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Microsoft enlists Dell to push Office 365 on new PCs

February 21, 2013 06:35 AM ET

The company has tilted the field toward Office 365 by raising prices of the "perpetual" licenses -- those the customer pays for once, then uses as long as desired -- and by limiting rights to permanently tie those licenses to a specific PC.

Miller was unsure how well an Office 365-with-a-new-PC concept would do, including how many subscribers Microsoft would acquire and what the retention rate will be as renewal fees come due.

But by including Office 365 with a new system, particularly if the subscription is discounted rather than offered as a limited-time trial, Microsoft and OEMs may have hit on a solid strategy. "There's some deep psychology involved," Miller said, on the part of customers forced to make the decision at PC purchase time.

They're already plunking down hundreds, perhaps more than $1,000, on the machine, so an additional $80 or $100 may not be as painful then as it would seem later.

"It becomes up to the OEM to close that deal ... but I think it's easier to close that sale at the point of purchase than it would be later," Miller said.

What Microsoft would like to do is train customers to add Office to every new PC -- the restrictive perpetual license that's anchored to a single PC, and only to that PC, is one hint of its thinking -- but through the carrot of Office 365.

"Buy a new PC, tack on $100 [for Office]," Miller said, outlining Microsoft's thinking. "A year later, buy another new PC, tack on another $100 [for Office]." With that in mind, customers will start to believe Office 365 is a good deal, whether it really is. The result, said Miller: Microsoft nudges consumers to buy into a form of Software Assurance, the annuity-like program that many corporations use to keep their Microsoft software up to date.

The strategy of offering Office 365 at a discount and pushing that rather than a perpetual license could be an even bigger boon to Microsoft as tablets replace PCs, Miller argued. That relies on several assumptions: That people buy new tablets more frequently than they once did PCs, and that Office 365 is a requirement for Microsoft's suite on non-Windows tablets, such as Apple's iPad and those powered by Google's Android. Office 365's ability to assign Office to any of five household devices, then reassign them later to new, replacement PCs or tablets, may prove to be its strongest selling point as consumers, in Miller's words, "rotate out" new hardware for old.

But there are as many, if not more, unknowns than knowns.

"I think this point-of-purchase mechanism will result in subscriptions, at least for Year One," said Miller. "The question is, what does retention/churn look like at the annual renewal? We'll have to wait and see."

covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter @gkeizer, on Google+ or subscribe to Gregg's RSS feed Keizer RSS. His email address is gkeizer@computerworld.com.

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