Microsoft Office 365: How the Hosted Exchange Server Is Redefining SMB Cloud IT Adoption

INDUSTRY DEVELOPMENTS AND MODELS

Microsoft Office 365: How the Hosted Exchange Server Is

Redefining SMB Cloud IT Adoption

Christopher Chute

IDC OPINION

Office 365 is Microsoft's next-generation email and Office productivity platform. While Office 365 can be deployed across any IT environment, for small and medium-sized business (SMB) customers, the primary environment has been via Microsoft Azure's public cloud. In just the past three years, IDC has seen a quiet revolution in how SMB CIOs generally view cloud IT, and we view Microsoft Office 365 as being a main driver for this shift in perception. Further:

 While total SMB Office 365 adoption has grown, adoption by medium-sized businesses has outpaced that of small businesses (SBs). Midmarket firms have been first movers toward cloud IT as small businesses held back, still viewing IT as a long-term cost. U.S. midmarket Office 365 adoption will surpass 40% by the end of 2015.

 IDC expects that Microsoft's productivity messaging, coupled with strong channel partner support and go-to-market buzz around the Windows 10 launch, will continue to drive Office 365 adoption rates among SMB customers.

IN THIS STUDY

This study provides a high-level overview of how Microsoft's Office 365 email, collaboration, and office productivity software has redefined these capabilities among U.S. SMB customers and is poised to drive SMB majority-stage cloud adoption. It provides respondent usage rates from IDC's annual U.S. small and medium-sized business end-user survey for 2013 and 2014 and estimates for 2015. The data presented in this study is segmented by major SMB segments: small business (10-99 employees) and medium-sized business/midmarket (100-999 employees).

SITUATION OVERVIEW

The Evolving Role of Email in SMB IT

The email server has always been the most critical piece of a typical SMB IT infrastructure. From a single server sitting underneath an office manager's desk to one in a closet of like-sized servers partly or fully virtualized to a fully built out datacenter, supporting email has been the top mission-critical responsibility for IT management.

Mobility has further impacted email, making it an even more critical IT responsibility. Mobile device usage has spread throughout organizations of every size, resulting in mobility moving from outbound sales and CXO roles only to all employees accessing at least email. Secure mobile email access, along with the ability to at least view and lightly edit office documents from devices, is now viewed as a requirement by firms of every size, which in turn has increased IT staff maintenance commitments. As such, email and mobility, which service basic business communication, collaboration, and compliance needs, are now served by a typical IT infrastructure that for many smaller businesses has not been modernized enough to provide a consistent quality of service.

Even in the post-server/PC 3rd Platform era, Microsoft Office, along with its Exchange email solution, is viewed by the majority of SMB IT professionals as irreplaceable technology. These IT professionals have deep experience running Microsoft infrastructure solutions and have spent their entire careers developing capabilities to more efficiently manage and deploy Windows, Office, and Exchange updates, patches, and general maintenance.

device-In the past, the majority of U.S. SMB CIOs and IT managers have viewed cloud IT with trepidation. However, since 2012, Office 365 has served as a game changer, reducing these perception barriers, allowing SMBs to utilize a wider set of third party–hosted software solutions. Channel partners that used to sell servers and other infrastructure hardware now have a new opportunity to build a predictable revenue stream by pitching the benefits of moving to a cloud-based Microsoft email platform:

 When moving email to Office 365, SMB IT professionals no longer have to individually manage, troubleshoot, and patch an on-premise Exchange server. The value of this in the eyes of these managers cannot be overstated, as they have spent many weekends and late nights troubleshooting on-premise infrastructure. Their quality of life, both at work and personal, dramatically increases.

 Channel partners are realizing that Office 365 represents a game-changing value. By solving the Exchange server "problem" with Office 365, they can tout the benefits of instant updates that do not require individual patching, secure mobile device email access, more easily position an eventual (or immediate) cloud migration of Microsoft Office apps and, most importantly, be able to more easily pitch a whole new set of cloud IT services that SMB IT decision makers would have been nowhere near receptive to without that initial email migration. Office 365 provides many smaller businesses with their first cloud experience and can create a positive impression that will spur further cloud IT demand.

 Microsoft, which has had its share of setbacks in the post-client/server 3rd Platform era, is now viewed in a much more modern context by both SMB customers and partners. CEO Satya Nadella's focused "Productivity" message has resulted in a rapid build out of cloud-based services and a honed Office strategy that places strong value on user experience and seamless integration between Office applications and Outlook.

 Because Office 365 frees up considerable staffing resources, CIOs are now able to redefine the organization's IT function. IT decision makers can now develop and implement more of a business partner role within their organization. Without Office 365, this would be considerably more difficult to effectively implement.

FUTURE OUTLOOK

FIGURE 1

U.S. SMB Office 365 Adoption, 2013–2015

Q. Does your organization currently use Office 365? (Answer = Yes)

Note: The data for 2015 is estimated. Source: IDC's U.S. SMB Survey, 2013 and 2014

Small Business

Figure 2 shows that among small businesses, Office 365 adoption has grown significantly, and this represents a strong opportunity for channel partners. In 2013, only 8% of SBs had adopted Office 365, and that number almost doubled in 2014 to 15%. IDC expects adoption to double to 30% in 2015, representing two consecutive years of 90%+ growth.

FIGURE 2

U.S. Small Business Office 365 Adoption, 2013–2015

Medium-Sized Business

Medium-sized business adoption of Office 365 had outpaced that of small businesses. Midmarket firms have been first movers toward cloud IT as small businesses held back, still viewing IT as a long-term cost. In 2013, only 8% of small businesses adopted Office 365, while 22% of midmarket firms adopted Office 365. That grew to 33% of midmarket in 2014 (47% growth), and IDC expects this to grow another 32% in 2015 to 43% (see Figure 3).

FIGURE 3

U.S. Medium-Sized Business Office 365 Adoption, 2013–2015

Q. Does your organization currently use Office 365? (Answer = Yes)

Note: The data for 2015 is estimated. Source: IDC's U.S. SMB Survey, 2013 and 2014

ESSENTIAL GUIDANCE

IDC SMB survey data indicates that Microsoft has been successful growing its Office 365 installed base among smaller United States–based customers largely due to a business benefit, namely less time commitment managing on-premise infrastructure maintenance. IDC expects that the company will use this growing installed base to drive adjacent capabilities, such as cloud storage, IT security, and mobility-related solutions.

Rather than view Microsoft as a competitor, third-party IT vendors should view the Office 365 app launcher as a platform for reaching users and seek to partner with Microsoft. Harnessing Microsoft's success is more than riding coat tails; suppliers must also begin to think about not just how to

LEARN MORE

Related Research

 U.S. and Worldwide SMB Enterprise Mobility Management Software 2015-2019 Forecast (IDC #254958, March 2015)

 How Microsoft Could Disrupt the Current Enterprise Mobility Management Landscape (IDC #254022, February 2015)

 Worldwide SMB Business File Synchronization and Sharing 2014–2018 Forecast: An Opportunity for Partners to Become Trusted Advisors (IDC #253072, December 2014)  Worldwide and U.S. SMB Public IT Cloud Services 2014-2018 Forecast (IDC #251967,

October 2014)

Synopsis

This IDC study provides a high-level overview of how Microsoft's Office 365 email, collaboration, and office productivity software has redefined these capabilities among U.S. SMB customers and is poised to drive SMB majority-stage cloud adoption. It provides respondent usage rates from IDC's annual small and medium-sized business end-user survey for 2013 and 2014 and an estimate for 2015. The data presented in this study is segmented by major SMB segments: small business (10-99 employees) and medium-sized business/midmarket (100-999 employees).

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company.

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