Microsoft needs Office 365 to convince IT buyers to stick with traditional software licensing

Microsoft, which describes itself as a “cloud company” these days, has made its biggest and perhaps most important foray into the cloud with the launch of Office 365. It’s fair to say that if the software giant can’t persuade customers to take its most widely used business application into the cloud, then it would raise huge question marks over the supplier’s entire strategy.

But in typical Redmond style, there has to be a catch. Microsoft simply cannot afford all its major corporate users to suddenly rip up their desktop Office licence agreements and run to the cloud version instead. This is what Microsoft calls “software plus service” rather than “software as a service”, the latter being the definition most pundits would use for true cloud computing. That, after all, is what you get with the obvious rival for Office 365, Google Apps for Business. To reinforce the point, you can now even buy Google-powered netbooks – or Chromebooks – that act as little more than a window to the cloud, instead of Windows to the cloud.

IIf you’re a small business, you can buy a genuinely cloud-only Office 365 – although for some, the absence of SSL encryption may be too much of a security headache.

But much of Office 365 nonetheless smacks of the result of a business meeting, where a senior executive asked a room of developers, “How do we take Office into the cloud without losing any of our desktop licence revenue?”

It’s an understandable and inevitable question, and one that Microsoft has to ask. Thirty years ago, someone in IBM probably had a similar meeting, and asked, “Look, these PCs are great, but how do we use them to sell more mainframes?” Perhaps similar meetings took place at Digital Equipment Corporation in the 1990s as client-server computing changed the world around the now-defunct supplier.

Perhaps Microsoft itself had similar discussions a decade or more ago, discussing how that internet thing might affect its market.

Bill Gates would often talk of the disruptive power of technology, and while the cloud is in reality an evolutionary not a revolutionary strategy for IT leaders, it promises to disrupt the supplier environment a lot more significantly. Or at least it does for those suppliers that deny the reality of what the cloud really means – and for IT buyers, one of the things it means is freedom from the restrictions of traditional software licensing. And that is the question that should be worrying Microsoft the most.