Broadband service providers are playing a critical role in Microsoft Corp. (Nasdaq: MSFT)'s Office 365 Live cloud strategy, as the software giant expects them to be a primary link to the small and mid-sized business market, offering a service that is billed and supported locally and is thus different from Google's cloud apps. (See Microsoft Unwraps New SMB Cloud Strategy.)

The Office 365 launch on Tuesday was two years in the making, and Microsoft was quick to showcase the 20 service providers already signed to offer its cloud-based business apps, including Word, PowerPoint, Excel, OneNote, Outlook, as well as collaboration tools such as Microsoft Exchange, SharePoint and Lync, the newer version of Microsoft Live conferencing.

Among those on stage at today's New York announcement were: NTT Communications Corp. (NYSE: NTT), BCE Inc. (Bell Canada) (NYSE/Toronto: BCE), Telefónica SA (NYSE: TEF), Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and Vodafone Group plc (NYSE: VOD).

"Service providers are so important to us because we see the SMB is a terrific opportunity, and telcos have been having relationships with those companies for many years," says Marco Limena, vice president of operator channels for Microsoft. "As we transition to cloud, SMBs want to have better awareness and a lot of simplicity, and so we are working with those local players to build those markets, because they already have the billing relationships and the customer relationships with those companies."

Part of that promise of simplicity is integration of the billing of Office 365 into the network operators' billing systems to produce a single bill, and customer support from the telcos' customer service departments, with which the SMBs are already familiar.

Whether Microsoft achieves greater success with Office 365 than it has with its predecessor, the Business Productivity Online Standard Suite (BPOS), may depend on other factors, including the quality of the broadband connections those service providers are offering, says Ari Banerjee, Heavy Reading analyst.

"This is designed to provide strong competition to Google apps in the business segment. Performance and security will be the biggest differentiator in this battle of apps," Banerjee says. "Underlying connectivity and speed will make these succeed or fail. Major delays while using cloud-based applications will not be tolerated by users. Unfortunately, in most situations, it is the network and Internet to be blamed, and not specific applications."

BPOS has been plagued by service outages, the most recent one happening only last week, when the service was down for several hours. Limena says Office 365 is built on a new platform that was developed as stronger and more resilient based on the two years of experience with BPOS; he also says Microsoft is offering service level agreements with financial reimbursements to back up its reliability claims.

Microsoft has trained service provider personnel to provide first- and second-tier support for the Office 365 offerings, Limena says, and Microsoft will be backing that up with additional support when needed. That kind of direct access to a telco isn't as easy to get from Google.

Microsoft also expects telcos to provide their own extras, such as additional managed security offerings, or compliance services tailored to specific areas, such as government, legal services and health care.

The telcos will also have to compete -- Microsoft Office 365 will be available directly from Microsoft and from other value-added resellers doing business in the SMB space.

— Carol Wilson, Chief Editor, Events, Light Reading