Google Lures Corporate-Cloud Buyers by Cutting Transition Costs

  • Google targets Microsoft customers with long-term contracts
  • `This isn’t a desperate move, it’s an offensive move'

Google is sweetening incentives for companies to adopt its Web-based document, spreadsheet and other office applications.

For companies already under a long-term contract with Microsoft Corp. or another software vendor, Google is waiving the cost of its suite of Web services -- called Google Apps for Work -- for as long as three years. Google, which has been working to make its products more compatible with Microsoft’s software, will also help pay for the cost of transitioning to Google, the Web company said in a statement Monday.

Essentially, Google is seeking to lure more corporate customers by lowering the cost and hassle associated with switching software vendors. That would let clients avoid having to pay two or more software providers at the same time during a transition. In exchange, Google is asking potential customers to sign up for its Apps services at least a year after a competing contract expires.

"A lot of companies are entrapped in a costly and opaque licensing agreement," said Rich Rao, who oversees sales for the Google Apps business. "We think there’s a better way to do business."

The long-term contracts that software makers offer companies are usually called enterprise agreements. Google’s new migration scheme is in line with the industry’s sales tactics, especially by companies that deliver software over the Internet. By offering subscriptions for Web-based software and services instead of contracts for programs installed on computer hardware, cloud providers are seeking to tempt companies by offering greater flexibility and support services than traditional vendors.

"If nothing else, it’s going to enter them into the equation," says Alan Lepofsky, an analyst at Constellation Research. "Eliminating the cost of double payment is a very interesting move. This isn’t a desperate move, it’s an offensive move."

Google reports sales for its Apps business through the "other revenues" section of its income statement, along with services such as Google Play and product like Chromebooks. That segment generated $1.7 billion in sales in the company’s most recent quarter, up 17 percent.

Microsoft, which sells both cloud-based and packaged software, is the dominant provider of productivity software to businesses, according to Lepofsky. Although Google pioneered a number of Web-based technologies to let multiple people work on a single document at the same time, that hasn’t translated into a leadership position, he said. Okta, a startup that provides identity management services, said in January that Microsoft’s Office 365 cloud product had quickly become the most-used application across its more than 2,000 customers, surpassing Google Apps.

Google isn’t the only vendor of cloud-based software trying to win new corporate customers. Amazon.com Inc.’s Amazon Web Services recently released new technologies aimed at making it easier to migrate from traditional databases from companies such as Oracle Corp. into its own lower-cost, pay-as-you-go cloud.

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