Which SaaS vendor just passed the billion-dollar mark? Microsoft
Office 365 seems to be catching on.

Despite a lot of confusion around how it works, it seems Microsoft’s SaaS version of the flagship Office suite has pretty quickly grown into a billion-dollar business. According to the most recent financials from Redmond, Office 365 is now on a billion dollar run rate and continuing to grow at a brisk pace.

For those who have been quick to throw dirt on Microsoft’s still warm body, Q3 showed the company exceeding $20 billion in revenue and $6 billion in profits. This at a time when everyone laments the drop in PC sales. Most companies would give away their CEO’s children to have those kinds of numbers.

Truth be told, $1 billion, in terms of the total revenue, suggests that Microsoft Office is not a major piece of the pie. The division that makes up Office did more than $6 billion this quarter alone, for instance. That being said, the billion-dollar mark is a watershed for this new way to consume Office, and shows Microsoft’s muscle in competing with other online productivity suites like Google Drive. From the briefings, it seems all of Microsoft’s cloud-based businesses, including the Azure Cloud, Xbox Live and Office 365, are doing pretty well.

Another factor that was discussed around the earnings is that many of the Office 365 seats are coming from large enterprise accounts. About 25% of enterprise customers are using at least some Office 365 seats. Also, many of the Office 365 seats are the higher-cost, premium versions, which translates to higher revenue and profit for Microsoft. This bodes well for Microsoft as more and more attention and revenue shifts to the cloud.

All in all, Office 365 has grown about 500% in just one year. Of course, maintaining that sort of growth rate over the course of the next couple of years will be difficult, if not impossible. But it is clear that Microsoft has used its cash cow productivity suite to give itself an anchor in the cloud/SaaS business landscape.

Microsoft has also made Office 365 more channel-friendly, allowing VARs and MSPs to bill customers directly via Office 365 portal. Putting Office 365 into the hands of Microsoft’s sizeable and powerful channel is a surefire way to increase its sales.

As I have written before, I use Office 365 for Home, which allows me to put it on five computers in the house. The only thing missing for me is if I could run it on Android tablets. But at $9.95 a month with 25GB of Skydrive and Skype minutes included, I think it is an excellent value.

Some of the initial confusion that held back earlier adoption of Office 365 is that many people didn’t realize that the applications are installed on the machine. You can access web-based versions of the apps on guest computers, but on your own computers there is little difference between the SaaS-based and traditional versions.

So maybe the old dog can learn new tricks. Good for Microsoft, if it has been able to adopt the new SaaS-based methods. Now, for their next trick, let’s see if they could only sell more Windows 8 phones and tablets.

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