Microsoft, Dropbox strike give-and-take Office 365 deal

Microsoft and Dropbox will integrate each of their corporate offerings.

Microsoft and Dropbox have announced a partnership that will integrate each company's corporate offerings - Office 365 on Microsoft's part, Dropbox for Business on Dropbox's -- with the other's services.

The two firms, which have been competing in the cloud storage and file sync market -- Dropbox's bread and butter, a feature rather than a business for Microsoft -- will now collaborate, first on tablets and smartphones, then next year online.

Some analysts called it advantage Microsoft in the partnership, but still thought Dropbox got an important win. "What Dropbox gets out of this is survival," said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

Microsoft will revamp its Office mobile apps - Excel, PowerPoint and Word on the iPad, iPhone and Android smartphones - in the coming weeks so that users can connect to their Dropbox accounts from within those apps. In 2015, Microsoft will add the same capability to the Office Online apps, the Web-based versions of its primary applications.

Meanwhile, Dropbox will modify its mobile app - available now for Android and iOS - so that Excel, PowerPoint and Word documents stored on its service can be opened using the Office apps. Dropbox also said it would create a native Windows Phone app, something it's declined to do previously, that would offer the same connectivity to Office.

"That [commitment to a Windows Phone app] shouldn't be undersold," said Wes Miller of Directions on Microsoft. "That's a 'you scratch my back, I'll scratch yours.'"

In the first half of 2015, Dropbox's Web-based interface will tie into the Office Online apps.

Both Microsoft and Dropbox touted the partnership, with the latter contending "an even more seamless experience on all platforms" would be the result. But analysts saw more pragmatic reasons for the deal, and tried to come up with a winner.

"This is sacrificing a bit of OneDrive's market advantage to help a stronger potential revenue driver in Office 365, particularly on non-Windows systems where Dropbox has a bigger head start," said Ross Rubin, principal analyst at Reticle Research. He also noted that Microsoft is reportedly working on a touch-only version of Office for Android tablets; the timing of this announcement may herald an appearance of those apps sooner rather than later.

Rubin's thoughts were echoed by others, as the deal is of value only to Office 365 customers who can access Office apps on the iPad -- the current platform of choice for mobile use of the suite.

"Microsoft is playing the 'platform is more important than the pieces under it' card," said Miller, pointing out, as had Rubin, that Microsoft is going against the grain by giving Dropbox a chance to worm its way into Office storage, where the Redmond, Wash. company has been aggressively promoting OneDrive. "To Microsoft, it's more important that people are using Office than that they are using OneDrive."

Microsoft will go wherever it can to get new Office 365 customers, stressed Rubin. "Office 365 is a recurring revenue product, OneDrive is not," he said. "Microsoft wasn't going to do a deal with Apple or Google, so Dropbox was the next best thing."

"The enemy of my enemy is my friend," chimed in Miller, referring to Dropbox and Google. "Every micro move Microsoft makes in some way improves Office 365."

Dropbox, as Moorhead said, gets to survive by tying into the world's most popular productivity platform, eliminating the need to come up with its own editing tools, a chore that would have only ended with "lite" shadows of Office in any case.

"Dropbox would not succeed in building a productivity suite of its own," said Miller. "This gives them a great answer to customers who have invested in Office."

Miller also disputed Moorhead's take that the agreement lets Dropbox live. "A lot of people have been waiting for Dropbox or Box to disappear, but those two companies, honestly, are very strong in their relative spaces, even though storage really is a commodity," Miller said.

Both Miller and Rubin viewed the deal as strategically sensible for each company, and thus a win for each partner. "This seems complementary," said Rubin. "Dropbox is going to be stronger in the consumer and SOHO spaces, while Office is still very strong in the enterprise, including mid-sized businesses."

Miller agreed. "Is it a big deal? For their mutual customers, it is a very, very good thing," he said. "Is it a game changer? No. It's just a good move."

Moorhead leaned toward giving Microsoft the edge in his winner-versus-loser ranking. "It's smart, it gives a public perception of choice," said Moorhead of the ability of Office customers to use either Dropbox or OneDrive. "And in a way, this is a milestone because it shows that Office has won against any of the knockoffs."

All three analysts said that they expect Microsoft to push the partnership beyond what was revealed today by integrating Dropbox with the upcoming upgrades to Office on Windows and OS X.

"Microsoft is likely building this functionality into Office anyway to account for private cloud services," said Rubin, referring to the choices by some corporations to eschew public cloud storage services -- like Dropbox and OneDrive -- for those they manage.

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