Not Using Office 365 in the Cloud Can Cost Millions, Study Finds

Don Tennant

A recent study has found that 62 percent of organizations are still using Microsoft Office 365 applications on-premises rather than in the cloud, a rather shortsighted decision that can potentially cost an organization millions of dollars a year.

The study was conducted by Softchoice, an IT managed services provider headquartered in Toronto. In a recent interview, I discussed the study with Chris Woodin, director of the Microsoft business unit at Softchoice, and I asked him for the backstory behind the idea to conduct this particular study on Office 365. His response indicated that there was a strong business case for it:

The backstory is that Softchoice and our peers have sold a ton of Office 365 over the last six to seven years, and we were selling it on the benefit that when you move these productivity applications and servers into the cloud, you would increase strength of security and decrease operational costs. We’ve been surprised to see that customers aren’t adopting Office 365 in the cloud at the rate you would expect, given those potential benefits, and in many cases they were still only utilizing Office 365 as a licensing model to continue to operate the environment the way they had traditionally done on-premise. So we wanted to understand whether that observation is accurate, and if so, where specifically it’s most pronounced and what companies like Softchoice can do to help those customers gain the benefits that were originally intended when they made the investment in Microsoft Cloud.

Woodin went on to explain the overarching reasons why so many organizations are still using Office 365 apps on-premise rather than in the cloud:


The first is that these are organizations who have been operating those applications on-premise for decades, and what that means is they’ve got other dependent applications that work with those Microsoft productivity workloads on-premise that may not work effectively in their current state when you move them into the cloud. They’ve also spent decades administering that environment on-premise. So they don’t have the skills or capacity in their IT department to manage those workloads in the cloud. Traditionally, there were also concerns about the security ramifications of moving your data and applications into the cloud and outside the direct scope of your hands-on control. That hesitation has largely gone away as the industry understands that Microsoft can secure your data and your applications better than you can. And I would also say there’s a short-term cost associated with a migration. Typically, you’re going to want to work with an integration partner like Softchoice and our peers to help plan, deploy, and potentially manage the first few months of your experience in the cloud. So those are some of the reasons why we’ve seen customers reluctant to make the transition to cloud. One thing, though, is that very few customers, if any of them at all anymore, would say that they don’t see the value in moving their Office 365 applications and data into the cloud. And they’re not saying they don’t eventually intend to do so. It’s more about the fact that they haven’t found the ability to do it right now. But the benefits of doing it are mounting very quickly, and so we think the survey is timely, because we do think there’s going to be — and we’re already seeing it — a big pickup in the pace of migrations to the cloud.

I asked Woodin if the study found that any particular industries are any more or less likely to use Office 365 on-premise than other industries are. He said the two industries that have been least likely to move their Office 365 applications into the cloud are health care and legal:

The main reason for both comes down to having a lot of workloads that depended on Office applications that those industries were not ready to adapt for the cloud. For example in health care, many of our customers utilize [electronic medical records] systems that are dependent on locally installed Office applications and servers. That’s starting to change as the EMR companies are getting much more modern and adaptable for 365 applications. Same thing with legal. They use a lot of legal-centric applications that tie in to Office applications that until recently didn’t play well in the cloud. Those issues are starting to be overcome. The other reason, particularly as it relates to health care, is that the health care industry is probably the most risk-averse industry when it comes to technology, and so they took a much longer wait-and-see approach to the cloud than I think most other verticals have. But we’re now seeing more health care organizations all across the United States and Canada start to make large migrations into the cloud with both Office 365 and server applications on Azure.

So are there circumstances under which an organization would be well-advised to use Office 365 apps on-premise rather than in the cloud? Woodin said there are:

The most common reason right now would be if you’re utilizing applications that depend on Office functionality, and those dependent applications haven’t been modernized to coexist with Office 365 applications in the cloud. The other reason is that, if your business is operating in an environment where internet bandwidth is unreliable, that can create a risk for Office 365 adoption. So one of the services that Softchoice and its peers often provide in preparation for a 365 migration is an assessment of network performance and capacity, and in some cases bolstering network capacity before we plan the migration so that no one experiences a degradation in performance or availability after the migration. For what it’s worth, if we’d been having this conversation 18 months ago, I would have said security concerns are an issue; I don’t think that’s the case today. Our experience has been that our customers who operate Office applications and the productivity servers that support them, such as Exchange and SharePoint and Skype, on-premise are actually more prone to risk from a security perspective than they are when they move them into the cloud.

Finally, I asked Woodin what incentive Microsoft has to encourage its customers to use Office 365 in the cloud rather than on-premise. He said Microsoft’s number-one incentive is more reliable recurring revenue:

Here’s the issue: If I operate Office on-premise, I’m not really dependent on Microsoft for that technology to continue to operate. And at any time I could essentially end my subscription with Microsoft, and as long as I still own perpetual licensing rights to the technology, I could operate without having to pay Microsoft anything further going forward. But when I utilize Office 365 in the cloud, and I purchase it through a subscription for that, the chances of me just dropping Microsoft as a vendor go way down.

A contributing writer on IT management and career topics with IT Business Edge since 2009, Don Tennant began his technology journalism career in 1990 in Hong Kong, where he served as editor of the Hong Kong edition of Computerworld. After returning to the U.S. in 2000, he became Editor in Chief of the U.S. edition of Computerworld, and later assumed the editorial directorship of Computerworld and InfoWorld. Don was presented with the 2007 Timothy White Award for Editorial Integrity by American Business Media, and he is a recipient of the Jesse H. Neal National Business Journalism Award for editorial excellence in news coverage. Follow him on Twitter @dontennant.


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