Microsoft Vs. Google Productivity Apps: UBS Report Says The Battle Is ‘Effectively Over’

Microsoft’s commercial Office 365 products may see ‘a likely deceleration in seat growth in the coming fiscal year’ despite the appearance that ‘the longtime battle with Google G Suite/ Workspace is now effectively over,’ according to a UBS report.

UBS, the world’s largest wealth manager, issued a report this week that called Microsoft’s recent price increases across its Microsoft 365 product suite a protective measure against “a likely deceleration in seat growth in the coming fiscal year” and declared Google’s battle over when it comes to its rivalry with Microsoft over productivity applications.

Google and two Google partners who spoke with CRN pushed back against the notion that Google Workspace—which used to be called G Suite and includes Gmail, Chat, Drive, Docs, Sheets and other collaboration tools—isn’t competitive against Microsoft’s productivity tools, which include Outlook, Word, SharePoint, Excel and Teams.

Two Microsoft partners who spoke with CRN said that Microsoft is still a good bet in the long run, with plenty of ways to start a sale to a customer and sell more services. The company also has has high enough market dominance in multiple categories, they said..

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Microsoft declined to comment on the report. Google issued a statement to CRN.

“Multiple teams within Google reviewed the report in question and after parsing through the data in great detail, our response is… 🤔,” a Google spokesperson wrote with an emoji in a statement to CRN.

Ajay Yadav, sales director at Princeton, N.J-based Google partner MediaAgility, told CRN that although the initial customer focus for Google’s productivity apps were smaller businesses and startups, the tools have matured and proven their use in the large enterprise space.

He said that the report is wrong about Google focusing on Google Cloud over Google Workspace and that MediaAgility has used both product suites to get its foot in the door with customers and to add more services for customers.

“We are not trading one for the other,” Yadav said.

Plus, Google’s strong presence in the education space means that the young professionals of tomorrow are more likely to choose Google productivity apps over Microsoft’s offerings.

“Younger professionals love Google for its simplicity,” Yadav said. “It’s a no-brainer.”

Publicly acknowledged customers of Google’s productivity apps include Salesforce, PwC, Airbus, Sony Pictures, Hackensack Meridian Health, Nielsen, Whirlpool, multiple U.S. states and the U.S. Department of Energy.

More than 3 billion users leverage Google Workspace apps, according to Google. And the company likes to tout data around the large number of the world’s workers who use Google products as “shadow IT”—that is, software not officially approved of or endorsed by their company or organization’s IT departments.

Tony Safoian, CEO of Los Angeles-based Google partner SADA—No. 137 on CRN’s 2021 Solution Provider 500—said in an interview that his company is also investing in growth in Workspace, including recently hiring John Veltri as a managing sales director to lead field sales for Workspace and Maps.

Google Meet has undergone a number of innovations that have helped make the videoconferencing tool competitive with other apps, Safoian said.

“With the enhancements they’re rolling out, we’ve been able to displace Slack and Zoom with Google Meet in accounts that would have been nearly impossible a year ago,” he said.

He said that SMBs and startups that use Google Cloud today are the enterprise customers of tomorrow and are more likely to be disruptive to legacy companies that haven’t embraced new technologies.

“In fact, we created a dedicated SMB sales team with a startup focus in 2021 to increase focus on this segment, and we’re already seeing very strong growth,” Safoian said. “So yes, the SMB market is still incredibly valuable. Google Cloud is the preferred platform for this segment, and they partner with us because we can help them accelerate their cloud adoption, maximize their value and drive their growth.”

Many Workspace users “were born online and are by nature, transformative, and that’s a key competitive advantage for Google” over Microsoft, he said.

Two Microsoft partners, meanwhile, told CRN that they feel comfortable with Microsoft’s continued dominance in productivity apps but they don’t count Google as entirely out of the race.

Kelly Yeh, president of Chantilly, Va.-based Microsoft partner Phalanx Technology Group, told CRN that even if some economists’ worries over a possible upcoming recession prove true, Microsoft’s domination of the market share in productivity applications and operating systems makes him prepared for long-term success.

“I don‘t count anybody out, but what I’m saying is that Microsoft has a way of just shutting the door on the competition,” Yeh said. “And it‘s not that they’re doing it in an unfair way. They just understand business better. Google doesn‘t understand that, yes, people like to have their Outlook file locally. And those are the people who sign the checks. They care about the people who don’t sign the checks more.”

He continued: “Google innovated the online email platform, the online productivity software platform first. Netscape did the first browser and [was highly successful]. But where’s Netscape today?”

Michael Goldstein, CEO of Fort Lauderdale, Fla.-based Microsoft partner LAN Infotech—a member of CRN’s 2022 Managed Service Provider 500—told CRN that hybrid work environments, organizations amassing more electronic data, those needing to analyze that data and those needing more security all still provide plenty of opportunity for Microsoft partners.

He even praised Microsoft for thinking about cutting-edge technology, such as virtual reality, in the context of currently popular applications such as Teams.

“The technology is only getting stronger,” he said.

UBS Findings

The report by Sweden-based UBS predicts a deceleration in Microsoft’s commercial Office 365 business while decreeing Microsoft’s battle with Google over productivity applications “effectively over.”

UBS also expects a tougher quarter for Windows, servers and LinkedIn, according to the report, which was shared with CRN.

“We now believe that it is prudent to begin modeling a gentle deceleration in commercial Office 365 seat growth given the combo of the pandemic/work-from-home boost fading and Office 365 penetration into the broader Office installed base now reaching 80 [percent], offset by strong E5 traction and the price increase,” according to the report. “For FY23, we’re lowering our commercial Office 365 revenue growth estimate from 19.1% to 17.4%.”

The “trimming” of UBS estimates for Windows is due to a higher risk of a PC growth slowdown, according to the report. Servers and LinkedIn will have a tough comparison from the fourth quarter to June. UBS still expects strong Azure spending after conducting “customer checks.”

“The net impact on our estimates is modest, as we’re trimming our c/c 4Q/Jun revs growth estimate from 18.0% to 17.2%, but objectively the risk (partly baked into Microsoft shares already) of a below-consensus 4Q/Jun revs guide is higher,” according to the report.

Microsoft stock is also still a “safe haven” in case of an economic downturn in the second half of the year or first half of 2023, according to the report. UBS still rated Microsoft’s stock a “buy,” meaning that the bank expects the stock price to rise within three months.

Commercial Office 365 is Microsoft’s second largest product segment after its Azure cloud, according to the report. It saw revenue of $35.1 billion in fiscal year 2022. It has grown 19 percent to 21 percent for the last six quarters.

Meanwhile, Microsoft has such a dominant share of employee productivity software—including its Word, Excel and Teams applications—that UBS said “the longtime battle with Google G Suite/ Workspace is now effectively over.”

“Our checks argue that the Google Cloud leadership has all but given up on the goal to displace Microsoft Office 365 in the enterprise segment and has instead shifted its efforts to boost GCP’s competitiveness against Azure,” according to the report.

The report continued: “In a nutshell, the near-unanimous view was that the longtime battle between Microsoft and Google in the employee productivity market is all but over—Microsoft has won resoundingly.”

UBS estimates that for fiscal year 2022, which ends in June, Office will post revenue of $45.3 billion, a 14 percent increase year over year and 23 percent of Microsoft’s overall revenue.

Although Office overall—including commercial Office 365, consumer Office and on-premises commercial Office licenses—is still the largest single revenue segment at Microsoft, Azure should surpass it in fiscal year 2023, according to the report.

“Microsoft has been clear that this 19-20% growth rate can’t be sustained forever, but to date the Office 365 business has held up like a champ,” according to UBS. “It is the potential for a gradual deceleration starting in the 4Q/Jun or 1Q/Sept 2022 quarters that concerns us most and is the subject of this report.”

UBS predicts the deceleration will result in 17.6 percent revenue growth and 12.3 percent Office 365 seat growth in December.

According to the UBS report, the lack of growth acceleration over the past two or three quarters despite a shift to more expensive E3 and E5 products has “been slightly disappointing.” A seat mix shift to smaller businesses and front-line employees—which has less average revenue per user—offset the E3 and E5 gains.

The UBS report also questions Microsoft’s recent price increases for different products. Microsoft increased prices on multiple Microsoft 365 products in March and even announced an upcoming price increase for products aimed at nonprofits.

“The number of pricing moves is intriguing, begging the question as to whether this is offensive (Microsoft is leveraging its strong competitive position) or defensive (potential seat growth deceleration),” according to UBS. “We are now tilting towards a view that the timing of these Office price increase(s) is correlated to a likely deceleration in seat growth in the coming fiscal year.”

Although it wasn’t directly mentioned in the report, a 20 percent premium on month-to-month commitments has notably angered multiple Microsoft partners.

According to the report, Microsoft believes opportunity exists to increase Office 365 penetration because about 20 percent of Office users are on the on-premises version, not to mention expansion in emerging markets and new segments such as front-line worker seats.

But UBS believes that on-premises Office revenue should be declining faster. It fell by 10 percent to 20 percent in recent quarters compared with 20 percent to 30 percent in the past, according to the report.

“Bottom line, it is getting tougher to sustain 19-21% Office 365 revenue growth given a penetration of 80% into the Office installed base,” according to the report.

UBS also took the position that Salesforce, Adobe and other front-office third-party software firms would see a deceleration in sales compared with the height of the pandemic.