The Big Story

Ever to Excel?

One of the least-understood phenomena adjacent to the backlash against tech companies over the past few years was Microsoft's ability to skate free of the scrutiny. Here is a $2 trillion company doing $168 billion in yearly revenue that nobody complains about. For some reason, Microsoft seems determined to change that.

Further evidence of Microsoft's power over the market for business software emerged last week with the announcement that starting next March, businesses are going to pay a little more each month for the 300 million people who use the commercial version of Office 365. The company said it was "the first substantive pricing update since we launched Office 365 a decade ago," and prices are also going up for businesses that use the Microsoft 365 bundle, which includes Windows.

A lot has changed since Office 365 went online a little over a decade ago. But one thing has not: The company dominates the market for productivity software that almost every professional with a computer uses daily.

• Microsoft has "almost 90%" of this market, according to Gartner. In its last fiscal year, Microsoft reported $69 billion in what it calls "commercial cloud revenue," and business users of Office 365 account for a substantial portion of that revenue.
• Google is picking up 1% to 2% of market share each year with its Workspace product and growing at a faster rate, according to Gartner's analysis, which also noted that it's difficult to get companies to switch office productivity suites once they've made their selection.
• The most basic version of Office 365 will cost 25% more, but premium versions will increase by a smaller amount, which analysts think might encourage more companies to upgrade.
• Investors were delighted: The company's stock hit an all-time record on the news Friday, and although it has declined slightly this week, it was still higher than the pre-announcement price as of the close of Wednesday's market.

The new Office 365 price plans aren't too bad, as price hikes go. According to the U.S. Bureau of Labor's Consumer Price Index, the $2 per-user increase in the monthly price of the most basic version of Office 365 is almost directly in line with the inflation rate over the past decade, which means the premium versions are ahead of the game. And the cost of operating cloud services at scale has increased far more during those 10 years.

• Microsoft has almost tripled what it spends on capital expenditures over just the last five years, to $24.2 billion in its last fiscal year.
• Microsoft struggled with demand for its cloud services during the early days of the pandemic to a degree that its competitors did not, forcing it to quickly upgrade its capacity and meter access.
• Since then, it has committed to building availability zones across its footprint of regional data centers, which requires more equipment but improves stability if utilized correctly by customers.
• Microsoft also softened the price-increase announcement by allowing unlimited use of Microsoft Teams' dial-in connection option, which was previously only available to premium Office 365 customers.

Yet the increase is another reminder of Microsoft's outsized impact on the market for business software. That market has gone overlooked by regulators and Congress, somewhat understandably, compared to consumer-facing online services and their data privacy concerns.

• But none of its major enterprise rivals have even close to 90% of a business-to-business market, especially one as fundamental as office productivity software.
• And none of those rivals have maintained 90% of such a market for over a decade.
• It's not clear if Slack will continue to argue to the European Commission that Microsoft's decision to bundle Teams with Office is anticompetitive under its new ownership, but there's not a lot of warm fuzzy feelings between Salesforce and Microsoft.
• Depending on what happens with that case, Microsoft's most reliable enterprise software cash cow could soon face a lot more scrutiny on more than one continent.

And it's a fascinating opportunity for Google Cloud: How price-sensitive are customers of office productivity software?

• We'll know as we get closer to March 2022, when the new prices take effect.

— Tom Krazit

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This Week On Protocol

Data biz: Do enterprise-tech buyers have the same data privacy rights as consumers? So far, the answer is no, and Protocol's Joe Williams looked at how ZoomInfo is helping businesses find new customers while navigating the shifting privacy landscape.

National security: The CEOs of several major enterprise tech firms — including Amazon, Microsoft, Google and IBM — met with President Biden on Wednesday to discuss increased investments in cybersecurity infrastructure. Protocol's Ben Brody outlined what we can expect from each of the companies as ransomware continues to be a major concern.

Exit interview: Paz Patel, head of global HR for AWS, appears to have left the company last month, Joe also reported. AWS is currently investigating complaints of discrimination and harassment inside the company following employee complaints.

Five Questions For...

Varun Talwar, CEO, Tetrate

What was your first tech job?

It wasn't technically a job, but my first experience with real programming was when I entered programming competitions in New Delhi, India. My first real job, however, was with a startup in Singapore. I got the startup bug early on and ended up trying my hand in the startup world right after my master's with NUS and MIT, 20 years ago. We were building the early blocks of AI — a financial optimization engine in C++ using linear and quadratic programming models.

What was the first computer that got you excited about technology?

I remember my teacher "Dash" introducing us to computers in one of our classes in middle school. I used to build games using Visual Basic (VB) in my computer classes. As a kid, creating simple games where I could change colors was the most exciting application of computers for me. We would get an hour each week on the PC, as it was a shared computer, and I remember eagerly waiting for the next class so that I could create more exciting changes.

What's your favorite pastime that doesn't involve a screen?

I'm a big fan of stand-up comedy and hiking. They are both common interests I share with my wife.

What will be the greatest challenge for enterprise tech over the coming decade?

Access is going to be the next challenge for the industry. Cybersecurity threats faced by companies are getting more sophisticated. And the complexity of providing secure access to multiple stakeholders spread across the globe with various roles is also increasing multifold. Not everyone needs access to everything. Restricting access to some things while allowing access to others — not based on roles, but rather on use cases — will be a key problem that companies will need to solve for.

Will AWS end the decade as the market leader in infrastructure cloud computing?

I think that's a good bet. The pandemic has put more wind in the sails of cloud computing in general. And AWS is the market leader today because it rises to meet the current needs of enterprises. But I would also expect to see other leaders expanding their share in that market with more enterprises adopting multiple clouds.

Around the Enterprise

• Salesforce beat Wall Street expectations with a 23% increase in revenue, and it raised its full-year guidance after closing its Slack deal last month.
• Snowflake also topped expectations thanks to a 103% jump in revenue, but its forecast for a mere 92% growth in revenue next quarter disappointed investors.
• Elastic acquired CMD,a security-through-observability startup that joins several other security companies Elastic has acquired over the last few years.
• CyberScoop interviewed Jen Easterly,the new head of the Cybersecurity and Infrastructure Security Agency who has experience on both the offensive and defensive sides of the security game.
• Former AWS engineering leader Charlie Bell has a new gig. He landed across Lake Washington at Microsoft, according to Business Insider, although it's not clear what he'll be doing.
• Yesterday was the 30th birthday of Linux, one of the most important pieces of software ever developed. The Register interviewed Greg Kroah-Hartman, the project's current maintainer, on the past three decades and what comes next.