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Microsoft's OneDrive changes: Follow the money

Gregg Keizer | Nov. 10, 2015
For every 1 percent of the free user pool Microsoft converts to paid, it could realize US$107 million additional annual revenue.

Thirty-seven million of the estimated 55 million, then, pay for one of the cheaper, non-Office 365 OneDrive plans. That would represent just 7% of the total of half a billion. That, too, makes sense: In freemium, less expensive plans are generally more popular, with the customer pools shrinking as prices climb.

But it's the 445 million who don't currently pay for OneDrive that Microsoft would want most to tap if it's hoping to boost revenue.

OneDrive conversation chart 1 
Microsoft could rake in $107 million in additional revenue for each percentage point of the current OneDrive free-user pool it converts to a paid plan. Click on image to enlarge. Data: EU, Microsoft, Computerworld

Convert 1% from free to paid, collect $107 million

Each percentage point of the 445 million who use OneDrive free of charge represents 4.45 million customers. If 1% of all free users -- again, 4.45 million -- paid for the 50GB plan to get more space, they would generate revenue of $106.8 million annually (4.45 million multiplied by $24 for the 50GBplan).

With the free space slipping to 5GB, those with more than that but less than the former free allotments of 15GB, or with the discontinued camera roll, 30GB, may be willing to pay Microsoft for storage simply because the hassle of moving files to another service can be tedious for those who know how and are motivated, and impenetrable to the average user, who may not be.

If Microsoft were to convert 2% of the current free user base to paid, revenue would total an additional $213.6 million. Five percent? $534 million. Ten percent? A whopping $1.07 billion annually.

It's tough to say how many free users Microsoft might be able to transform into paying customers, but the company's financial team should have an idea. Microsoft has historical data on conversion rates from free to paid, knows exactly how many OneDrive users there are, where the split between free and paid is at, and would certainly have run forecasts and what-if scenarios before making changes of this magnitude.

But this outside-looking-in estimate -- more than $100 million per 1% -- appears to be a significant enough revenue opportunity that Microsoft may have felt it would be worth the pushback from a minority of the millions who store files and photographs on the service.

The company has not addressed the complaints lodged on its one feature-voting UserVoice service, an omission that has some users at the boiling point. If it believes the revenue upside trumps the disgruntlement, it may never respond.

Microsoft has made no secret that it needs to better monetize the Windows user base. Several times over the last 12 months -- and even earlier -- Microsoft has talked about how it must change the Windows business model to fit a time when the OS is no longer predominant. Rather than make money on the front end -- at the sale of the license, whether from a device maker or the end user -- Microsoft expects to earn on the back end, from the sale of apps in the Windows Store, from services like OneDrive and Xbox One Live, from subscriptions such as Office 365, and elsewhere.

 

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