The latest financial disclosures from Microsoft show that the move to annual ‘subscriptions (rentals) mean a price increase to customers of up to 80%!
This is a long way from the common media narrative, based on dubious calculations, which says that Office 365 ‘subscriptions’ are better value.
Microsoft CFO is quoted saying that Office 365 customers 20%, 40% or even 80% more under their new pricing arrangements.
The annual fees, which might look enticing, actually add up over the longer term. In addition, the cost of ‘back office’ server features that are essential to make full use of some of the features in Office software.
According to Microsoft’s CFO that means “in a 1.8 times lifetime value of that user in the transition,”.
About $20 per month per user for Office 365 alone plus the cost of Skype for business, Azure, OneDrive for Business, Power BI and other value added services only available from Microsoft.
Any calculation of the annual rental (sorry, subscription) cost needs to keep in mind the big unknown; future price rises or rule changes. Microsoft can increase the price of Office 365 at any time knowing that it is hard for customers to stop software rental once they’re on that track.
Office 365 annual packages have their benefits, certainly. However there’s no guarantee those benefits will continue or be available at the same price.
Subscriptions have other benefits for Microsoft. Annual rental fees make it harder for customers to switch away, in other words they are ‘hooked’.
Annual fees also mean there’s less pressure to innovate. People will have to pay to use their Office software, whether there’s anything new or usefully changed.
We’re already seeing this in the Office 2016 Preview. Aside from the superficial interface design changes, Office 2016 has little compelling to offer except for new features that require integration with other Microsoft services (like Sway and Delve).
It would be hard to justify paying for an upgrade to Office 2016 but Office 365 customers won’t have that choice; they have to keep paying for Office just to keep using the software.
Finally, these admissions by Microsoft blow their cover on the ‘free’ offer of a Windows 10 upgrade. It’s being done to put customers on the path to an ongoing rental fee for Windows itself, either for additional features or for ongoing use.
