Since shortly after its introduction in 1989, Microsoft (MSFT) has updated its popular Office suite of software every three years or so. Those updates included revamped interfaces, new Word fonts and Excel formulas, and a raft of fixes for bugs, some noticeable and others gnat-size. Big and small, these updates were wrapped up together in a shiny, redesigned box with a new price tag. Typically they were sold to individuals and companies who had recently invested in new PCs. The formula worked for a long time, and it still does; in 2012 there were 1 billion Office users worldwide, and the suite of productivity software brought in more than half of the $24 billion in global revenue generated by Microsoft’s business division.
As it shifts its Office sales model away from programs installed on users’ hard drives and toward its cloud-based Office 365 subscription service, Microsoft is rethinking the way it releases software updates, and dramatically accelerating them. PC sales are dropping—global shipments may decline 7.8 percent this year, the worst annual drop on record, according to researcher IDC. That means new PCs can no longer be counted on to spur software sales. Office also has a lot more competition. Google Docs, now part of Google Drive, is an alternative to programs such as Word and Excel. Dropbox, Box, and Jive Software (JIVE) compete with Office’s SharePoint, its document management and collaboration software.
All of these newer entrants into productivity software live in the cloud. Since Google (GOOG) launched its Drive service in April 2012, it’s updated the program more than 100 times. Dropbox and Box say they update every day. More than 5 million businesses use Google Apps daily, company spokesman Tim Drinan says. Depending on need, Google may update the software a few times a month or a few times a week. Drinan says the company gives enterprise customers the option of receiving updates only at set times if they prefer not to be surprised. Box says it has more than 150,000 business users.
Companies that update automatically can be more responsive to customer complaints and shifting needs, and cloud-based software doesn’t require users to keep downloading and installing supplemental files, as Microsoft’s from-the-box customers must for occasional bug fixes and security patches. “Microsoft understands the competitive threat,” says Melissa Webster, an analyst at IDC. “Three years is a lifetime in tech these days.”
Microsoft launched cloud-based Office 365 two years ago, and in the past year has shifted its culture more toward that of an Internet company, Vice President Jeff Teper says. A year ago, 80 percent of the engineers in Office’s servers and services group were working on the big updates that took place every few years, and 20 percent were assigned to quicker fixes for Office’s cloud products; now it’s the reverse. Office 365 users receive monthly updates, and soon, Teper says, they’ll be weekly. The Office cloud-products team, which had just a handful of data analysts four years ago, now has dozens who track user satisfaction as updates go live.
Teper calls it “the Yammer way,” after the corporate social network used for collaboration within organizations, which Microsoft acquired in July 2012. Yammer updates twice a week, and its team helped recruit many of the new Office data analysts. Yammer co-founder Adam Pisoni is Office’s new general manager for engineering. The change “is a foundational shift that is permeating through the organization,” says Bobby Kishore, an 18-year Microsoft veteran who manages engineering and operations for Office 365.
The focus on Office 365, now a $1 billion-a-year business, risks alienating some corporate customers. While it’s convenient, users may find a stream of program changes disorienting. “With all the products where they are amping up the velocity of releases, there’s the same risk,” says Wes Miller, an analyst at the independent consultancy Directions on Microsoft. “A broad category of customers like to see that. There’s also a broad category of customers who are terrified by that.”
Microsoft’s own research confirms this. In a 2010 survey of its 150 top customers, only 1 in 5 said they were using Web-based software or planned to do so. Teper says the company decided to ignore those signals and push forward with the development of Office 365. “We don’t want to be caught behind the eight ball,” he says. “Even if it’s the customer saying, ‘Hey, go slower.’ ”
The Office unit says packaged releases will still be available to users who are resistant to Office 365 and its frequent updates, but most of the team’s energy will be focused online. “Microsoft has an established history and trust with customers,” says Pisoni. “So far those who are hesitant about going to the cloud, they’re willing to put their trust in Microsoft. No other competitor—Google, Box—has that established trust.” Raman Padmanabhan, chief information officer for Xerox’s (XRX) business services unit, has been briefed on Microsoft’s move to faster updates and says he supports the shift as long as the product is good. “It’s all about service and quality,” he says. “You have to have a certain quality or it just kills your business.”