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Microsoft jacks price of top-tier Office 365 plan by 59 percent

Gregg Keizer | Dec. 3, 2015
Analysts argue Office 365 Enterprise E5 -- and its telephony upside -- will appeal to small- and mid-sized businesses.

Microsoft has made no bones about its ambition to generate more revenue from Office 365.

In May, Amy Hood, Microsoft's chief financial officer, told Wall Street that there were significant revenue opportunities for the company when it added more cloud-based services -- of which E5 has plenty -- to Office 365. "There is additional 'yield opportunity,' in our language, to add lifetime value here, in addition to adding users," Hood said, defining "yield" as, in her words, "selling more things on top of an installed unit."

During the past two quarterly earnings calls, and elsewhere, executives have talked about their belief that E5 had the potential for a huge revenue boost to the company's bottom line. "With E5, we have expanded our market opportunity for Office 365 by more than $50 billion," said CEO Satya Nadella during a July call to discuss the second quarter's numbers (emphasis added).

Hood has used the phrase "higher margin" to describe E5, meaning it produces more profit than the lower-cost plans. "If you think about our launch of E5, which is a premium SKU [stock-keeping unit] in Office 365, it continues to give us the opportunity to both get more efficient in the infrastructure and to add higher-margin products especially at the fast end," she said in October on the third-quarter earnings call.

In November, Hood elaborated on how E5 would produce more profit. "When you can take an effective sales force with good relationships and add modules ... to the selling motion, we can do so reasonably efficiently, not a ton of marginal costs, but a ton of marginal revenue opportunity," Hood said of the plan in response to a question at the USB Global Technology Broker Conference.

It's all about the money

All the talk about revenue opportunities rubbed one licensing expert the wrong way. "I really think that Microsoft is just rebranding E4 [as E5] because [E4] wasn't successful," said Daryl Ullman, co-founder and chief consulting officer of Emerset Consulting Group, a firm that specializes in helping companies negotiate software licensing deals. "It just didn't provide additional value."

E5 and its pricing, said Ullman, is all about Microsoft driving revenue. "I've said it before, Microsoft drives revenue through licensing," Ullman continued, repeating a line he has used in previous interviews with Computerworld. "They have difficulty bringing in new technology based on the merits. Instead, they bring it in on the basis of licensing."

DeGroot also characterized the soon-to-be-defunct E4 as a failure in the marketplace. "I haven't seen a lot of E4 uptake. E3 is more common in the field," DeGroot said in an email reply to questions this week.

Microsoft, naturally, wants to change that. And Wes Miller, another Directions on Microsoft analyst, sees a place for E5.

 

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