Startups Aim to Chip Away at the Microsoft Office Empire

It was only a few years ago that Microsoft was dismissing software-as-a-service (SaaS) and remaining silent about cloud computing in general. Its public cloud strategy was firmly entrenched in a software-plus-services play that left much to be desired. Disruption at the software layer is showing why Microsoft has concentrated heavily on the Azure platform play, and from it, has made its claim that “We’re all in” on the cloud. There aren’t many companies that can compete with Microsoft when it comes to building mass-scale data centers tied together with smart software, and huge chunks of resource are being used on this part of the business.

As we detailed recently, Microsoft intends to aggregate mass data on Azure through its Dallas project to allow developers to build products that hook into Office in order to make the suite more compelling. In the interim, however, productivity applications are moving on, so what’s happening at a software level?

Microsoft seems to have an ambivalent attitude towards providing truly rich online experiences for their office productivity applications. There are however a plethora of competing offerings that, in many cases, provide all the functionality that customers need, in a very economical package. So which companies are helping steer the Microsoft mother ship on its change of course?

Alternative suites

The most well-known product in this space is Google Docs, which, despite having low uptake when compared to Microsoft Office, is gaining lots of media attention and a strong following from those who need a slimmed down — but web-enabled — office suite. Coming from a slightly richer functionality angle, Zoho provides a fuller set of applications than Google Docs, but is somewhat hampered by a much smaller profile and user interfaces that, while improving, have previously been somewhat clunky.

Cloud content management

These companies tend to be application agnostic, but create a cloud-based environment for content storage that can then allow a degree of collaboration to occur. The thought here is that customers are used to the applications they currently use, so the best approach is to create a content management shell which is file format agnostic but allows for check in/check out, revision tracking and the like. Box.net is the poster boy for this approach, but offerings like Syncplicity (see disclosure) and Dropbox that were formerly simple cloud backup are starting to move into this space as well, as I discussed recently.

Microsoft Office sharing tools

Vendors in this space adopt the Microsoft Office applications that office workers are used to, but overlay them with a rich collaboration tool. Most notably, CentralDesktop has just released a tool that allows multiple users to simultaneously co-author Office documents in real time. Interestingly, this is the same functionality that users can obtain with SharePoint/Office 2010, but with CentralDesktop, it’s available for all versions of Office back to 2003.

Back in May, I wrote a post to mark the release of Office 2010; in it, I talked with a number of cloud software vendors about where they see the market heading. Chuck Dietrich, CEO of Sliderocket, summed up the issues facing Microsoft Office in this quote:

Microsoft’s revenue is dependent on selling old-school packaged software, continual upgrades and hardware…the truth is, Microsoft cannot embrace the cloud, because a subscription-based software delivery model would cannibalize their short-term revenues. Office 2010 is another attempt to sell upgrades and hardware, not an innovative web-based application.

Faced with a market situation like this, Microsoft has done the logical thing by choosing to focus on areas where startups can’t compete as readily. Azure gives them this luxury, while Office will continue to be problematic for them.

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Ben Kepes is an independent consultant and contributing writer for GigaOM. Please see his disclosure statement in his bio.

Disclosure: Syncplicity is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

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