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In its latest quarterly Securities and Exchange Commission (SEC) filing, Microsoft reported that its office commercial products and cloud services revenue had increased by 5%, thanks to Office 365 commercial revenue growth of 43%.
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Office 365 is becoming a new Microsoft platform, linking office tools, Exchange and SharePoint with its collaboration offerings, such as Skype for Business and Yammer.
In Gartner’s Office 365, G Suite or other cloud office initiatives primer for 2017 report, research vice-president Jeffery Mann noted that cloud office products could potentially save companies money and improve employees’ effectiveness if adopted for the right reasons and in the right way.
In fact, industry watchers estimate that by 2022, about 70% of organisations will use office tools in the cloud.
Matt Fisher, a vice-president at Snow Software, said a lot of Microsoft licence solution partners (LSPs) were seeing increased sales of Office 365 subscriptions.
“Last week, one of our resellers told us it made more sales of Office 365 in the first six months of this year than in the previous 24 months since it has been available,” he said.
Snow Software specialises in software asset management, an area that can become more complex when businesses move to the cloud.
The sheer volumes involved in large-scale roll-outs make it hard for IT departments to keep track of costs, said Fisher.
Rich Gibbons, licensing analyst for the ITAM Review, said: “All I have spoken to people about is Office 365. The cloud has made it more difficult to be under-licensed, but the issue people are looking at is over-licensing.”
Gibbons said enterprises may have standalone licences for Exchange, SharePoint and Office Pro Plus, which offer online access, but Microsoft also offers E1, E3 and E5 Office 365 suites. He warned that this was where over-licensing could kick in.
“E1 doesn’t install locally, while E3 does,” he said. “People feel they need E3 and buy for 7,000 people, but probably only 40% of the workforce needs it. Some staff just need Exchange, and don’t require SharePoint.”
Gibbons said part of the problem was down to Microsoft resellers, because it was easier to sell E3. But the growing number of Office 365 subscriptions might not tell the full story.
Gibbons believes that since Satya Nadella took over as CEO, Microsoft has become much more pragmatic and generally wants its customers to achieve a better return on their investment in its software. He said the company would prefer people to use its products rather than have them as shelfware that never gets used.
Having a competitor in the form of Google G Suite may be one of the main reasons Microsoft had to change tack, he said.
Nevertheless, Gibbons warned that software asset managers need to understand that cloud-based subscriptions such as Office 365 are extremely complicated to manage.
“Tracking usage is key,” he said. “It is no longer the case that if you spend money on something like Microsoft Project, the licensing work is done. Now you pay a subscription every year.”
An ongoing cloud subscription means software asset managers also need to have a better grasp of how software usage changes as the role of each employee in the organisation changes year by year. “The onus is on the organisation to understand the roles of employees in the business and the tools they need to do their jobs,” said Gibbons.
Someone might start off with the basic Office suite, then later be promoted to a role involving project management and so will need something like Microsoft Project, he said, pointing out that the IT team should assess which set of tools best meets the employee’s needs.
Similarly, IT should have an understanding of what happens to cloud applications like Office 365 when a employee leaves the organisation. Proper identity and access management should prevent unauthorised access by someone who is no longer an employee, but access to their online documents and email archives may be an important consideration, particularly for compliance and business continuity.
Gibbons said Microsoft offered IT departments the ability to downgrade a user’s account to archive status, which incurs less cost than the full Office 365 product.
Counting the cost
The cost of Office 365 can easily become a contentious issue, especially during a Microsoft audit, when simply counting users may not necessarily reflect actual usage. Robin Fry, legal director at Cerno Professional Services, said customers need to check and challenge every factual finding arising from a Microsoft licence review.
“Microsoft has a number of helpful rules with regard to downgrade rights, free use of additional portable devices by primary users and licensing by licensed device as opposed to virtual desktop,” he said. “Often these are not fully computed in the licence review, but are still immensely valuable to the customer.
Robin Fry, Cerno Professional Services
“Too often, the customer is bewildered by the complex interplay of multiple licensing rules and deployment. But some customers have achieved savings of over £5m against original licence demands of £8-10m simply by questioning each audit finding and using Microsoft’s own contractual rules to optimise existing licences.”
Analyst Forrester recently looked at a change to Office 365 bundling, called the Secure Productive Environment (SPE), which brings together Office 365, Enterprise Mobility + Security and Windows 10 Enterprise. In its report, Forrester principal analyst Duncan Jones noted that the Office suite represents about 40% of the SPE’s cost. Instead of upgrading to SPE, companies with Office in their current enterprise agreement have a one-time chance to temporarily go in the opposite direction, he said.
“You could save around $100 per user annually by dropping Office from your next enterprise agreement, and the long-term downside may be less than you think,” said Jones. “The SPE or its successor will always be available later, when you are ready to upgrade beyond Office 2016.”
Experts who Computer Weekly spoke to agreed that buying Office 365 on a per-user basis is not as straightforward as it seems, especially if the IT department wants to avoid a hefty subscription bill. People responsible for IT procurement need to have a thorough understanding of what every user needs from the suite to avoid unnecessary subscription fees.
To make matters worse from a software asset management perspective, Microsoft now offers an Office store, which has the potential to complicate licence tracking even more, if users are able to download licensable add-ins without the IT department’s knowledge.