Earlier this year I wrote about Microsoft’s radical new business plan, in which services are a cornerstone. Microsoft CEO Steve Ballmer confirmed that observation last week in an interview with the Seattle Times:

I think when you look forward, our core capability will be software, (but) you'll probably think of us more as a devices-and-services company. Which is a little different. Software powers devices and software powers these cloud services, but it's a different form of delivery....

That plan is abundantly clear in Microsoft’s announcement today of the final pricing and packaging for Office 2013. Windows 8 might be getting all the recent headlines, but it’s worth noting that the Microsoft Business Division, of which Office is the biggest part, brings in more revenue for Microsoft than any other division. In the just-concluded fiscal year, Office and friends brought in $24 billion, versus $18.7 billion for Server and Tools and $18.3 billion for Windows and Windows Live.

With the addition of subscription-based pricing for Office 2013, Microsoft is aggressively pushing its Office customers to get out of the traditional software business and begin paying subscription fees.

To do that, it’s using a classic “carrot and stick” approach.

The first stick is the sticker shock you’ll get if you price out the “traditional” boxed versions of Microsoft Office. For Office 2013, those prices are up a minimum of 10% and as much as 17% per copy.

But the hurt is magnified if you want to install Office on multiple PCs. Office 2013 will offer no multi-copy discounts for traditional packaged software as Office 2010 does. If you want to run Office 2010 Home & Business on a desktop and a notebook, you can buy a discounted two-pack license for $280. A similar two-PC deal is available for Office 2010 Professional at $500.

For Office 2013, you have to buy two separate licenses, at a total cost of $440 and $800, or an increase of 57% and 60%, respectively.

And the $150 Office Home & Student three-pack is gone as well. If you and your spouse and your teenager want separate copies of the boxed Office 2013 Home & Student, you’ll pay $420.

Ouch. Those are very hefty price tags, which is why maybe you want to take a closer look at those carrots.

The $100-per-year household license is not a bad deal if you imagine a future a year or two from now when you and your family have an assortment of desktop PCs, Macs, tablets, and notebooks, with files and Office apps roaming freely between them. The per-device licensing model makes no sense in that world; the activation hassles alone would be a killer.

Properly licensing those five devices using traditional boxed copies of Office 2010 would cost a minimum of $300. That’s the same price you’d pay in subscription costs over three years, except you’d get the right to reassign licenses, automatic updates and even whole version upgrades, and extras like additional online storage and Skype calling minutes. And in the Office 2013 world, with no multi-PC discounts, the price tag for five devices is unacceptably high at $700.

In addition, the new Office 2013 Home Premium subscription includes desktop apps you won’t get at all with the Home & Student package, including Outlook, Publisher, and Access. Those are some tasty carrots if you’re a confirmed Outlook user.

For business customers, the subscription cost is considerably higher. At $150 per user per year, you’ll spend $450 over a three-year period. That’s not chump change, but it is a better deal than the boxed copies if you have two or more devices. You’ll pay $440 for two Office Professional 2013 licenses. That’s the same amount as  a Small Business Premium subscription, which includes Access and Publisher as well as Exchange Online, SharePoint Online, and the surprisingly useful Lync conferencing software.

For some people, the very concept of renting software is a non-starter. But the software landscape has changed dramatically in the past few years, and maybe the time is right for a subscription model.

By Ed Bott for The Ed Bott Report

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