Microsoft Research Reports

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This report is designed for IT planners and others who are considering moving some or all of their employees to the Microsoft Online Services that are in the BPOS and (eventually) Office 365. It describes the services available in the BPOS and planned for Office 365, and notes how they differ from their on-premises equivalents. It also summarizes how the services are licensed and their prices (where available), and previews their roadmaps for the next two years.

Introduction

Microsoft hosts the Microsoft Online Services, business services that offer productivity, communications, and collaboration features similar to those available in on-premises Microsoft server applications. The Microsoft Online Services compete with services from Cisco, Google, Salesforce.com, and hosting partners who offer their own services based on Microsoft software products. The four most prominent Microsoft Online Services, which are sold both stand-alone and in a package called the Business Productivity Online Suite (BPOS), are the following:

• Exchange Online, a Microsoft-hosted version of Exchange Server
• SharePoint Online, a Microsoft-hosted version of SharePoint Server
• Communications Online, a Microsoft-hosted version of Communications Server (which was recently renamed Lync Server)
• Live Meeting, a Web conferencing service.

These services are available in various tiers, each with different levels of functionality, and are priced per user per month.

In October 2010, Microsoft announced the forthcoming rebranding of the BPOS as Office 365. Office 365 is a line of service plans that will include updates to Exchange Online and SharePoint Online, as well as a service called Lync Online that will be based on the Lync Server 2010 presence and communications software and will replace Communications Online and Live Meeting. Office 365 will introduce new licensing models and terms and begin including subscription licenses to the Office Professional Plus desktop software.

The company also offers Dynamics CRM Online, a hosted service based on Dynamics CRM software. Like the BPOS services, it's priced per user per month, but it is not yet part of the BPOS or the forthcoming Office 365 suite. (For more information, see the sidebar "Dynamics CRM Online".) Microsoft sometimes includes Exchange Hosted Services in the Microsoft Online Services brand, but it serves a different business function—offloading certain capabilities from on-premises installations of Exchange Server to Microsoft—and it is priced and packaged differently. (For more information, see the sidebar "Exchange Hosted Services".)

Microsoft also offers online services for other audiences, including Windows Azure, which provides services such as computing power and data storage to application developers, and SQL Azure, which provides SQL Server functionality to application developers. The company also offers ad-supported productivity services for consumers, such as Hotmail e-mail and Messenger instant messaging, and online services that exist solely to enhance on-premises software, such as Windows Update. Those services are outside the scope of this report.

Levels of Service

Exchange, SharePoint, and Communications Online are available in two levels: Dedicated and Standard. As the Dedicated label suggests, that service is hosted on server hardware that is dedicated to a particular customer and is intended for organizations with at least 5,000 users. The Standard service, in contrast, is hosted on shared (multitenant) servers that each may serve many different companies and is intended for customers of all sizes. However, the differences are deeper than just the server hosting architecture. (For a chart with an overview of the differences, see "Dedicated and Standard Services".) A third limited-functionality Deskless Worker tier is available for Exchange and SharePoint Online.

Dedicated

The Dedicated services use dedicated servers and provide more advanced features. They employ virtual private networks to connect the customer's internal network with Microsoft's online services to deliver better connectivity; federation and two-way synchronization with on-premises Active Directory installations; and support for a broader set of clients. For example, while the Exchange Standard service required Outlook 2007 until July 2009, the Dedicated version has supported Office 2003 since its inception. No client application is required for users to sign on to Dedicated services.

Standard

The Standard services offer basic features that will serve a large part of the user population, but they do not offer the same range of features offered by comparable on-premises servers. For example, Communications Online provides instant messaging and presence features, in concert with Communicator software running on the user's desktop, but not private branch exchange (PBX) telephone system integration or multipoint Voice over Internet Protocol, which are available with the on-premises server.

The Standard services also use HTTP for communicating with users, and while this protocol is flexible and ubiquitous, it does not by default support more advanced synchronization and communication between clients and servers.

For customers who want to have some users online and others on-premises, Microsoft provides some basic synchronization tools. A directory synchronization tool provides one-way synchronization of Active Directory users and Exchange addresses from an on-premises server to online services. Another tool provided with the BPOS can migrate e-mail from an on-premises server to an online server. When released, Office 365 will enable Active Directory Federation Services to provide a single sign-on between on-premises Active Directory and Office 365 servers.

Deskless Worker

Exchange and SharePoint Online are also available in a Deskless Worker tier, intended for employees who are only occasionally in front of a PC, such as nurses or factory-floor workers (although their use is not restricted to any particular category of workers). They are priced significantly cheaper than the Standard levels of service and offer considerably less functionality. (This will be referred to as a "Kiosk Worker" tier in Office 365.)

Online Versus On-Premises

Microsoft Online Services allow customers to save money they would have spent installing and administering on-premises servers and to receive upgrades without buying and installing new versions of the software. However, customers will usually find themselves paying more money annually to Microsoft than they pay for equivalent on-premises licenses, and subscriptions must be maintained to continue receiving the services (and client software beginning with Office 365), which will offset some savings from reduced hardware and support expenditures.

In addition, the Microsoft Online Services have to date offered only a subset of features available in their on-premises equivalents and have been upgraded to major new versions after those new versions were available to on-premises customers. For example, Exchange 2010 shipped in fall 2009, but the higher-priced Exchange Online Dedicated service did not upgrade to the new server back-end until spring 2010, and the lower-priced Exchange Online Standard tier won't upgrade until Office 365 is released in mid-2011. Similarly, SharePoint 2010 shipped to on-premises customers in May 2010, but SharePoint Online will not upgrade to the new version until Office 365 is launched.

Microsoft says this will change: Microsoft Online will eventually offer feature parity with on-premises services and will receive major updates before the equivalent new versions are available for on-premises users. The company is already moving in this direction: the services in Office 365 will have capabilities much closer to those of the corresponding on-premises software, and as of Jan. 2011 the Dynamics CRM Online service is running a major new version of the Dynamics CRM software that is not yet available on-premises.

Using Microsoft-hosted services rather than on-premises software also has important implications for availability and security. Microsoft Online Services have a service level agreement (SLA) that promises 99.9% availability, measured monthly at the data center. Customers will receive credit for outages; for example, customers will receive credit of 50% of their monthly charges if the service falls below 99% availability in a month. Only unscheduled downtime is counted, not scheduled downtime for maintenance, and downtime due to loss of Internet connectivity or client configuration problems also does not count.

Transport layer security (often referred to by the name of its predecessor Secure Sockets Layer, or SSL) protects data going to and from the services. However, data in Microsoft's data centers are subject to certain security risks (such as subpoenas by third parties) that on-premises data are not, and they are also subject to Microsoft's privacy policies. Organizations can encrypt mail and other data before sending them to the services to mitigate the risks, but this requires an on-premises encryption solution, which raises costs and might be out of reach for smaller firms. (For U.S. government organizations, which have particularly strict security and data storage requirements, Microsoft offers BPOS Federal, in which all data is stored in a secure facility dedicated to the customer.

Lastly, Microsoft-hosted services pose some potential upgrade challenges compared to on-premises software, for which customers have more control over the pace of their migrations. In general, major service updates might cause incompatibilities with on-premises software, or with customizations that an organization has installed in a service. For instance, a forthcoming update to SharePoint Online will introduce Office Web Apps, which gives users browser-based read-write access to Office files. However, to use the feature effectively, users must be saving files in the formats introduced in Office 2007. Furthermore, no policy specifies how long Microsoft will support a particular version of its business services before customers have to upgrade; in contrast, Microsoft's support life cycle sets minimum support periods for versions of on-premises software. Microsoft says it works with its customers on service upgrades and gives them plenty of time to migrate, but as it adds customers and expands the Standard services (in which many customers share installations) it will be increasingly difficult for Microsoft to accommodate every customer's timeline.

What's Ahead

This report is designed for IT planners and others who are considering moving some or all of their employees to the Microsoft Online Services. It focuses on the services available in the BPOS, explaining how they differ from their on-premises equivalents. It summarizes how the services will evolve over the next two years, including planned changes with the launch of Office 365 in mid-2010. Finally, it explains how the services are licensed and summarizes how licensing might evolve with Office 365.

"Exchange Online" explains the features in each tier (Dedicated, Standard, and Deskless Worker) of Microsoft's hosted e-mail service for businesses, outlines the Exchange Server features that are missing in the service, and predicts what will be added when Office 365 releases in mid-2011.

"SharePoint Online" explains the features in each tier (Dedicated, Standard, and Deskless Worker) of Microsoft's hosted collaboration service, outlines the SharePoint 2007 features that are missing in the service, and summarizes the planned upgrade to SharePoint 2010 technology with Office 365.

"Communications Online, Live Meeting, and Lync Online" explains the features in each tier of Microsoft's communications services, outlines Communications Server 2007 R2 features that are missing from the Communications Online service, and summarizes how Lync Online, an updated service based on Lync Server 2010 planned with Office 365, will replace both Communications Online and Live Meeting.

"Future Directions: Office 365 and Management" previews the technical changes coming with Office 365, including an update to the Microsoft Online management platform that could simplify user and client management for many organizations.

"Licensing and Pricing" summarizes the purchase options for Microsoft Online Services and identifies some of the changes coming with Office 365.

"Resources" contains links to Microsoft information about Microsoft Online Services and the BPOS.