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Why Microsoft continues to embrace the freemium model

Paul Rubens | Feb. 4, 2016
Microsoft's business strategy for the cloud appears to amount to this: ‘Be more like Apple.’ Here’s why that approach works.

In fact Microsoft's freemium strategy is more complex than one of offering a free product with limited functionality, plus the option to pay to unlock the rest of the features, Capossela said.

For example, its Skype VoIP product is free for consumers but enterprises have to pay to use it for business purposes. The principal is still the same though – get people using the product as consumers, and then rely on them to drive its adoption in the workplace.

Another freemium strategy which Microsoft has adopted for its Office 365 cloud productivity suite is to offer it free on devices with screens that are ten inches or smaller, while charging both consumers and businesses for its use on larger devices including laptops and desktop computers. 

The Office 365 strategy seems to be working. According to Microsoft's latest figures, about 50 percent of consumer Office users  (18 million people) are Office 365 subscribers, while commercial Office 365 seats grew by 66 percent year on year – with 50,000 new small business customers added in each of the last nineteen consecutive months. Commercial Office 365 monthly active users grew to 60 million, and Office mobile on iOS and Android has been downloaded over 200 million times.

Selling up the chain of command

Wes Miller, a former Microsoft program manager who is now an analyst at Directions on Microsoft, believes that Microsoft is right to go freemium with many of its cloud-based apps. "This model has proven successful for games developers, and enterprise players like Yammer also used it successfully," he says. "It's a response to the fact that this type of technology is more cumbersome for procurement people to understand. Now people use it, and sell up the chain. It's a sign of the times – part of the BYOD trend."

But Miller is cautious about the extent to which enterprises are really buying in to the supposed advantages of computing in the cloud because many are still worried about security and compliance.

He adds that companies subscribing to Office 365 Pro Plus can use the suite while storing their documents locally. "We are seeing organizations move to the cloud just for the beneficial licensing being offered, but they are not storing data in the cloud. They are giving up some value because of that but some organizations just aren't ready yet to use SharePoint (for example) in the cloud."

No discussion of Microsoft's cloud strategy would be complete without looking at the company's Azure cloud platform, and Capossela believes that 2015 was the year that Azure established itself as the number two platform behind Amazon's AWS.

"We think that (the cloud) is a two-horse race," he said. "I think the other players in the space are going to have a hard time with the scale that Amazon and Microsoft are operating at. This is complicated stuff..."

 

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