Microsoft slashes SMB Office 365 prices by up to 31%

'Needed to make pricing more attractive,' says analyst Wes Miller of Directions

Microsoft's announcement yesterday of lower prices for some Office 365 plans was an attempt to maintain momentum on its software-by-subscription push, according to one analyst.

"Usually, you drop prices to get the ball moving, or to keep it moving," said Wes Miller of Directions on Microsoft. "They've probably had good growth in small business, but the easy fruit has been picked. So they needed to make pricing more attractive."

On Wednesday, Microsoft announced three new commercial Office 365 plans -- Business Essentials, Business and Business Premium -- that will eventually replace another trio, the current Office 365 Small Business, Small Business Premium and Midsize Business.

The new plans will launch in October, and as Miller pointed out, be less expensive in some cases.

Office 365 Business, for instance, will cost $8.25 per user per month, and as a pseudo-replacement for the current Office 365 ProPlus, save customers about 31% per user annually.

Like ProPlus, Business will come with Excel, Outlook, OneNote, PowerPoint, Publisher and Word, but will eschew the Access and Lync clients. It will also be the least cloud-friendly SKU of the new packages, since it will omit off-premises Exchange, Lync and SharePoint. It will come with 1TB of free storage space per user, however.

Office 365 Business Premium -- a replacement for both Small Business Premium and Midsize Business -- will be priced at $12.50 per user per month, a savings of 17% for companies that now rely on Office 365 Midsize Business. (The $12.50 per user per month, or $150 annually, is the current price of Small Business Premium, which Business Premium also supplants.)

The new plan will include the full Office suite for installation locally on up to five Windows PCs or Macs -- as well as on smartphones and tablets -- and will come with cloud-hosted Exchange Online, Lync Online and SharePoint Online. Features have been added to make the offering more tempting to customers, particularly Yammer Enterprise and on-premises integration with Active Directory.

It's difficult to gauge the progress Microsoft has made in convincing customers, whether enterprise, mid-sized firms or small businesses, to adopt the "rent-not-own" software subscription model that is at the heart of Office 365. The company has only disclosed subscription numbers for its consumer products -- Office 365 Home and Office 365 Personal -- but has consistently been vague about success on the commercial front.

Without more information from Microsoft, Miller said, it was impossible to know what really drove the price reductions. On one hand, Microsoft has been adding more features -- and value -- to Office 365 in general to make the subscription service more attractive, Miller pointed out. This may be part of that trend.

Or it could mean Microsoft realized its pricing was not competitive with alternatives, such as Google Apps for Business -- which costs $50 per user per year -- and needed to lower them to keep current Office shops in the Redmond, Wash. company's orbit.

Interestingly, the price of Office 365 Business, the plan that will be the locally-installed suite and online storage, was nearly identical to that for Office 365 Home Premium, the $99.99 per year top-tier consumer program that also is, more or less, mostly about the software and little about the services.

Miller also saw signs in yesterday's announcements that Microsoft would make it easier for customers to not only know what they were getting -- always a possible trouble spot with the company's complicated licensing and offers -- but understand what they needed to do to get Office 365 up and running.

On Wednesday, Microsoft touted new flexibilities, including letting customers move between plans -- from the Business level to the Enterprise tier, for example -- and putting workers into different buckets, or plans, rather than being forced to adopt a one-size-fits-all solution.

Miller called the current small- and mid-sized business plans "cumbersome" and "painful," an area where he said Google's Apps for Business, though not without its own problems, was ultimately more approachable, especially for very small firms. "The technology, whether 'Click-to-Run' or the apps on the iPad, is pretty seamless and works well," said Miller. "What's not are things like switching domains or migrating from what I have now to Office 365. It's a point of difficulty.

"Things like Microsoft trying to make the [Office 365 plans'] packaging more logical show me that they realize that," Miller said. "These changes show that Microsoft, or the Office org, is moving in one direction. They have been moving all these pieces toward a final picture, like the announcement [in April] of OneDrive for Business [with 1TB of free storage per user]. It's all starting to make more sense."

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

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Copyright © 2014 IDG Communications, Inc.

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