February 22nd, 2007

Come on down, Google Apps, the price is right

Posted by Phil Wainewright @ 1:08 pm

Categories: Business applications, Google, Microsoft

Tags:

I think the BBC hit the right note with its headline today on the launch of Google Apps Premier Edition: Google charges for web programs. Today may go down in history as the day when Google started charging for applications. Suddenly, it's once again become acceptable to charge customers for using Web-hosted software. It's as if the dot-com era never happened.

I heard indirectly that my article of a couple of weeks ago, Three mega traps for Google Apps, had not been well received in the Googleplex. By comparison with most bloggers, I have privileged access to Google PR, since a good friend of mine happens to be married to someone who works in the company's in-house PR team. My friend happened to be in London the other day and passed on a message from his spouse that I had gravely misrepresented Google's commitment to the subscription model. (What joy I felt to be just a single degree of separation away from direct communication with Google's PR team!) As my friend pointed out, adding a second source of income in addition to its core advertising revenue stream is actually a fairly sensible business move (he's a business journalist himself so I couldn't fault the argument). Google has every incentive to make a success of its foray into subscription charging, thus reducing its exposure to the vagaries of the online contextual advertising market.

So let's dispose of the first of the three mega traps I had cited in that article, and accept that the subscription revenue model is indeed strategic for Google. That leaves items two and three to deal with.

First, item three. I'd raised the spectre of Google Apps falling over, and we now know that the Premium Edition comes with a service level agreement that guarantees the service will be out of action no more than 0.1 percent of the time — just three-quarters of an hour — each month, which is not bad. Or at least, so we are told. Unfortunately, as my ZDNet colleague Larry Dignan discovered earlier today, the URL where customers can consult the details of the agreement returns a 404 error. But Donna Bogatin has been delving into the Gmail agreement, which says that in the event of downtime going above 0.1 percent, Google will credit you with three days extra service, provided you put in a claim for the disruption. It would be even better, as Dan Farber says, if Google had an online monitor like Salesforce.com's, which provides transparency about its server uptime, but then on the other hand Salesforce.com doesn't publish an SLA, so it seems you can never have everything you want in the on-demand world.

The remaining item is the pricing. Will this trip Google up? Actually, I think the interesting thing here is that Google has set a very sustainable pricing level. At first glance, $50 per user per year sounds very cheap, but multiply it over the three-year minimum lifetime of a perpetual license and you're already up to $150, which is probably not far off the discounted price most decent-sized enterprises pay for Office. Of course Google has to run the infrastructure as well but the feature set of the current suite it's offering is fairly limited. That leaves open the option of adding additional pricing levels for more richly featured versions, which is exactly what Salesforce and many other on-demand operators have done over the years. So I think Google Apps will remain profitable at that level, and won't undermine the profitability of other on-demand vendors.

So far so good. What of the threat to Microsoft? This seems to be the question everyone is asking about. Well, I don't see this eating into Microsoft's core Office user base, not until the functionality improves closer to parity, which will take a year or two yet. Several people have commented that Microsoft's customers will be able to use Google Apps as a negotiating ploy to get better prices out of Microsoft. But then customers have already been using OpenOffice in exactly the same way (and probably with more conviction).

I think where it does create problems for Microsoft is around the periphery, chipping away at the perceived dominance that hitherto has made Office pretty much a no-brainer purchase in a business environment. Customers will now think twice whether they really need to stump up the full cost of Office when they can make do with Google Apps or some other alternative. A lot of the early adoptions will be tactical, short-term implementations that will gradually and imperceptibly turn into long-term commmitments. Ultimately, if Google Apps can insinuate itself into replacing Microsoft Office as the no-brainer, don't-have-to-think-about-it option, then that is when Microsoft will really have something to worry about.