Microsoft's Price Reductions

By Michael Osterman
in

Microsoft’s announcement recently that its hosted Exchange service would drop in price from $10 to $5 per seat per month, coupled with the announcement that BPOS would drop from $15 to $10 per month, has generated quite a bit of buzz in the hosted Exchange community.

Phil Wainewright on his “Software as Service” blog may be correct in that the pricing cut was designed to counter IBM LotusLive adoption. While I agree that some of the motivation may have been to counter LotusLive and the significant progress that IBM has made in generating new customers for its SaaS offering, I think there is more to the story:

  • Our research shows that there is a perception in the marketplace that on-premise management of Exchange is cheaper than it really is—many decision makers don’t sit down to calculate the actual cost of Exchange, and so often underestimate the actual cost of their on-premise deployment compared to a SaaS alternative.
  • As a result, there is a decent amount of education that needs to occur to help decision makers understand the cost differences that already exist between on-premise deployments of Exchange and hosted Exchange. The price drop may be an admission that the company has not convinced enough customers of the price deltas that already exist.
  • While Microsoft may be attempting to counter LotusLive, they are also trying to counter Google’s success at penetrating the SaaS market with their $50 per seat per year offering. Google has done quite well in this market.
  • I believe that Microsoft may also be expecting a move from Cisco in the enterprise SaaS market and the price drop may be an attempt to reduce the impact of a Cisco announcement in this area in the near future. Cisco is clearly a force with which to be reckoned given that they have the pieces of a formidable messaging and unified communications capability (PostPath, WebEx, IronPort, ScanSafe, etc.). I believe that long term, Cisco may be the company with which Microsoft competes most heavily in the communications market.

It will be interesting to see what impact the price reductions have on the hosted Exchange community. At a minimum, it will make Microsoft more competitive with them, force price reductions by some hosted Exchange providers, and motivate some to provide additional value added services (hosted SharePoint, hosted archiving, etc.) that offer them the ability to retain their margins. It may also motivate some to expand their offerings to include hosted Zimbra and other platforms.

Published December 29, 2009