Office 365 price cuts -- Power play or passing savings onto customers?

Microsoft recently announced major price cuts to certain Office 365 pricing plans. Are the markdowns a reaction to slow adoption rates or something else?

Hoping to stimulate more interest among larger accounts, Microsoft has slashed pricing on its Office 365 suite that could result in savings of up to 20% on its enterprise plans.    

At first glance, the price reduction on the company’s E plans may appear small; but they could turn out to be enough to sway companies toward the cloud-based collaboration suite, according to some observers.

“Even if a company will save $2 a month, that’s $24 a year; thereby saving almost $100 over the course of a four-year contract. Multiply that by your number of users and those are prices that might help some enterprises make up their minds,” said Tony Redmond an Exchange MVP.  

Microsoft did not bring down the price of its P (small business) plans. Those plans are designated for small companies and do not include customer support. Migrations are also usually done quickly and the companies require no coexistence period. This means Microsoft doesn’t have to spend much money on small businesses and stands to profit more from the enterprise-level customers.

Companies are still kicking the tires [on Office 365]...

Wes Miller, analyst with Directions on Microsoft

A reaction to slow Office 365 adoption?
While the Office 365 blog reports that the cost to run the product has become more efficient, many see the price cuts solely as a reaction to slow adoption by enterprise customers. But the fact remains that most enterprise-sized customers are taking their time deciding whether Office 365 is right for their business.

“Companies are still kicking the tires [on Office 365], waiting to see what everyone else is going to do,” said Wes Miller, an analyst with Directions on Microsoft, an independent analysis firm based in Kirkland, Wash.

Large organizations have been doing their due diligence. They’re determining if it’s really worth the time, money and effort to migrate. With Office 365, Microsoft takes a lot of management out of companies’ hands, but Office 365 migrations are still difficult and third-party vendors are almost always necessary.

Then there’s Google. While it is debatable if Google’s offerings are in direct competition with Office 365, companies are weighing whether they want to give their money to one giant or the other. And although many assert that Office 365 is significantly more feature-rich, and despite the aggressive price cuts, Google Apps is still less expensive at the end of the day. This is serving to slow adoption rates and contributing to many companies’ hesitancy to buy in.

Office 365 looks stable
Despite a pair of outages in 2011, Office 365 appears to be stable. It’s been a while since there has been any significant news about the product, although this latest price cut may motivate some companies to take a second look.

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