive and finance division email accounts from an on-premise Exchange server while other employees are on Office 365’s Outlook service.

Microsoft said that Office 365 is on a $1 billion annual run rate, so it’s bringing in revenue. In addition to getting partial enterprise use, Office 365 is adding new customers, primarily in the small to medium business sector, executives said.

Many of those businesses have never had any kind of productivity server, said Peter Klein, Microsoft’s CFO on the company’s earnings call yesterday. And, most of those customers are using multiple services, he said. “Across every dimension, new revenue stream, new customer segment and new workloads, that’s a lot of new and that’s what’s driving the growth and opportunity we’ve been looking for,” he said.

His comments are in line with recent reports that 90 percent of Office 365 customers had 50 or fewer employees.

Still, small and medium businesses are easier pickings. Since some of them have never used Exchange, they are starting from scratch. One reason that enterprises have been slow to move to Office 365 is that it’s very complicated – technically and from a licensing perspective.

The way that Office 365 has been integrated into enterprise agreements “is a very complicated process that we’re still trying to understand,” Miller said. “A lot of our customers are asking us how to do this and what they get” by adding Office 365, he said. “Absolutely more would be using it if they could figure out how to transition from what they’re using on-premises today to the cloud.”

Migration complexity is also a problem. Miller recently heard of a company whose CEO had an unlimited email box. “Imagine trying to move that to the cloud,” he said, and working through storage limitations in Office 365.

Over time, most of those businesses are likely to adopt Office 365. In the short term, it seems that small and medium businesses are giving Microsoft the lift it needs in Office 365. The pace at which Microsoft can smooth out licensing issues will determine how quickly the big businesses move entirely to Office 365.

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