How Microsoft will end Office's perpetual licensing

Microsoft in September announced that the next version of its on-premises Exchange Server will be available only as a subscription-based product. What does that say about its licensing plans for Office?

Microsoft Office logo in an environment of abstract encrypted code and a padlock overlay.
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Microsoft may have hinted at how it plans to end its decades-long practice of selling Office as one-time-payment licenses.

During the Redmond, Wash. company's Ignite technical conference, held virtually last month because of the pandemic, Microsoft announced that the next version of its on-premises Exchange Server — the de facto email server in the enterprise — will be available only as a subscription-based product, thus ending licensing that let customers pay just once for the software.

"This is going to be a version of Exchange that will only be available with the purchase of a subscription," said Greg Taylor, director of product marketing for Exchange, in a video posted just prior to Ignite. "This subscription entitles you to updates and support for the lifetime of your subscription."

Other details, notably pricing, were missing. Microsoft said that info will be fleshed out before the release of what it dubbed Exchange Next in the second half of 2021.

That means Exchange Server 2019, which debuted two years ago, will be the last in the line of email servers sold as "perpetual" licenses, those that a company purchases with an up-front payment. A perpetual license payment provides the rights to run the software as long as one wants, even after Microsoft halts support.

The alternative to Exchange Server as a perpetual license — where the software is often deployed on-premises — is to "rent" Exchange Online, Microsoft's cloud-based email service. Exchange Online is usually acquired as part of an Office 365 or Microsoft 365 subscription.

Because of the change to subscription licensing, Exchange Server 2019 will be not only the final perpetual-style version of the on-premises software but may also be the last version to contain significant new features and functionality. In announcing the upcoming licensing model, Microsoft said that Exchange Server 2019 would be "the last major upgrade they [customers] will ever need to do," implying that the updates offered to Exchange Next will be minor, thus sans new shiny stuff.

There was always the expectation that at some point Microsoft would drop on-premises Exchange Server or twist it beyond recognition, all in an effort to push and pull all possible customers to the subscription-based Exchange Online through the also-sub-based Office 365 and Microsoft 365.

One of the clearest clues was the simultaneous end of support for Exchange Server 2016 and Exchange Server 2019: Oct. 14, 2025. Although that provided the usual — and until lately, sacrosanct — 10 years to Exchange Server 2016, it cut 2019's support lifetime by nearly a third, to 7 years. That shorting of support, and the fact that its date matched 2016's, signaled something drastic, perhaps an end to the product.

The future of on-premises Office

So, what should customers read into the end-of-support dates for Office 2016 and Office 2019? After all, both those perpetual-licensed suites drop off the support list on the same day, which is also the same day as Exchange Server 2016 and Exchange Server 2019: Oct. 14, 2025.

Well, well, well.

No surprise, really, what with the tight connections between the client and server sides of the Office environment. Upgrade one, upgrade all, has been Microsoft's mandate, with synchronized releases, more or less, from at least the turn of the century. Exchange Server 2000, Office 2000. Exchange Server 2003, Office 2003. And so on, so forth, through 2007, 2010, 2013, 2016 and 2019, every three years like clockwork.

At the same time it talked up Exchange Server Next, Microsoft also reiterated that it would issue an on-premises Office to succeed Office 2019. "Microsoft Office will also see a new perpetual release for both Windows and Mac, in the second half of 2021," the company said, reaffirming what it said in September 2018 as it launched Office 2019.

Microsoft did not say that Office Next — a placeholder Computerworld used for what Microsoft might eventually name Office 2022 — would be offered by subscription. Rather, it used "perpetual release," which suggested a single, up-front payment.

Still, it would be odd for Microsoft to ask customers to pay for their Office on-premises infrastructure — the server software — with subscriptions while it tells them to purchase the client software with a one-time fee, when it's kept the two in sync for years.

Microsoft could use a hybrid approach for Office Next, contended Rob Helm, an analyst with Directions on Microsoft. "Office might be handled differently [than Exchange Server]," he said of the former's payment scheme. Perhaps Microsoft would sell Office Next on the perpetual license model, he continued, "But not with a fixed support length."

Instead, customers would be required to make regular payments for "subscription rights" that would include support.

If Microsoft splits its client-server duo into perpetual and subscription licensing for the next cycle — the 2021 releases — or for more than one such cycle, it seems clear that once the company decides to debut the final on-premises Office, it will have that product adopt the same subscription scheme as Exchange Server. Doing anything but that would be a needless complication and uselessly confuse customers, something even Microsoft — known for doing both at times — should avoid if at all possible.

At that point, Microsoft will have eased the entire on-premises Office ecosystem to a subscription model, albeit one significantly different from the Office/Microsoft 365 design. Like Exchange Server Next, Office Next will be a dead-end product that, although maintained with security and other bug fixes, will increasingly lag behind the pure-subscription software-and-services of Office 365 and Microsoft 365 in new features.

Microsoft has now, and will continue to have in the future, little to no motivation to add functionality to the on-premises line — not if it wants to keep touting the 365 alternative as the best solution. The Server Next/Office Next combo will instead emphasize stability and reliability, somewhat like Windows 10 Long-Term Servicing Channel does in the Windows universe.

From Taylor’s account, Microsoft will offer the Server Next model for quite some time “[if] you know you’re staying on premises for some period of years to come,” while also talking up the transition from perpetual licensing to subscription.

Taylor also confirmed that the shortening of support for Exchange Server 2019 — from the usual 10 years to seven years, remember — was for a distinctive purpose. "We want to try to get people into this new model," Taylor said, referring to the Exchange Next subscription.

Computerworld cannot come up with another reason for shortening the support for Office 2019 that same way. Microsoft will do this, whether for the 2021 cycle or later. Count on it.

Copyright © 2020 IDG Communications, Inc.

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