At first glance, Office 365 seems a stronger competitor to hosted rival communication and collaboration suites like Google Apps that have in recent years put significant competitive pressure on Microsoft.
"From a competitive standpoint, this helps Microsoft against Google," Creese said in a phone interview.
Rebecca Wettemann, a Nucleus Research analyst, also forecasts a tougher competitive climate for Google Apps.
"Is this the death of Google Apps? Not right away, particularly if [this] ends up looking just like Office with a longer cord," she said via e-mail. "But this announcement alone will threaten and lengthen every Google Apps deal in the pipeline."
"Without significant effort in improving Apps and more serious efforts around the enterprise, this may send Google back to the back of the class in the enterprise app space," Wettemann added.
However, Microsoft has work to do to deliver on the vision it has outlined for Office 365, she said. "Customers will be expecting rapid response times regardless of their Internet connection, a way to collaborate within applications, and features like version control, not just traditional Office over an Internet connection," Wettemann said. "Reliability in the cloud is key, and Microsoft hasn't traditionally been known for reliability on the desktop."
In a research note, Gartner analysts Matthew Cain and Michael Silver wrote that while BPOS has been a sales hit, it gets mixed reviews in IT administration, feature set and stability.
Basing Office 365 on the 2010 technology family should improve these weak points and help Microsoft attract larger companies, as BPOS deployments currently average under 50 users, according to Cain and Silver.
At a press event, Microsoft officials stressed that Office 365 is Microsoft's strongest statement yet that it believes the cloud-based software delivery model is the future for its products.
Microsoft customers are no longer asking whether they should move their on-premise software to the cloud, but when and how, said Kurt DelBene, president of the Microsoft Office Division.
"We're at a unique pivot point in the adoption of cloud services," he said.
Office 365 has also been designed to interact natively with the on-premise versions of SharePoint, Exchange, Lync and Office, said Chris Capossela, senior vice president for the Information Worker Product Management Group.
Gartner's Cain and Silver view Office 365 as a turning point for Microsoft regarding the cloud model. "From this point on, we believe that new [Microsoft] application features and functions will appear first in the cloud, while on-premises versions will remain on a three-year release cycle," they wrote.
Microsoft's Webb calls Office 365 a "game changer" for the company.
"It's the next generation of our cloud productivity service that is designed to meet the needs of organizations of all types and sizes," she said.
After Office 365 ships globally in 2011, existing BPOS customers will have a one-year window to upgrade, and Microsoft will work closely with them to educate and assist them in the process, Webb said.
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