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This report provides an overview of the online services in Office 365 and the deployment and the tools and technologies provided by Microsoft to manage the Office 365 online services and the optional Office Professional Plus for Office 365 desktop applications. This report also briefly summarizes licensing of Office 365.

INTRODUCTION

Office 365, available in June 2011, is a set of subscription plans that combines Microsoft-hosted services (such as Exchange Online) with subscription licenses to the Office Professional Plus desktop software. Like the earlier Business Productivity Online Suite (BPOS), Office 365 enables organizations to outsource e-mail hosting and other functions to Microsoft and free up IT personnel. Office 365 also offers more capabilities than BPOS did, although it still does not completely match the capabilities of the Office software deployed on-premises. Organizations contemplating a move to Office 365 should be aware of potential benefits and some limitations, however.

Hosted Servers Updated, Desktop Applications Optional

Office 365 is a set of service plans that can include any or all of the most recent versions of the following Microsoft-hosted services:

· Exchange Online, powered by Exchange Server 2010

· SharePoint Online, powered by SharePoint Server 2010

· Lync Online (formerly Communications Online), powered by Lync Server 2010.

Office 365 plans bundle various levels of the three services, substantially expanding the set of options over BPOS. Two plans also include per-user, per-month subscription licenses for the Office Professional Plus desktop software along with the services.

For most customers, Office 365 will offer multitenant services: Multiple customers share servers and other resources. These resemble the services previously sold as part of BPOS Standard. For large customers, Microsoft also offers Office 365 dedicated services, hosted installations of Exchange Online, SharePoint Online, and Lync Online on servers in a Microsoft data center that are dedicated to a specific customer. These resemble the services sold as part of BPOS Dedicated. Office 365 dedicated services are available to governments and to commercial organizations with 30,000 users or more (up from 5,000 for BPOS).

Like BPOS, Office 365 enables organizations to move generic IT functions such as e-mail out of their data centers and offload deployment, management, and security patching responsibilities to Microsoft. Office 365 offers these advantages with fewer feature compromises than BPOS did when compared with on-premises servers, and with some additional advantages that competitors such as Google or Zoho will find hard to match, such as easier migration from on-premises and lower user-retraining costs.

Balancing Features, Risk Against Cost

Office 365 provides an alternative to hosting Microsoft server applications in the customer's own data center, or with a third-party such as Rackspace. However, customers contemplating moving to Office 365 must carefully consider whether possible cost savings outweigh the risks for outages and security that online services can have.

Cost Savings the Biggest Benefit

Benefits of Office 365 are not much different from most hosted services. Organizations considering Office 365 can expect the following key benefits:

Staff cost savings can be significant since dedicated staff to deploy and manage the hosted services included with Office 365, as well as patch management of all of the software, can be less burdensome than managing on-premises instances. Microsoft's role as a platform provider means that it can implement its own best practices across all customer servers.

Hardware cost savings can be substantial because acquisition, management, and depreciation of hardware assets are no longer necessary when using Office 365. All server software runs in Microsoft's own data centers on its hardware. In addition to hardware, costs for energy, heating/ventilation/air conditioning (HVAC) and other data-center hosting and management services will be significantly reduced or eliminated.

Licensing cost savings from monthly subscriptions rather than upfront license purchases can make the process of licensing Office 365 much more predictable for some organizations. In addition, month-to-month licensing enables an organization to easily include additional seasonal or contracted workforce members as needed and remove them when no longer necessary, and can optionally include the Office Professional Plus desktop applications. Some Office 365 licensing options are designed to take into account organizations with an existing Enterprise Agreement.

Other Benefits

Office 365 can provide organizations with other benefits that do not directly relate to costs. Examples include the following:

Internet connectivity is a significant benefit for employees who need access to e-mail or collaboration applications while disconnected from the corporate network. Office 365 gives these employees access if they can connect to the Internet. SharePoint Online, in particular, gives access to SharePoint content for mobile and off-site workers as well as external partners who can participate in corporate activities without requiring additional connectivity to the corporate network. Access authorization still remains under the control of the customer's administrators.

Latest software versions often bring new or enhanced features and Office 365 will be updated to the newest versions of software, and rigorously tested, by Microsoft. Organizations can leave configuration, testing, and troubleshooting to Microsoft experts. However, customized applications may not be possible or may require careful design to mitigate potential problems if Microsoft changes to a newer software version.

Acquisitions, mergers, and divestitures can be simplified with a subscription service rather than on-premises infrastructure, since organizations have the ability to scale up, or down, very rapidly. In addition, corporate information from acquired companies can be kept separate until it is vetted for compatibility, compliance, or legal requirements.

Downtime, Security Risks, and Other Limitations

As with BPOS, the most important limitations of Office 365 concern potential availability and security, but there are other limitations such as available features and migration costs. Migrating to Office 365 or any hosted service requires entrusting an organization's key communication channels and data to another party. As a result, customers should ensure that they understand how their data will and will not be secured, backed up, and recovered.

BPOS has experienced several outages in the last year, some quite significant. Microsoft has redesigned Office 365 hosted services to be more available, reliable, and scalable than their predecessor but nevertheless, customers concerned about reliability may want to observe Office 365 to ensure the service delivers on those objectives.

In addition to service availability concerns, customers may need to work with Microsoft to assess their information security and privacy rights, and those limitations under Office 365. For example, Microsoft has stated that it must comply with U.S. federal law, and as a result, could not guarantee that data hosted in the European Union would not leave the European Economic Area if requested under the U.S. Patriot Act. Similarly, organizations should consider whether they use export controlled information and how export regulations might affect their use of Office 365.

Organizations considering Office 365 should also evaluate the potential impact of the following limitations:

Significant migration complexity and costs need to be taken into account when assessing a migration to Office 365 or any hosted service. Exchange Online will generally be the largest migration effort, depending on the size of an organization and the current e-mail software and management tools in place. Although many partners can offer tools and assistance for migrating e-mail from on-premises to hosted services, few tools are available at this time to assist with any migration to SharePoint Online or Lync Online, but partners have been working on migrations throughout the beta evaluations and should be familiar with the process for all three services. Though SharePoint Online now enables broader customization than the previous version, it is more limited than a dedicated or on-premises version. Existing SharePoint applications will require work to migrate them to SharePoint Online.

(See "BPOS Standard Migration Clock Starts Ticking" for a summary of the migration process as it applies to existing BPOS Standard customers.)

Services lack some features of on-premises servers, gaps that are most visible with Lync Online, which does not yet include any enterprise voice functionality, and SharePoint Online, which does not include any business intelligence functionality. Exchange Online is the closest to parity with the on-premises version, but it is not identical—in particular, not all legal hold and compliance features are present. The feature gaps are not nearly as broad as they were under BPOS, and Office 365 now supports single sign-on from Active Directory, allowing users to sign on to Office 365 with the same credentials they use to log on to Windows.

Management of Office Professional Plus for Office 365 is separate from the Office 365 technology, and the Office package used in Office 365 lacks some features that come with the on-premises version of Office 2010 Professional Plus; for example, a user may not remotely access Office applications running on a server with Microsoft's Remote Desktop Services technology, and there is no support for several of Microsoft's virtualization technologies.

Reliable Internet connectivity is required since all services are hosted off-premises. Users with desktop versions of Microsoft Office can work offline as necessary, but will not be able to consume any of the Office 365 services until reconnected to the Internet.

Compared to BPOS, Office 365 also has one additional limitation: higher client application requirements. Office 365 is only supported with Office 2007 or Office 2010 on Windows and Office 2011 or Office 2008 for Mac, and it does not work with Internet Explorer 6. While some Office 365 plans deliver licenses for Office 2010, the cost of upgrading an organization's desktops to that software could be significant.

Pricing, Training Advantages Over Competitors

Office 365 delivers a competitive challenge to Google Apps (Google's business-focused mail and collaboration offering) by providing Microsoft-hosted online services in a range of competitive per-user per-month subscription prices (from US$2 to US$27), and optionally includes Office Professional Plus for Office 365 desktop applications and Office Web Apps. Although the Office Web Apps do not include the full functionality of the desktop applications, and cannot work offline, the ability to add the desktop applications to Office 365 subscriptions may be ideal for organizations that have not yet upgraded to Office 2010, or those that require offline editing of Office documents.

When comparing with third-party collaboration tools, Office 365 will also likely not require as much user retraining, especially for users upgrading from earlier versions of Office; even the Office Web Apps share much of their user interfaces with the analogous desktop Office 2010 applications. Also, the hosted services included in Office 365 integrate directly into the latest versions of Office desktop applications, enabling not only e-mail connectivity through Outlook to Exchange Online but "lighting up" collaboration, coauthoring, and communication features in Office using the services available through SharePoint Online and Lync Online.

Strongest Candidates Are Smaller Organizations, E-Mail

Although Office 365 may not meet the requirements of all organizations, it will likely prove ideal for small or medium organizations. Many such organizations would have a hard time maintaining an in-house or dedicated installation of Exchange and the other services at a reasonable cost and with comparable downtime and security levels to Office 365.

Office 365 could also appeal to larger organizations prepared to outsource Exchange e-mail specifically. The Exchange Online service offered with Office 365 closely approaches on-premises e-mail for both end-user and management features, including features for migrating data from in-house systems. Exchange Online now supports a model called "rich coexistence," which enables much broader collaboration between accounts hosted in both locations. For example, users in a system configured for rich coexistence can share free/busy calendar data and search across an organization's entire address book. E-mail downtime and security remain important concerns, but Office 365 is more likely to meet an organization's requirement than BPOS was. Larger organizations are less likely to be able to move to SharePoint Online and Lync Online, due to limitations in their management capabilities and features.

For organizations that Office 365 cannot serve, alternatives would include continuing to host on-premises, using Office 365 dedicated hosted services from Microsoft, or using hosted services from a Microsoft partner.

Requirements and Availability

Office 365 requires at least Internet Explorer 7, Mozilla Firefox 3.0, or Apple Safari 3.0. To use all features of Office 365, Windows systems must be running at least Windows XP SP3, Windows Vista SP2, or Windows 7, with at least the .NET Framework 2.0, and Office 2007, Office 2008 for Mac, Office 2010, or Office 2011 for Mac. Mac OS X systems require OS X 10.5 (Leopard) or 10.6 (Snow Leopard) and Java client 1.4.2. Office 365 was released in June 2011 and is available localized in 21 languages within 40 countries.

What’s Ahead

This report is designed for IT planners and others who are considering moving some or all of their organization to the Microsoft Online Services. It discusses the value, benefits, and compromises presented by Office 365 and focuses on the services available in Office 365, explaining how they differ from their on-premises equivalents. Finally, it explains how the Office 365 components are deployed and managed.

Exchange Online Delivers E-Mail in Office 365 explains the features of Microsoft's hosted e-mail service for businesses and outlines the Exchange 2010 Server features that are missing.

SharePoint Online Delivers Collaboration in Office 365 explains the features of Microsoft's hosted collaboration service and outlines the SharePoint 2010 features that are missing in the service.

Lync Online Delivers Communications for Office 365 explains the features in Microsoft's communications service, outlines Lync Server 2010 features that are missing from the Lync Online service, and summarizes how Lync Online replaces both Communications Online and Live Meeting.

Office 365 Delivers New Management Capabilities explains the technologies that Microsoft provides to help deploy, migrate to, and manage the Office 365 online services and the optional Office Professional Plus for Office 365 desktop applications.

Resources contains links to Microsoft information about Microsoft Online Services and Office 365.