New Office 365 subscriptions for consumers plunged 62% in 2016

Rolls neared 25M, but additions slowed significantly

Four years after the introduction of Office 365 for consumers, Microsoft last week said subscriptions to the productivity software had reached nearly 25 million.

Subscribers, however, were harder to find last year than in 2015, according to the numbers Microsoft reported: Additions to Office 365's rolls were down 62% in 2016 compared to the year before.

During an earnings call with Wall Street analysts last week, CEO Satya Nadella touted revenue increases for the Office products aimed at consumers -- which include Office 365 -- and of the latter said that the company had, "continued to see an increase in ... subscriber base."

That it did.

In a filing with the U.S. Securities & Exchange Commission (SEC), Microsoft pegged the number of consumer Office 365 subscriptions in the December quarter at 24.9 million, an increase of 900,000 from the September quarter and 4.3 million more than a year earlier.

Microsoft launched Office 365 for consumers in January 2013. The initial subscription -- dubbed "Home Premium" -- was a five-user deal that cost $100 annually or $10 monthly. Fifteen months later, Microsoft unveiled a one-user subscription called "Personal" for $70 a year or $7 a month. Since then, Microsoft shortened the original subscription's name to just "Home;" prices have not changed.

Company executives have never publicly set numeric goals for Office 365 subscriptions. But Microsoft has made no secret about its desire to shift much of its software business model toward recurring payments rather than one-time purchases of "perpetual" licenses, because once bought the software may be used as long as the customer wants.

In each of the last three quarters, Office 365 grew by about 900,000 subscribers, the smallest quarterly increase since early 2014. Prior to the nine-month stretch of 2016, subscribers were accumulating at rates two to three times larger per quarter.

By charting Office 365's new subscribers using a trailing 12 months -- the latest quarter plus the three previous -- to eliminate seasonal spikes, the suite's waxing and waning over the past four years becomes apparent. From its Q1 2013 debut until Q4 2015, Office 365 subscriber growth was always steady, sometimes spectacular.

Subscriber additions peaked in the first quarter of 2015, at 3.2 million, followed by 3 million in the third quarter, providing a foundation for a record 11.4 million new subscribers during the year.

After Q4 2015, however, the trailing 12-month numbers fell, a decline fueled by the plateau of 0.9 million each quarter from the second onward. That resulted in a gain of just 4.3 million subscribers throughout 2016, a reduction of 62% from the year before.

Microsoft has rarely provided information on Office 365 revenue; Computerworld stopped extrapolating sales in 2015 after it became apparent that rounding errors may have skewed the results. Last week, Microsoft only said revenue from the consumer side of Office -- a bucket that included not only Office 365 but also the perpetual licenses sold at retail -- was up 22% in the December quarter.

The increase, the largest of 2016, was not as stupendous as at first glance, however: The comparable quarter -- the fourth of 2015 -- saw a revenue decline of 14% from the same period in 2014. Over a two-year span, then, from the December quarter of 2014 to the same period in 2016, the consumer Office revenue climbed by a less impressive 5%.

office365 new subs Computerworld/Data: Microsoft

Additions to the consumer subscription rolls for Office 365 slumped in 2016 to 4.3 million, a 62% decline from the year before. 

Copyright © 2017 IDG Communications, Inc.

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