Microsoft Eyes Upside if Office 365 Takes Off

It has been more than a week since Microsoft (NASDAQ:MSFT) launched the Office 365 web based productivity software suite on June 28. The overall reaction to the Office 365 launch has been positive so far. In the week since its launch, Microsoft’s stock is up nearly 5%. Microsoft’s stock price is now very close to the $27 Trefis price estimate for Microsoft stock. Microsoft Office is the most valuable business for Microsoft and accounts for more than 30% of the Trefis price estimate for its stock. With Office 365, Microsoft aims to compete with rivals like Google (NASDAQ:GOOG) and Salesforce.com (NYSE:CRM), which also offer similar cloud based productivity software.

Microsoft Aims to Penetrate the Cloud Computing Market

The launch of Office 365 is a major step by Microsoft which would help it retain its overall market share in the productivity software market. Microsoft has a 94% share of the desktop productivity software market, but it has been losing ground to rivals like Google and Salesforce in the cloud computing space. With the launch of Office 365, it has a very good chance of becoming the dominant player even in the cloud based productivity software market based on initial reviews.

Many SMBs and large organizations are moving towards subscription based cloud offerings to lower their maintenance and deployment costs. Office 365 would provide Microsoft with yet another source of recurring revenue with a profit margin close to Microsoft’s primary cash cow – the Microsoft Office suite.

The cloud computing software and services market is expected to grow by 27% annually and reach $73 billion by 2015. ^[1] With Office 365, Microsoft aims to become the major player in this very lucrative market.

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1. Cloud market growth prospects, Wall Street Journal quoting IDC, June 27, 2011 [↩]