On November 3rd Microsoft announced changes to the storage plans for OneDrive consumer and OneDrive for Business. I’ll be honest, I was surprised, but it helped to confirm a few things for me about the way Microsoft see’s OneDrive for Business and the broader File Sync and Share market.
Freemium, that is the model of giving away a solution in hopes that the user will eventually convert into a paid account, is no longer in viable for File Sync and Share products. Microsoft isn’t the first one to realize that this endless investment can’t continue and that it isn’t providing the outcomes that it used to. This model worked well to make an initial land grab in the market but as the small competitors have fallen away it’s quickly becoming a few horse race and therefore there isn’t a requirement to use free as a marketing tool. Other freemium vendors in this space have also had their troubles. Box has faced criticism for their financials, namely the costs of sales and marketing, of which free users likely are a large part of this expense. Dropbox recently had their first ever user conference, Dropbox Open, which was largely focused on driving business features and most notably a new Enterprise packaging option. Free is out, solutions that a business will PAY for is what matters now.
Now why the title “Is this a Platform, Product, or Feature?” First let me give you my definition of these words in the context of software.
- Platform, an application upon which other applications are built. As a user of these other application you may not even be aware of the platform application that is being used to deliver it. A rich set of API’s and strong developer community are required in order to be a Platform.
- Product, the litmus test for this is rather easy, can it be purchased? Does it have it’s own P&L? Can the product show revenue and expense? If it is a public company are those revenues and expenses visible in their SEC reporting?
- Feature, it’s valuable to a businesses customers but it’s neither of the things above.
If I were to make a guess, at Microsoft, OneDrive for Business is considered a feature. It’s definitely not a product as it can’t be purchased outside of an Office 365 subscription and I haven’t seen anything that would make me consider it a platform. Since OneDrive for Business cannot be purchased individually I have long wondered whether the team that supports that product can point to revenue from an Office 365 licenses that they contributed towards. I am inclined to believe that this is not the case but if I ever talk to someone in that team this will be my first question over a round of beers.
Here is why that is a problem. All companies have resource constraints, even big ones with seemingly endless zero’s at the end of their bank balance. Providing ridiculous amounts of storage is one of the levers I would expect Microsoft to use in order to convince businesses to use OneDrive for Business. Microsoft arguably owns more infrastructure and can likely provide storage at a lower cost than any other File Sync and Share vendor in the market. So why then irritate your customers? Why not use this to starve your competition? My guess is someone started looking at the budget and said, “This OneDrive for Business thing…how much money are they bringing in?” When the answer was a shoulder shrug or marketing quotes the expense budget was cut. If you’ve ever worked in IT, you know the feeling. You’re not bringing in money, you’re an expense, you want to spend money, you have to go compete for it.
So my conclusion after that announcement is that Microsoft believes OneDrive consumer and OneDrive for Business are features. Features whose funding isn’t based on contribution to the products they are a part of and therefore getting dollars for investment is likely a fickle process…show enough contribution to the core product and sales motion and you get the investment, fall out of favor and you don’t and when that Office 365 revenue stream starts leveling out where do you think the investment cuts will come from? Companies don’t buy Office 365 to get OneDrive for Business, it’s just another thing you get for the extra dollars you pay. I expect being good enough is the goal of the OneDrive for Business team and as Jim Collins said in his book Good to Great, “Good is the enemy of great.”