FAQ: Microsoft rents out Office 365

Is Office 365 "in the cloud"? No, not really. Although the term "cloud" has been linked to Office 365 Home Premium and University, it's a misnomer: The software is installed locally, on the hard drive of your PC or Mac to be specific. The applications are not running on Microsoft's servers, and you don't need an Internet connection to use them.

The only "cloud" aspects of Office 365 Home Premium and Office 365 University are the SkyDrive online storage -- by default, that's where the Office applications store all the documents you create -- and some of the software delivery techniques, including "Click-to-Run" and "Office On Demand."

The former accelerates start time with Office 2013 (though not the Mac edition) by downloading and installing the basics right off the bat, often in just minutes. While you work, the rest downloads and installs in the background.

Office on Demand lets you install temporary, virtualized versions of some Office apps -- Access, Excel, PowerPoint, Publisher and Word -- on a Windows PC you don't own, lets you work on that machine with your personal Office settings, then when you're done it scrubs the system of all evidence you were there.

Is Office 365 a good deal? That's easily the toughest question.

Computerworld's analysis last year showed that the subscription was a better deal only if you used four or more of the five Office installs; for one to three copies, it was less expensive over the long run (specifically over the five-year stretch between most Office upgrades) to buy perpetual licenses.

That analysis, however, did not take into account the extras, including the additional SkyDrive storage space; features such as Office on Demand; or even the application selection differences between what's provided by Office 365 and what's bundled with Office Home & Student 2013, the lowest-priced perpetual license.

For example, Publisher is not included with Office Home & Student 2013, nor is Outlook. But both come with Office 365. If you require -- or simply want -- those applications, they may be enough to tip you toward a subscription -- even if you utilize just two or three of the five allowed installs.

What's in it for Microsoft with this "rental" concept? Money.

Microsoft already makes most of its money from Office using similar deals with businesses, which typically buy not only massive numbers of Office licenses, but also the right to run any upgrades issued in the next few years.

Microsoft wants to move as many customers as possible, including consumers, to that same business model, because subscriptions not only provide regular -- and more easily forecast -- revenue, but also because it's betting that once it makes the initial sale, it will lock in users to a continuing series of payments.