Microsoft has cut in half its per user per month list price for Exchange Online services and cut by 33 percent the price of its Business Productivity Online Services suite of online productivity applications.

The drop for Exchange Online is significant because it brings Microsoft much closer to the price Google charges for its Google Apps Premier Edition (GAPE) suite that is anchored by Gmail. In addition, Microsoft said allowable mailbox sizes would go from 5GB to 25GB, a move that ups Microsoft's stake in the so-called "bottomless" inbox war with other online providers.

"For many companies, GAPE vs. Exchange Online is a valid comparison, and Microsoft just got a lot closer to Google's pricing," said Guy Creese, an analyst with the Burton Group. Microsoft's per year cost per user for Exchange Online is now $60. Google charges $50 per user per year for GAPE, which also includes other productivity applications.

Creese says the cost reduction in notable for corporate users who typically focus on GAPE as an email replacement.

"The hidden story here is that most large GAPE installations are Gmail-focused. SMBs are using Google Apps as a replacement for Microsoft Office, but large enterprises aren't. So while enterprises buying GAPE may be paying for email, a word processor, a spreadsheet, and a presentation package, what they're really using is the email portion."

Microsoft also cut the list price on its entire Business Productivity Online Services (BPOS) suite, saying it would drop from $15 per user per month to $10. Users have to buy a minimum of 5 seats.

BPOS includes Exchange Online with Hosted Filtering, SharePoint Online, Office Communications Online and Microsoft Office Live Meeting. There are also slimmed down online versions of Exchange and SharePoint for "deskless" workers, or those who use the services infrequently.

"I think the price decrease is a combination of Microsoft tuning its infrastructure and continued competition in the space," said Creese. "If the competition weren't there, given Microsoft's financial fine tuning over the past year, I'm sure the company would be pocketing the increased profit."

Microsoft's Ron Markezich, corporate vice president for Microsoft Online, said the price reduction was a reflection of the popularity and maturation of BPOS, which he says now has more than 1 million paying customers.

"Since we came to market with general availability we have seen a large increase in scale of the service which allows us to drive efficiencies," he said. "And we have made a number of software investments including Exchange 2010 that allow us to drive additional efficiencies." He said Microsoft is passing on the benefits of those efficiencies and would continue to do so as a hallmark of BPOS.

Exchange 2010 is expected to ship soon, and Markezich said once the server is commercially available that BPOS would offer that platform to customers. He said new customers signing up after today would all be using 2010. But existing customers could cut over when they wanted.