80 million Exchange Online users as Office 365 progress continues

Reading financial results from a major corporation is always great fun. For some, perhaps, but probably not for everyone. But Microsoft's recent quarterly results contain some interesting information, not least the fact that commercial cloud services are on course to achieve a $5.5 billion run rate by July 2015. And that means that Office 365 has chewed up millions more paid customers in the last year. At least, I think so...

Microsoft’s latest results (for the second quarter of their FY15 year, released on January 26) contained the interesting news that “Commercial cloud revenue grew 114% driven by Office 365, Azure and Dynamic CRM Online, and is now on an annualized revenue run rate of $5.5 billion.“

Microsoft didn’t break out the $5.5 billion to say how the revenue broke down across Office 365, Azure, or Dynamics Online CRM, but my bet is that a substantial amount of it is gathered by Office 365. Given the impetus that I see for Office 365 in the field and the number of success stories touted by Microsoft on the Office 365 blog, my best guess is that Office 365 will achieve an annual run rate of $4 billion by the end of Microsoft’s fiscal year (June 30, 2015), or an increase of $1.5 billion in a year.

Microsoft also doesn’t publish any numbers for paid Office 365 subscriptions. I attempted to interpret the data last year and concluded that some 29.7 million paid subscribers used the service then. The new data indicates that the number is now around 46.2 million paid subscribers plus a heap of free users (trials, academic, schools, Microsoft itself, and so on). The total number of people who connect to Office 365 might now be close to 80 million.

Granted, I can’t guarantee these figures as they are all based on an annual run-rate and a heap of guesswork. But the same guesswork is being applied consistently, which I know is a sort of oxymoron, so we can say that all signs show that Office 365 continues to grow strongly on an upward trajectory as companies move workload from on-premises to the cloud.

Last October, Microsoft CEO CEO Satya Nadella said at a Gartner conference that: “Office 365 is the new Exchange and one will cannibalize the other. The key is to ensure that current Exchange customers can transition on their own terms.” Exchange is the gateway drug to the cloud, largely because it is so easy to move email workload now. Microsoft’s investment in engineering solid hybrid connectivity has paid off as has the hard work done by many third-party ISVs whose migration products allow mailboxes to be moved to Office 365 from Exchange and many other email systems. Binary Tree, BitTitan MigrationWiz, and Skykick are among the companies I hear mentioned a lot when it comes to migration projects, but there are many others. And of course, there's the free Office 365 FastTrack Onboarding service for those who have relatively uncomplicated mailboxes to move.

Last year I calculated that Office 365 had captured almost 10% of the total Exchange installed base. Now it looks like Office 365 will have consumed another 5%. The majority of users are still on-premises, but their numbers are going down as mailboxes move to the cloud. The best guess of how things will settle down remains that of Exchange development VP Perry Clarke, who agreed with me in a December 2013 interview that “somewhere in the region of 40 percent of the total installed base will likely continue using on-premises software for at least the next several years.” Of course, “region” is a pretty flexible term and might mean 45% or, more likely, 35% given the velocity we see today.

Exchange Online customers will be pretty happy with what they’ve seen in the last year. Good availability (the June 24 outage notwithstanding) and lots of new functionality (Clutter, People View, Office 365 Groups, and many tweaks to Outlook Web App) is a pretty nice package. The hope now is that the on-premises crowd will get a nice surprise when Exchange 2016 ships late this year. It would be nice if that were so.

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Discuss this Blog Entry 4

on Feb 5, 2015

Tony, per your article before & article from Microsoft we have around 350 Millions mailboxes around the globe on Exchange servers today. Are you saying 80 millions of these 350 millions mailboxes have moved to Office 365 today?? That means 23% of all mailboxes on earth are in Office 365 today but in this article you are saying 15% of all mailboxes on earth are in Office 365??
I think we have issue with this calculation.

on Feb 6, 2015

The difference is due to the low-paid or no-cost mailboxes that exist within the service. When the installed base has been calculated by companies such as Radicati Group in the past, they came up with about 315 million mailboxes. Others have estimated far higher - up to 800 million in some cases. There are lots of reasons why this might be so such as licenses sold with Windows Small Business Server, given away to schools, etc. I assume some growth in the installed base in 2015 and estimate it at around 327 million. I estimate the number of "full" subscriptions at around 48 million using the same model as I used before. The rest are free or low-cost mailboxes. All of this is based on guesswork and your guess is as good as mine when it comes to figuring this data out. All I can say is that I have used the same calculation or model to track the financial data over the last few years and that demonstrates growing revenue over time - that can then be translated into the number of seats, which have also grown over time. We can differ over the calculation, but the salient fact is that revenues are growing and therefore seats must be growing.

on Feb 5, 2015

Microsoft created problems with Vista and Windows 8 so I have an understanding why some users are still using Windows XP. Microsoft is now doubling down on the number of problems it is creating for end users and Microsoft partners with the craziness of the process of acquiring and installing various versions of Office 365. It is truly a company that refuses to listen, has no intention of listening, does not care about partners or end users.

on Feb 6, 2015

I guess everyone is entitled to their own opinion. Yes, Microsoft is running at a different cadence than before, but so is the entire industry. Google and other players don't support old and obsolete software. It's just the way of the new cloud-dominated IT world.

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Tony Redmond is a senior contributing editor for Windows IT Pro. His latest books are Office 365 for Exchange Professionals (eBook, May 2015) and Microsoft Exchange Server 2013 Inside Out: Mailbox...
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