Microsoft's Office 365 Could Validate Cloud Strategy

That strategy predicts a gradual transition from desktop-based software to online subscription services, with businesses in the long run paying a set amount per month to store their data and launch applications from Microsoft's servers. In theory, this benefits businesses by reducing the need for on-premises servers and other IT infrastructure. It as well benefits Microsoft by turning clients into monthly subscribers, ensuring a steady revenue stream.

Office 365, released in its final version nearly the end of June, represents Microsoft's boldest attempt but at enacting this "all in" strategy. A rebranding of the company's BPOS, Office 365 links Microsoft Office, SharePoint Online, Exchange Online and Lync Online into a platform that costs between $2 and $27 per month, depending on options. It comes with an Office 365 Marketplace loaded with productivity apps and professional services.

On June 28, Ballmer took to a New York City stage to roll out the final version of Office 365. "We believe effective collaboration is a lot more than good group dynamics," he told the assembled audience of media, analysts and business owners. "It's instant access to relevant information ... and the right people taking the right action by the way."

During that launch event, and in its accompanying press materials, Microsoft seemed intent on angling Office 365 as primarily a solution for small- to midsize businesses. That would as well place the new service on a collision course with Google Apps, for which SMBs are considered to a key demographic.

The question is whether Microsoft can leverage its longstanding presence within the business community to squelch Google's attempts in the productivity arena. According to analysts, that seems unlikely, at least as soon as possible.

Microsoft's traditional lines of business have been performing relatively so then, with strong sales of Office 2010 and Windows 7 contributing substantially to the company's bottom line. Nevertheless, there are precious few signs in those balance sheets indicating that cloud initiatives will translate into substantial earnings in the nearly-term. Microsoft executives have been reluctant to discuss any hard metrics for business-cloud adoption. If Office 365 turns out to be a success, it could start Microsoft down the road to profitability in its cloud-based efforts-and validate that "all in" strategy.