Microsoft’s New Office Subscription Model: Good for Some Users

| Analysis

Office 2013 New Subscription Pricing

Alongside the launch of Windows 8, Microsoft has announced a major shift in Office pricing and packages for small businesses and consumers. With Office 2013, slated for release in November,  Microsoft is shifting its primary focus from traditional, "perpetual" licenses to a yearly subscription model. Depending on users’ individual usage models and needs, and Microsoft’s plans for updating the software, the changes can save some users quite a bit of money over time.

Traditional consumer and small business versions of Microsoft Office were sold as standalone products with perpetual licenses; buy it once, use it as long as you want. Security updates and bug fixes were available to these customers but major changes and feature additions were limited to the next version of the software and users who wanted those new features would have to pay to upgrade.

Microsoft updates Office on the Mac and the PC roughly every three years. Due to rapid changes in computing power and systems, such as Apple’s switch from PowerPC to Intel, or the addition of Retina displays to its product lineup, it made sense for most consumers to stick with the “every three years” model. New features to Office typically followed major changes in hardware, and consumers were ready to upgrade at that point.

With Windows 8, Microsoft has signaled its intent to increase the update cycle of its product lines, rolling out new features as they become available instead of waiting years for a new version. Microsoft does not have a very good track record of this type of product release schedule in the consumer space, so we will have to wait and see how well it works for the company and consumers.

If Microsoft can pull it off, and release valuable updates to consumers in between major versions, a move to a subscription model makes sense, and Microsoft has come to the same conclusion.

Office 365 Subscription Household

“Office 365” as the subscription model will be called, gives users access to the native versions of certain Office applications. For home users, a single household license allows up to five PCs or Macs to install the applications; for business users, it’s a per user license, but also allows installation on up to five computers.

Taking advantage of the “cloud” nature of the service, Microsoft allows users to sync documents and settings between computers and devices, and automatically applies security and bug fixes, ensuring that your copies of Office applications are always up to date. Further, as discussed above, new features that would have normally been reserved for the next major update will also be applied (at least, that’s the plan, with Microsoft stating that it will add new capabilities to Office 365 “multiple times per year”).

Another new feature to Office 365 is Office on Demand, which will allow subscribers to log in to their home computer’s Office applications from any computer with an internet connection, using proprietary remote desktop technologies. These temporary remote sessions are in addition to the five PCs or Macs that can natively install the applications, meaning that users will be able to access Office from just about anywhere.

Office subscriptions will come in two primary forms, Office 365 Home Premium for US$99.99 per year, and Office 365 Small Business Premium, for $149.99 per year. To assess the value of these options we have to look at the alternative method of buying Office, traditional licenses.

Microsoft will still sell traditionally licensed copies of Office but, in a clear signal to indicate its preference for the subscription model, the company has raised the prices slightly for Office 2013. The Home & Student edition will now cost $139.99, up from $119.99 for Office 2010; Home & Business is now $219.99, up from $199.99, and Professional is now $399.99, up from $349.99. Note that all of these prices are for the download-only digital copy of the software and include a license for a single user on a single PC.

Additionally, for the unfortunate users who need Outlook, it is included in the Office 365 Home Premium bundle, but users looking for a traditional license would have to purchase the $219.99 Home & Business or $399.99 Office Professional package to get the application.

Microsoft used to offer traditionally licensed copies that supported multiple PCs: Home & Student (3 PCs / Household) for $149.99, Home & Business (2 PCs / 1 User) for $279.99, and Office Professional (2 PCs / 1 User) for $499.99. With those now gone, the subscription model offers substantial savings to users with the need for Office on multiple computers.

Office New Pricing Chart

If we assume that customers will abide by Microsoft’s licensing requirements and limit usage to the designated number of PCs and users, a subscription to Office 365 Home Premium will give you access to the software on five PCs or Macs for $299.97 over a three year period. Home & Student would cost $699.95 for five licenses up front. Users of a traditional Home & Student license will also not get access to intra-version updates, online storage, and document and settings syncing, nor will their package include Outlook, Access, or Publisher, making the subscription model a more favorable option for some users. However, traditionally licensed customers could continue to use the software indefinitely as long as it was compatible with new hardware and operating systems.

Business users who need Outlook, Access, or Publisher would have to purchase the $399.99 traditional Professional license. Over three years, five copies of Professional would cost about $2,000, compared to about $450 for three years of subscriptions on five computers.

On the other hand, if you are a single user who wants Office on a single PC or Mac, and you aren’t eager to get new features in between major releases, the traditional copy may be the best option. At $139.99 up front, you’ll save about $160 over a three year period compared to Office 365.

Those worried about using and storing their important documents on a subscription service should note that Microsoft has promised not to immediately cut off users who cancel their subscriptions. All user documents will remain indefinitely accessible on SkyDrive, even after a subscription expires. For consumers, the Office applications on their computers will convert to a read-only mode after an undefined grace period. This means that users can still open, view, print, and export their documents if they wish to move to a different office suite.

Of course, all of this depends on how well Microsoft keeps its promises. If the company provides meaningful Office updates to 365 subscribers “multiple times per year,” and if those updates are not available to customers with traditional licenses, then the subscription model offers some potential savings to certain users.

A prime example of this is the out-of-step Office upgrades between PC and Mac. Office 2013 will be PC only, and subscribers who need to install the software on their Macs will get copies of Office for Mac 2011. When Microsoft updates the Mac version of Office, subscribers will automatically get the new version, while purchasers of traditional licenses will have to pay to upgrade.

If you are a single user, with a single PC or Mac, and you don’t need the online features that a subscription offers, then Microsoft’s new pricing strategy will likely cost you about $20 more if you plan to upgrade this year.

It’s also important to note that all of this only applies to those who actually need Office, which is a large, but steadily shrinking group of users. Mac users can take advantage of Apple’s iWork tools, and Google’s free Docs service has become very robust and is more than suitable for basic word processing and spreadsheet needs.

If you do find yourself in need of Office, however, Microsoft’s shift to a subscription model is certainly interesting, and could even save certain users a lot of money in the long run. Regardless, it is not the travesty that some are making it out to be.

Office 2013 will be released in November. Customers who purchase Office 2010 for PC or Office for Mac 2011 after October 19 will be able to upgrade to either a traditional or subscription model when the software launches.

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