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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.

Only Microsoft knows why

Only Microsoft knows whether the blanket reductions in OneDrive are intended to stop abuse, motivate more now-free users to become paying customers, or lift Office 365 subscriptions. Or accomplish all with one blow.

A clue that the company is hoping to goose the percentage of paying customers, though, comes from another statistic that Microsoft mentioned last week.

In the Nov. 2 announcement, Microsoft cited abusers using 75TB of space, then added that that amount was 14,000 times the average. Some simple division later, and the average amount of data stored on OneDrive comes to between 5.4GB and 5.5GB. (The exact number depends on whether Microsoft considers a terabyte 1,000 or 1,024 gigabytes.)

Those averages are larger than the future limit for free accounts.

While abusers, and Office 365 subscribers using nearly 1TB, will skew the average to some degree -- and the median data usage would be more informative for outside analysis -- the data available hints that Microsoft believes there are very large numbers already using above the new maximum, and thus in the potential pay-up category.

Another clue that the real purpose of the OneDrive modifications is to increase the numbers in the paid column lies in Microsoft's willingness to defer some of the revenue opportunity for a year in exchange for getting large numbers of customers onto Office 365, the most expensive storage plan.

OneDrive users who will be reduced to 5GB but have more than that stored with the service will be able to claim a free one-year subscription to Office 365 Personal, Microsoft said in a FAQ that went into more detail about the alterations.

The company said that those who accept the offer must provide a credit card, which will be charged only at the end of the one-year stretch.

There were two things notable about the deal. First, Microsoft is ready to defer any additional revenue from free users for a year as long as it can get more onto Office 365, and second, that the offer was for the $7 per month Office 365 Personal, not the $2 a month 50GB storage plan.

Both may be enough to tide over the bulk of those on the free side for a year. But the revenue opportunity for Office 365 is three-and-a-half times larger, assuming the same number stick with it after 12 months as would continue to pay for an extra 50GB.

In other words, Microsoft's playing the long game.

But what will users do?

That is, of course, if customers stick around rather than desert to a rival like Google's Drive or Apple's iCloud, or Amazon or Dropbox or Box, or any number of others.

 

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