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Future Subscription Possibilities

How might Microsoft increase the cost of Office 365?

The often quoted price for an Office 2013/365 subscription is only for the first year, so how might Microsoft increase the price?

There’s all sorts of opportunities for Microsoft to raise revenue from Office subscribers once they’ve put themselves on the annual fee track rather than one time payments for Office software. Microsoft has all sorts of marketing models that they keep to themselves and management haven’t decided on what exact pricing strategy they’ll use. Outsiders can only examine the past and gaze into the future.

Office 365 Home Premium is currently sold at around US$100 per year but should really be labelled as ‘$100 for the first year’ because there’s no price guarantee. ‘Home Premium’ has all the major and minor Office apps including Word, Excel, PowerPoint, Outlook, OneNote, Access and Publisher (not all available for the Mac).

It’s possible that Microsoft will just increase the price but they’re usually more subtle. Part of the promotion of Office is to have some low ‘headline’ price that Microsoft can push to the media. It’s a trick that’s worked in the past.

Use of the word ‘Premium’ might be a clue to future Office 365 price increases. The price of ‘Home Premium’ edition could rise while a new ‘Home Basic’ option is introduced with less programs but at around the current $100 ‘headline’ price.

Existing subscribers would be automatically renewed at the new higher ‘Premium’ price unless they explicitly choose another subscription option before the renewal date. Automatic renewals at a higher price is just one benefit to Microsoft software subscriptions.

Microsoft hopes that people will use applications like Access and Publisher more than they are now and therefore want to pay for a subscription that includes them. However, Redmond won’t mind if people pay a higher price for a subscription they don’t entirely use. Customers might not understand what they are paying for or they just let the automatic renewal happen each year on terms that suit Microsoft.

Another likely scenario is a low cost Office subscription that doesn’t include Outlook. Microsoft knows that Outlook is a key program for many people and in the past we’ve seen a price jump between a basic bundle of Office (Word, Excel, Powerpoint and Onenote) and a bundle that includes Outlook as well. Outlook is harder to migrate from compared to say, Word, so Microsoft can charge more for it.

That’s not the end of the possible price increase scenarios. Microsoft can offer extras to make comparisons between old and new pricing more difficult as well as try to keep customers using Microsoft services. The current Home Premium bundle includes some Skype calling minutes and Skydrive storage. Those benefits can be retained or changed for a revised Premium edition.

There’s scope for Office 365 program subscriptions to be more closely bundled with some of the cloud services like Exchange Server (email, calendar, contacts, tasks) which not only raises revenue but also more tightly entwines a customer into Microsoft services.

That’s another part of the subscription strategy – entanglement. Offering a subscription and online service as part of Office software means each customer becomes more dependent on Microsoft. Moving away from Microsoft Office becomes that much harder.

Subscription pricing benefits Microsoft more than it benefits consumers.

If MSFT shareholder value was better with one-off sales of Office software, Microsoft would not be making this change. Annual price changes and rearrangements let Microsoft increase the money it gets from customers over time.

That’s why Microsoft is making the initial Office 365 offer so compelling compared to the more traditional way of buying Office. Once they’ve got enough people switched over to Office subscriptions, Microsoft will be able to get more money from their customers than ever before.

Many years ago, Microsoft Office was keenly priced when faced with competitors like WordPerfect but later Microsoft started jacking up the price. It’ll be the same with subscription pricing of Office. Once a ‘tipping point’ of people and organizations are on board, then Microsoft will take advantage of their captive audience.

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