Microsoft has a goal of reaching an annualized revenue run rate of $20 billion for commercial cloud products by July 2018. To attain their goal, Microsoft needs to extract more revenue from customers by selling add-ons like Delve Analytics and Advanced Security Management, more expensive plans like Office 365 Enterprise E5, and offerings like Azure Active Directory Premium or the Enterprise Mobility Suite.
There’s no doubt that Microsoft is on an upward trajectory when it comes to the annualized run rate for commercial cloud products, including Office 365. The most recent figure we have puts the figure at around $10 billion and marks a healthy increase over the last few quarters. However, work has still to be done if Microsoft is to achieve the $20 billion target by July 2018 as set by Satya Nadella. With nine quarters or so to go, they need to add about $1.1 billion per quarter to that run rate.
Of course, Microsoft makes considerable revenues from Azure and Dynamics CRM Online, so it’s not just a matter of driving Office 365 sales. However, it’s always been the case that it’s easier to increase revenues by extracting more from existing customers than it is to win new customers. With that thought in mind, how does Microsoft make more money from Office 365 tenants? There are four major ways:
- Upsell more expensive plans
- Azure Active Directory Premium
- Enterprise Mobility Suite
Buying Office 365 Add-ons to Gain Extra Functionality
An add-on is the right to use additional functionality to that available in the Office 365 plans that a tenant has purchased. Typically, this is a discrete application that is bundled in higher-end plans that you decide you’d like to make available to specific users. For example, Delve Analytics probably won’t be much use to an office worker who’s happy with an Office 365 E1 plan but it could help managers to make more effective use of their time.
Delve Analytics is bundled in the E5 plan, but the cost difference between the E1 and E5 plans is $27 ($8 v $35). Purchasing a $4/month (per user) add-on for Delve Analytics and assigning those licenses to targeted users is a cost-effective method to provide functionality that would otherwise require an E5 license. Microsoft likes the deal too because it increases their overall yield from the tenant.
The PSTN calling plans for Skype for Business provide another way for Microsoft to increase their yield. Domestic and international calling plans are available. In the U.S, domestic plans range from $12 to $20 and international plans from $24 to $32 (per user monthly). Calling plans are not available in all markets. Check with Microsoft to see whether these plans exist for the countries in which your tenant operates.
Upselling to More Expensive Plans
Upselling more expensive plans is an obvious way for Microsoft to drive more revenue from tenants. The jump from E1 to E3 is a substantial $12/user/month, but a case can be argued for the upsell because E3 includes the right to use the desktop Office applications as well as an array of compliance and rights management functionality. Any company that’s worried about protecting data against misuse should really be using E3.
Figure 1: The Office 365 E5 plan commands a hefty monthly fee
Many comments flowed about how the Office 365 E5 plan would drive additional revenue for Microsoft when the new plan launched in late 2015. E5 includes just about every bit of functionality that Microsoft can bundle in a plan including PSTN conferencing, Advanced Security Management, Advanced eDiscovery, Advanced Threat Protection, and Delve Analytics. If you like flying first class instead of economy, the E5 plan is for you, even if it does cost $15 per user more monthly.
Remember that Office 365 is very flexible about mixing licenses inside a tenant. You can buy and assign different licenses to match functionality with user needs. There’s no need for a one-size-fits-all approach, so it is wise to review license usage versus need on a regular basis.
Using Azure Active Directory Premium with Office 365
All Office 365 tenants use Azure Active Directory and have access to sufficient directory functionality to store information about user accounts and serve the needs of Microsoft Online Services and the dependent workloads such as Exchange Online and SharePoint Online. Azure Active Directory Premium costs an additional $6/month per user to provide a range of features that are worth considering, especially for tenants that operate a hybrid environment. These features include:
- Dynamic Groups: Allows groups to have dynamic membership formed on the basis of queries executed against Azure Active Directory (including dynamic Office 365 Groups).
- Enhanced multi-factor authentication (MFA): Office 365 includes support for MFA access to its applications. Provides MFA support for non-Office 365 applications.
- Password write-back: Enables the write-back of reset user passwords to an on-premises Active Directory. Obviously, this is highly attractive within a hybrid environment.
- User self-service password reset: Enables users to change their own passwords without administrator or help desk support.
- Connect health: Provides information about directory synchronization performed with Azure Active Directory Connect. This is important for hybrid deployments where directory synchronization is a critical component.
Microsoft is building other functionality that will require Azure Active Directory Premium licenses too, such as the recently-announced conditional access for Exchange Online and SharePoint Online, which allows administrators to require MFA or to block access depending on a user’s network location. Another recent announcement that will likely result in an add-on that will be of interest to some tenants is Azure Information Protection, which is intended to provide additional automation to protect information shared outside organizations. Although it’s too early to say exactly how much value Azure Information Management can add to Office 365 tenants, the new technology builds on the Azure RMS and Information Rights Management features that are already used by many organizations, so it’s easy to see how Microsoft might coax some additional revenue by emphasizing the ability to have better visibility and control over protected information.
Consider the Enterprise Mobility Suite
Azure Active Directory Premium is included in the Enterprise Mobility Suite (EMS), priced at $8.75/user/month. Because Office 365 tenants with E3 and E5 plans already have access to Azure Rights Management, Intune device management is the big piece of functionality delivered for the extra $2.25 (over Azure Active Directory Premium). Nevertheless, if you think you need Azure Active Directory Premium, it’s worth looking at EMS as Microsoft usually charges $6/user/month for Intune alone.
Knowing that you pay a fixed cost is one of the big promises made for cloud services compared to on-premises equivalents. In terms of Office 365, that cost does stay fixed as long as you’re happy with the functionality available in the plan that you buy. However, if you want a little bit more, you’ll end up paying for it. That purchase will deliver new features to your users. It will also help Microsoft get just a tad closer to that $20 billion goal.
Follow Tony on Twitter @12Knocksinna.
Want to know more about how to manage Office 365? Find what you need to know in “Office 365 for IT Pros”, the most comprehensive eBook covering all aspects of Office 365. Available in PDF and EPUB formats (suitable for iBooks) or for Amazon Kindle.