By Paul DeGroot [bio]
Posted: Dec. 18, 2006

• Chart: Office Live Editions Compared

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

Office Live is a major component of Microsoft's push toward Web-based services that supplement its client and server product lines. The service will also boost audiences for its Internet advertising services and compete with Web-based applications from Intuit and Google, among others. It offers partners a new business opportunity: creating and customizing Office Live sites and applications. However, Microsoft will need to find a way to offer competitive hosted services without cannibalizing its other product lines, because some organizations may find Office Live to be a substitute for other more expensive Microsoft products, such as Windows Server and SharePoint Server.

Office Live is now available to customers in the United States and is available as a beta for customers in France, Germany, Japan, and the United Kingdom.

Components of Office Live

The "Office" in Office Live suggests that the product offers Web-based versions of Microsoft Office applications, such as Word or Excel, along the lines of products such as Google Docs & Spreadsheet.

In fact, Office Live has only a tenuous relationship with the Office suite. Office Live is actually a set of services and online applications for small businesses, including e-mail, Web site creation and hosting, domain name registration, and simple business management applications. The foundation of Office Live is Windows SharePoint Services (WSS), a free add-on for Windows Server 2003 for creating team collaboration sites, and it provides basic document-sharing capabilities but no features for authoring or editing documents directly. (Documents are authored and edited in client applications such as Word or Excel.) WSS also provides a foundation for Microsoft's more advanced SharePoint Server product.

Office Live comes in three versions—a Basic version that is free (including a domain name), and the more capable Essentials and Premium versions. (For a comparison of the three versions, see the chart "Office Live Editions Compared".) Another version that was part of the original beta lineup, Office Live Collaboration, which provided more collaborative features than the Basic version, has been folded into the Premium version.

An Office Live subscription includes a free domain name, a public-facing Web site, and password-protected document libraries and simple business applications. These libraries and applications can be used to share documents created in Office and keep track of tasks, employees, calendars, and other list-oriented information. Office Live includes a complement of up to 50 e-mail addresses that use that domain name (e.g., mymail@mylivedomain.com), as well as capabilities such as instant messaging.

Users must log on with a Windows Live ID (formerly Passport) to access the applications and libraries. The site administrator can control permissions for other users by designating them as administrators (with full control of a document library), editors (with create and modify rights), or readers. By default, Office Live libraries and applications are hidden from visitors to the public Web site, although a public Web site can expose some data from libraries or applications, such as a knowledge base or a customer support section.

Developers can extend and customize Office Live sites—adding Web Parts, SharePoint templates, and document workflows, for example—to create more sophisticated applications.

Public Web Sites

Organizations can get a free domain name for their Office Live sites and can use a Web-page designer built into Office Live to build a public-facing Web site. Office Live includes templates and illustrations for various types of small businesses, such as a gardening site or a salon. Site owners can view site statistics, such as page views, sites that link to their site, and search keywords used to locate their site.

Subscribers in the United States can use a beta of adManager, a tool for bidding on keywords and creating text-based keyword ads on Windows Live Search. A bicycle retailer might bid on a keyword like "cycling" and, depending on how its bid compares with other bidders, its ad will appear higher or lower on the list of sponsored sites that appear next to search results for cycling. Office Live site owners can get reports on search engine traffic generated by specific search terms, and that data can help them decide which search terms are most worth bidding on.

Document Sharing

Like WSS, Office Live offers basic document collaboration features, such as document libraries that can be used to share data with customers, partners, or other team members; to organize meetings; and to create Wikis (documents that can be periodically revised by team members to ensure that they are accurate and up-to-date).

Document libraries provide significantly more value than simple file shares on a network server. A document can be checked out for modification (a read-only version will remain visible in the library) and checked back in when the modifications are complete. Earlier versions of documents can be kept automatically, and documents can be given long, easily understandable titles. An Office Live subscriber can request an e-mail alert every time a document is changed. Libraries can be further customized to add additional properties to documents, such as a deadline or approval status.

Office Live subscribers can upload and download documents from document libraries by dragging and dropping them in Windows Explorer or by using upload and download menus built into the document libraries.

Lists and Applications

Office Live "applications" are lists displayed in table form. Office Live comes with several default applications, such as project management, sales management, and competition tracking.

To use an application such as service tracking, for example, a company could enter service request details, a customer name, the product requiring service, the status of the request, who it was assigned to, and an associated Knowledge Base article number.

Application lists can be sorted, filtered, and exported to local applications, such as Excel or Access.

Paid versions of Office Live include Business Contact Manager, one of the few features that will be immediately recognizable to Office suite users (who have Outlook with Business Contact Manager). Like its Office counterpart, the Office Live version tracks customer account information and sends alerts to team members when account information changes (such as when they are assigned a lead for follow-up). Because Office Live is a shared contacts library accessible at any time over the Internet, it could be particularly useful for mobile salespeople.

E-Mail

Office Live includes up to 50 e-mail addresses that use the subscriber's domain name. Although the service is called Office Live Mail, it is actually Windows Live Mail, Microsoft's renamed Hotmail service. Like paid versions of that service, each Office Live e-mail account has 2GB of storage.

Office Live Essentials and Premium customers can synchronize their Office Live Mail e-mail, calendars, contacts, and tasks with Outlook.

Subscribers can also use Windows Live Messenger for instant messaging, using an Office Live ID as identification.

Customization

Because Office Live is based on WSS, it is extensible and customizable in most (but not all) of the ways that WSS can be customized. Developers can add Web Parts to Office Live sites, create or modify SharePoint templates, and add workflow features.

As a starting point, developers can customize the three dozen SharePoint templates for applications, lists, workspaces, libraries, discussions, and surveys that are included with Office Live Premium.

Although Office Live lists are not visible to the public by default, they can be used for public interaction. A Display Data module can pull data from a list such as a product catalog; a Collect Data module can be used to collect data (such as feedback from site visitors) and add it to a list.

Related Products

Microsoft is using the rollout of Office Live to promote some related products, although their integration with Office Live is minimal.

Groove is a client application that can be used for serverless collaboration, creating workspaces that are replicated to computers used by all the members of a team. Groove includes a tool for WSS document libraries, enabling users to take documents from an Office Live workspace offline and synchronize changes back to the site when again online. Groove users could also employ Office Live workspaces to store common or critical documents for backup or to ensure that a user can access updates to critical documents even if no other team members are online.

Office Accounting Express 2007 is a free, basic desktop accounting program that might be suitable for small companies. Office Live users can create a special transfer directory into which they place Accounting Express files. Their accountant will be notified automatically of any changes, and when the accountant uploads files to the Office Live site, the customer will be notified. This creates a more secure environment for the exchange of business accounting information.

Live Meeting is Microsoft's online Web conferencing service. Organizations that need to conduct real-time discussions may find a Live Meeting session to be more effective than instant messaging, e-mail, or document collaboration.

Future Enhancements

The first iteration of Office Live has numerous limitations that are likely to inhibit some potential customers, but the company says it will be addressing some of them in the future.

The most obvious shortcoming is the primitive e-commerce capabilities for sites that want to sell products or services over the Internet. Customers can use Office Accounting Express to list, sell, and invoice eBay customers, and Office Live subscribers can insert HTML snippets that link them to PayPal or Google Checkout, for example, but Office Live lacks a full set of merchant services, and sales are not integrated with Business Contact Manager or inventory lists.

Also, adManager currently works only with Windows Live Search. The company says it is interested in working with other search engines, such as Yahoo! and Google, so that Office Live customers can buy keywords on those services as well.

A search engine optimization service is also planned. This service would help public-facing Office Live sites appear higher in search engine rankings.

Microsoft is also planning an e-mail marketing service. Office Live sites could identify promising customers (through Business Contact Manager, for example) who have opted in to an e-mail newsletter and then create personalized versions of the newsletter for each customer.

One of the most serious drawbacks to Office Live is that many its features don't work with non-Microsoft browsers. Any administrative actions require Internet Explorer (IE), and common functions, such as viewing some Web Parts or uploading files through the browser, require Internet Explorer. External collaborators, such as partners or customers, must use IE just to log on to the site. Worse yet, some components of public-facing Web sites created with Office Live do not render in browsers other than IE.

Microsoft says it is committed to creating browser-independent sites, but this does not appear to be a high priority. In some cases, the only technical obstacle is a browser check—the site refuses to display further pages if it detects a non-Microsoft browser—that could easily be removed. Microsoft says it plans to support the Firefox browser in a future release of Office Live, but the IE-only restriction could be a barrier for early adopters.

Office Live Strategy

Strategically, Office Live addresses several issues for Microsoft—some better than others. Office Live is likely to evolve over time as Microsoft determines which of its priorities are most urgent and modifies Office Live to address them.

Major strategic issues addressed by Office Live include addressing new markets, creating new software as a service (SaaS) and advertising revenue, answering competitive threats, providing partner opportunities, and complementing other collaborative Microsoft products.

Addressing New Markets

Small businesses constitute one of the largest IT markets—and also one of the hardest to capture because revenue per sale is low and the sales effort required is relatively high.

The two sides of Office Live—the public Web site and the private workspaces and applications—offer solutions to two pressing problems for small organizations: making their presence known on the Internet and creating a common space for sharing and backing up company data. At US$40 a month, even the most costly edition of Office Live is less expensive than Microsoft's least expensive on-premise solution, Small Business Server, which does not include a public Web site and which requires a more complex configuration if employees are to share corporate data remotely.

Office Live could be useful even to midmarket and enterprise customers. Individual teams or departments in the organization could find that the document workspaces are a simple, easily configured solution for collaborating with partners, large customers, or significant vendors, eliminating the hassle of creating an extranet with conventional servers.

Office Live does not eliminate the requirement for careful IT practices, however. When an organization stores its data on a Web site, it has removed a significant barrier to attackers—the need to penetrate a corporate firewall before accessing data. The main barrier to security breaches is the Windows Live ID username and password, and if users are not careful with their log-on credentials they can put their entire organization at risk.

In addition, organizations should make sure they make their own backups of any critical documents and communications with customers. Microsoft backs up Office Live sites on a daily basis, document workspaces can preserve earlier versions of documents, and entire Office Live sites can be rolled back to an earlier version. Even so, access to that data can disappear in the event of a network or server failure of Office Live. Customers should also have copies of everything they need should they choose to take down their Office Live site or migrate to some other vendor's Web collaboration offering.

The SaaS and Advertising Opportunity

Microsoft's "Live" products are rarely mentioned without a nod to SaaS, and Office Live exhibits that focus. SaaS revenue is important to Microsoft because it realizes a smaller proportion of its revenue from services than other companies, and the services on the Internet are becoming the new "desktop" for customers. Even though these services do not directly threaten desktop applications, customers may put less emphasis on them, which could make it more difficult for Microsoft to grow revenue for products such as Office.

The main source of revenue from Office Live will be subscriptions (the monthly payments for the more advanced versions of the product) and from complementary services, such as fees for additional users, more storage, or more bandwidth (currently limited to 25GB a month).

Office Live could also make some contribution to Microsoft's advertising revenue, which the company believes could be its next multibillion-dollar business. However, the initial opportunities seem small. For example, neither the customer Web sites nor the restricted workspaces and applications display advertising. The only ads appear on the initial site that subscribers see when they log on to their domains (to use a workspace or other feature).

By including the adManager feature, Microsoft could convince some Office Live sites to explore advertising through adCenter, although some Office Live customers have begun hosting Google ads, handing the revenue to Microsoft's biggest advertising competitor.

Answering the Competition

A spate of new Web-based services that compete with or minimize the value of core Microsoft businesses, such as advanced desktop clients, Office, and Windows Server, pose a long-term threat to Microsoft. Although Microsoft's current business seems secure, customers who increasingly turn to Web-based applications and information may end up buying less Microsoft software.

Office Live does not solve that problem—it is unlikely to generate significant sales of other Microsoft products on its own—but it does let Microsoft stake out territory where its customers are headed and prevents competitors from capturing the Web application space.

The most serious competitor to Office Live is Intuit's QuickBase, a product on which Office Live appears to be modeled. QuickBase offers Web-based collaborative solutions for document sharing, project management, sales, customer service, and other functions. Intuit has built a developer community around QuickBase so that partners can build additional modules or enhance or customize existing modules. However, QuickBase is substantially more expensive than Office Live is (today, at least) at about US$249 a month for up to 10 users.

Google could also become a threat in the future, and some of its acquisitions, such as JotSpot, a service that allows collaborative editing of online documents, including spreadsheets, are likely to become more polished and integrated in the future.

Partner Opportunities

Microsoft says that its partners will be key players in the success of Office Live, and while that seems quite possible, partner involvement has so far been low.

Advertising was the partner opportunity most frequently mentioned by Microsoft when Office Live was announced in spring 2006. Partners could build customer sites on which they could put ads managed by Microsoft adCenter, and they could encourage Office Live customers to advertise their sites through adCenter. Aside from the fact that few Microsoft partners have any experience selling advertising, this is unlikely to generate the kind of profits for partners offered by more typical partner activities, such as custom development, IT management, and integration.

When Microsoft took Office Live out of beta in Nov. 2006, it highlighted three partners (Dinerware, NPower Network, and Qdabra Software) who had built custom applications for Office Live, and said additional products would be highlighted on an Office Live Marketplace. However, as of mid-December, the Marketplace page lists no partner solutions, not even those that were promoted at the launch.

In spite of these problems, Office Live presents considerable potential for partner participation. The company says about 100 partners are participating in an early adopter program, and the Marketplace will begin to show actual partner solutions beginning in Jan. 2007.

Partners will need to wait to see whether the company enhances the humble WSS platform on which it now sits, such as allowing server-side executable code, whether Microsoft changes Office Live's pricing in the future, and how it will share revenue with partners.

Competitor or Collaborator?

Microsoft's collaboration strategy has always been spread across a broad set of products. They include the Office suite (task panes for sharing documents and arranging meetings, Outlook, Groove), servers (Communications Server, Exchange, SharePoint), services (Live Meeting), and Windows (various flavors of instant messaging, NetMeeting, Outlook Express).

Office Live fits awkwardly into this context, promising to complement some offerings while competing with others. It undeniably offers simple, inexpensive document collaboration for small teams of people, and includes a set of simple but useful list and tracking applications that are likely to grow in power and utility in the future. This gives Microsoft a strong entry in the small-business market.

However, Office Live's low price and basic utility may encourage many of its customers to put off the purchase of more expensive Microsoft solutions that offer similar solutions, such as Small Business Server or SharePoint.

In particular, Office Live appears to compete with a key Office strategy—emphasizing the Office suite's collaborative features to encourage customers to purchase new servers (particularly Exchange and SharePoint) for communications and document collaboration.

Office Live, in contrast, encourages business customers to use Windows Live Mail and Messenger, which Microsoft has always positioned as consumer-oriented products that are less capable than the more expensive (and more profitable) Exchange and Communications Server on-premise solutions.

Although Office Live workspaces are not complete substitutes for SharePoint, many customers may find them good enough, and certainly far less expensive.

These issues raise questions about how far Microsoft intends to go with Office Live. While the product could give the company a strong presence in the small business market, that market share could come at a cost to other products, with no net benefit to Microsoft.

Office Live lacks the depth, scope, and partner involvement of QuickBase, so in order to compete profitably, Microsoft may need to improve its functionality—which will make Office Live even more competitive against Microsoft's on-premise solutions. The company could cap Office Live's functionality to prevent such cannibalization—but in the process it would be imposing a "strategy tax" on Office Live that its competitors will not face.

Resources

The Office Live Site for U.S. customers is at office.microsoft.com/en-us/officelive.

Windows SharePoint Services is described in detail in "Windows SharePoint Services Supports Office Collaboration" on page 3 of the June 2003 Update.

The Office Live Marketplace is at office.microsoft.com/en-us/officelive/FX102051381033.aspx.