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Why Microsoft's pushing Office subscriptions

Gregg Keizer | March 1, 2013
The launch of new and revised Office 365 software-by-subscription plans for businesses shows that Microsoft realizes its current licensing revenue is threatened by cost-cutting customers, an analyst said yesterday.

With Office 365 subscriptions, Microsoft locks in customers, who must continue to pay or lose the right to run Office. There's no way to opt out, even temporarily, from the annual payments, as there is now by stopping SA, because there is no "perpetual" license, the traditional kind that is paid for once, then used as long as desired.

According to DeGroot, subscription prices for Office can be "quite competitive" with Software Assurance, assuming the customer retains the latter. "In general, subscription works about the same as Software Assurance, although subs have tended to be a little bit higher."

But by adopting the subscription model, Microsoft will be able to continually rake in revenue, year after year, from all customers, not just those who decide to pay SA's fees. That's how Microsoft can stop the revenue drain caused by desertions from Software Assurance.

Microsoft, of course, highlights what it sees as Office 365's benefits, including the right to install Office on up to five devices assigned to each worker. DeGroot agreed that in many scenarios, particularly those involving multiple devices per user, Office 365 subscriptions was the better deal than buying a perpetual license and paying SA.

What's missing from the subscriptions, of course, is a perpetual license that once paid for, can be used for years, Software Assurance be damned. Some customers may quickly wonder why they're paying and paying and paying for something they previously paid for only once.

That could be the backlash that Microsoft faces in the future.

"The risk to Microsoft is that there are alternatives to Office, especially for consumers," said DeGroot, citing LibreOffice as an example. "[Office 365] could be a boon to alternatives, and we could see more interest in the enterprise for these products. An Office 365 subscription isn't like a magazine subscription, where you're getting something new each month. Instead, it's Microsoft saying, 'To keep doing what you're doing, you have to pay us more.'"

Even so, DeGroot sees Office-by-subscription, and the demise of the perpetual license, as inevitable. "I can see a time when Microsoft says, 'The next edition of Office will be available only by subscription,'" said DeGroot.

Microsoft is already there. In an interview at a Morgan Stanley-hosted technology conference on Tuesday, Kurt DelBene, the president of the Office division, was asked if Office would at some point move to a subscription-only model.

It had crossed his mind. "I think it's the one thing that we talk about a bunch and try to figure out exactly where it's going," DelBene said. "I think we have aspirations that ultimately it might get there."

But that doesn't mean enterprises have to adopt Microsoft's model immediately.


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