Microsoft Unveils Business Subscription Model for Windows, Office

Ever since Windows 10 was announced, there’s been speculation that Microsoft’s free upgrade model for the OS was ultimately a trap. Once enough customers had signed up, the thinking went, Microsoft would suddenly start charging a monthly fee for access to the product. It’s not as if this is without precedent. We’ve seen a number of high-profile companies introduce this kind of subscription model (mostly to the considerable detriment of users’ pocketbooks), and Office 365 is Microsoft’s attempt to convince users that paying 3-5x more for Office over the useful life of the program is, in fact, a good idea.

With that said, the company has stuck to its guns about not planning any kind of service fee for Windows 10 users. For enterprise customers, it’s a bit of a different story. In a recent post, Kirk Koenigsbauer, corporate vice president for the Office team, wrote about a new Microsoft cloud initiative dubbed Microsoft 365, which “brings together Office 365, Windows 10 and Enterprise Mobility + Security, delivering a complete, intelligent and secure solution to empower employees. It represents a fundamental shift in how we will design, build and go to market to address our customers’ needs for a modern workplace.”

The new service will be split into two parts: Microsoft 365 Enterprise and Microsoft 365 Business. Let’s start with Microsoft 365 Enterprise, which itself is offered in two plans—Microsoft 365 E3 and Microsoft 365 E5. Both will be available for purchase on August 1, 2017, and they replace Microsoft’s Secure Productive Enterprise.

The different features of MS E3 vs. E5. Click to enlarge

Microsoft 365 Business, meanwhile, is meant for companies with up to 300 users. This plan integrates Office 365 Business Premium with additional security features and capabilities borrowed from the enterprise side of the equation. Pricing for this new service is $20 per user per month. Three tailored applications are also coming to Office 365 Business Premium and Microsoft 365 Business:

Microsoft Connections—A simple-to-use email marketing service.
Microsoft Listings—An easy way to publish your business information on top sites.
Microsoft Invoicing—A new way to create professional invoices and get paid fast.

A company currently paying for Office 365 Business Premium is paying $12.50 annual rate and $15/month for a monthly commitment, so $20 per month isn’t a huge deal, if the additionally provided security and data protection options are worth it.

But this raises the question: Were all the people who predicted a consumer push to a subscription model right?

Why This Trick Doesn’t Work on Consumers

There are a few significant differences between business and consumer markets that make this tactic highly unlikely in the PC market. For one thing, these types of licensing costs are often negligible compared with previous full software-suite package costs for various applications, which are also often sold on a per-seat licensing fee. For another, enterprise and business customers often pay for ongoing service contracts, like Microsoft’s Software Assurance program. There’s an expectation of baked-in, regular fees for per-seat licensing, support contracts, upgrade deals, and a host of other factors that consumers simply don’t account for.

The other factor to consider, and this is critical, is the companies Microsoft competes with in the consumer space. Let’s agree that thanks to the general availability of increasingly powerful tablets, you have at least two partial competitors (Android, iOS), one free competitor (Linux), and one company that gives its OS updates away for free — Apple, with macOS.

Now, PC users and Mac users love to fight over machine costs and specifications, but let’s do a little thought experiment here. Let’s say you, as a consumer, want to buy a powerful desktop machine with enough CPU and GPU hardware to last you at least four years as a regular gamer (which means a more powerful GPU). Now Apple’s new iMac Pros, which are going to start at $5,000 and may offer an AMD Vega GPU at that price point (we know Vega is included, but not if every SKU will use it). A good gaming PC can be built for thousands of dollars less, even if you buy a new monitor to accompany it. So let’s assume that a really sexy gaming PC with a high-end 4K panel, speakers, peripherals, etc, is going to set you back $2,500 compared with an iMac Pro at $5,000. The PC comes out way ahead here.

Now assume you’re paying $15 per month, as a consumer, for your Windows subscription. That’s an extra $720 in OS costs over the estimated four year life of your system. But since older CPUs can often last much longer than four years these days, you might end up using a base CPU for as long as 7-8 years — I know people still gaming on (overclocked) Core i7-920s, and that’s a chip from 2008.

At the nine-year mark, you’ve paid $1,620 for the privilege of running Windows on a $15/month fee. Does that make Windows more expensive than Apple? No, not if you’re comparing TCO, the difficulty of upgrading Apple systems, etc. But it gives Apple one hell of a talking point. “Their OS Cost @ 5 Years: $900. Our OS Cost @ 5 Years: $0.” And this is just on the high end of things; the equation changes again with lower-cost PCs.

Microsoft, for better or worse, has been moving away from the single-point-of-purchase Windows revenue stream to an ongoing monetization stream, based on things like app suggestions, advertising, and the marketing of additional services. But when the company says that Windows 10 is going to stay free for consumers, I believe it.

Now read: Windows 10: The Best Hidden Features, Tips, and Tricks

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