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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.

More than once, Microsoft executives have referred to such revenue opportunities as "the lifetime value of the user."

In fact, a key part of the strategy underlying the free upgrade to Windows 10 is that by juicing uptake, the company creates more revenue prospects not only for third-party developers who want to sell apps, but also for its own software and services. Microsoft has bet, for example, that Windows 10 users will drive growth of the Bing search engine, and thus the advertising revenue derived from searches. OneDrive, an integral part of Windows 10 and Office 365, has always seemed a natural revenue stream that, if tapped, may be able to make up some of the downturn in Windows licensing sales.

The Office 365 pitch

Microsoft has created other revenue opportunities by ditching the 100GB and 200GB for new customers, even though it's grandfathered in for current customers on the two plans.

Reducing the maximum stand-alone storage plan from 200GB to 50GB, and leaving the latter as the only available, could push more customers at a faster rate to the priciest storage options, the 1TB included with Office 365 Personal and Office 365 Home.

Someone now on either the 100GB or 200GB plan -- and by Computerworld's model, they number approximately 37 million -- will have only one way to buy more space and still stay on OneDrive: Office 365.

Office 365 Personal, which provides not only the 1TB of OneDrive storage, but also rights to install Office 2016 on one Windows PC or Mac, costs $7 per month. That's $5 per month more than the 100GB plan, $3 a month more than the 200GB deal.

Upselling these customers to Office 365 will generate additional revenue at the annual rates of $1.8 million for each 1% composed of 100GB plan subscribers, or $1.1 million for each 1% made up of 200GB plan users.

If, for example, Microsoft was able to convert 10% of the current 100GB and 200GB subscribers to Office 365 Personal, with the ratio divided evenly between the two plans, it would recognize a revenue increase of almost $15 million annually. While that's nowhere close to the amount it could procure by convincing 5% of the much larger group of free users to pay for 50GB of storage, every dollar counts.

And the possible revenue from converting now-free users to those on the Office 365 Personal rolls would be much, much larger.

Convincing just 1% of the estimated 445 million on the free deal to purchase Office 365 Personal would result in a revenue increase of $312 million, or almost three times the amount collected from the same percentage who move up to the 50GB plan. A 3% conversion rate from free to Office 365 Personal would generate an extra $935 million each year. And persuading 5% of the free user base to the $70 per year Office subscription would kick another $1.56 billion into the company's coffers.

 

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