New Microsoft Office 365 pricing pushes small businesses to the cloud

A new small business premium service features a Microsoft Office 365 pricing model designed to push more customers to the cloud.

Microsoft's new subscription-based Office packages will tempt more small businesses to make the leap to the cloud, but some still wonder if the cloud is really the way to go.

Watch out for perpetual payments versus perpetual licenses.

Paul DeGroot,
principal consultant, Pica Communications LLC

The new Microsoft Office 365 pricing models aim to maintain Office's dominance among small businesses while paving the way for future cloud offerings. They also point to Microsoft pushing customers over time to migrate from traditional on-premises Office deployments, using so-called perpetual licenses, to Office in the cloud, billed on an annual utility-type basis -- a push that could mark an inflection point for the venerable productivity suite.

"I definitely think [Microsoft] would much rather have its [revenue stream] as subscriptions, [but] I think it may get some customers questioning, 'Do I really need Office?'" said Wes Miller, research vice president at Directions on Microsoft, an analyst firm based in Kirkland, Wash.

That could pave the way for competitors' free or inexpensive productivity suites to make a dent in Microsoft's desktop application dominance.

Microsoft Office 365 pricing pros and cons

When it's available, Office 365 Small Business Premium will entitle users to install and use Word, Excel, PowerPoint, OneNote, Outlook, Access and Publisher, plus Lync unified communications, on multiple PCs or Macs, according to a Microsoft blog post. The service is designed for companies with up to 10 employees at a price of $12.50 per user, per month. Microsoft is also readying a similar subscription package for the consumer market, dubbed Office 365 Home Premium.

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Both services will offer the ability to install the Office applications locally and will install program updates automatically, cutting down on management and maintenance, Microsoft's blog said. That means users can constantly be running the latest, fully patched versions of the software, which should help ease the support burden for customers. Additionally, the subscription services will also support running full Office applications remotely by streaming them on demand, for times when a user's own PC is not available. Traditional Office packages that can be installed locally on a single PC will continue to be available, but they lack the automatic update features of the subscription services. There are potential shortcomings for customers who choose to go the subscription route, however, such as dealing with downtime and other outages, as well as questions regarding what happens to users' data when they quit paying for the subscription, Miller said.

Another issue is that subscription costs can add up over time and exceed the cost of purchasing a perpetual license to the on-premises software.

"Microsoft volume customers need to watch out for perpetual payments versus perpetual licenses," said Paul DeGroot, principal consultant at Pica Communications LLC, a Windows licensing consultancy based in Camano Island, Wash.

The business effects of Microsoft Office 365 pricing

The move to subscription-based Microsoft Office 365 pricing is likely to have little effect on larger organizations for now, said Ajit Kapoor, principal and managing director of The Kapoor Group, a global consultancy in Orlando. Microsoft declined to confirm dates for when Office 365 Small Business Premium will be available to subscribers; Miller said he expects general availability early next year.

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