Late last week, Google (GOOG 0.14%) announced that moving forward it will begin charging businesses for use of its Google Apps suite of software applications. The cloud-based service has grown in popularity since its release, and is now the choice of millions of users, including individuals, corporations, governments, and educational institutions. As the company continues to look for new sources of revenue, it is small businesses -- which were previously exempt from paying fees -- that are most likely to be affected. While new business users will now have to choose between paying Google for Apps or paying Microsoft (MSFT +1.31%) for Office 360, what the change represents is more meaningful than the new revenue it will generate.
Simplifying the plan
In Google's press release on the change, the company trumpeted the success it has had in growing the service since it was first introduced. The new structure will be very "straightforward," according to the release:
• Individuals wishing to use Google's web apps like Gmail and Google Drive should create a free personal Google Account, which provides a seamless experience across all of our web services on any device.
• For Businesses, instead of two versions, there will be one. Companies of all sizes will sign up for our premium version, Google Apps for Business, which includes 24/7 phone support for any issue, a 25GB inbox, and a 99.9% uptime guarantee with no scheduled downtime. Pricing is still $50 per user, per year.
The biggest change under this structure is for small businesses with fewer than 10 employees. These users paid nothing for the service until last week. The number of employees that were considered the threshold for free service has been steadily decreasing over the past several years -- the 2009 level of less than 50 employees was reduced to 10 in 2011.
Critical changes
While it is clear from the decision that Google would like to begin leveraging the success of Google Apps to generate revenue, it is important to realize that the change only applies to new customers. The company was careful to explain that "this change has no impact on our existing customers, including those using the free version." The service will continue to be free for schools and universities and carry the same fees for governments, each with a slightly specialized version of Google Apps.
Along with the pricing change, Google wants to renew its commitment to providing excellent customer service to its business clients. Sundar Pichai, the senior vice president in charge of Google Apps, said that a highlight of the product was the dedicated customer support provided by the company. This level of service has the potential to be one of several differentiating features between Google's offering and those provided by others.
Comparing oranges to...
Under the Microsoft Office 360 Small Business plan, which costs businesses $6 per user per month, only Microsoft community support is provided. In order to receive what Microsoft dubs "Live 24 X 7 IT-level phone support," users must upgrade to a Midsize Business & Enterprise plan; this plan costs $8 per user per month.
The distinct advantage that Microsoft has in this area is that Office 360 is compatible with full desktop versions of Microsoft Office. This makes the transition process more seamless for businesses that are running the full software suite and continue to maintain large legacy databases of data, documents, spreadsheets and presentations in the Microsoft format. The simplicity of taking these into the cloud-based system may give Microsoft a big advantage.
As Google continues to improve, web-based products like Apps may serve as another successful attack on Apple (AAPL 0.14%), which has had issues with web-based services. Patrick Gibson, who worked on the original iPad for Apple, put the issue a different way in his blog: "Google is getting better at design faster than Apple is getting better at web services." Apple's ability to compete for business customers should be of some concern for shareholders.
The takeaway
While new small businesses will now have to pay to use Google Apps for their corporate software needs, the impact to the company's bottom line will likely be slow and initially insignificant. The more important message to be gleaned from the move is that Google is actively targeting enterprise customers by offering superior customer service. Google continues to get more things right and quietly expand its presence. This is just one of the many reasons that the stock belongs in everyone's core portfolio.
