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Office 365 for consumers will cost less than $6 per month: analysts

Gregg Keizer | July 27, 2012
Microsoft must aggressively price its Office 365 subscription plans, perhaps as low as $2 a month, to convince consumers that it's better to rent software than to buy it.

Ullman's estimate of $2 to $4 per month for Home Office straddles the cost of a perpetual license. The top end of his range translates into $48 annually -- $240 total or $48 per license, over five years -- and produces a $9.60 per license per year fee. Halve the monthly charge and the per-license-per-year drops to $4.80, a bargain compared to a perpetual license.

The experts were certain that some consumers would do those same calculations.

"Microsoft needs to know that it has some very smart customers who will aggregate and disaggregate the pricing to see what is the better deal between an Office 'lease' versus 'buy,'" said Moorhead.

It's one of the reasons why others, including Ullman, argued that Microsoft will keep the price of an Office perpetual license at current levels. (Microsoft has said it will sell Office 2013 in the old-fashioned way, whether on discs in a box or via download, for a one-time, upfront payment that offers a perpetual license.) If Microsoft drops the perpetual license price of Office 2013, it will look even more attractive when customers start comparing costs with an Office 365 subscription.

But the advantages for customers in Microsoft's subscription strategy -- spreading out costs -- may be enough to justify higher monthly fees, even when customers get out their calculators, said Moorhead.

"Microsoft will price the new Office 365 above purchasing the perpetual license, as this would make sense for a buy versus lease," Moorhead said. "People will always pay more for a lease versus purchase as it lowers the upfront cash requirement."

However Microsoft prices Office 365 -- and the analysts admitted their numbers were back-of-the-envelope estimates -- only one thing is certain, said Osterman.

"This is going to be a hard sell," Osterman said. "[People] will be hard-pressed to come up with compelling reasons to migrate to Office 2013. That's the real issue for Microsoft."


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