Microsoft's strategy: Force enterprises to buy every traditional Office upgrade

Microsoft has figured out how to stymie enterprises that cut costs by licensing Office the old-fashioned way, a pair of researchers said.

After changing the end-of-support for Office 2016's right to connect to cloud-based services, rolling out Office 2019, pledging to continue the "perpetual" license model, and reducing the suite's support timeline, Microsoft has put an end to organizations' work-arounds, argued Stephen Kleynhans and Michael Silver, two Gartner analysts who authored an October report on the Redmond, Wash. company's latest round of support policy alterations.

"Organizations that want to run the traditional version of Office with Office 365 will need to license every version without skipping," Kleynhans and Silver wrote about the impact of Microsoft's latest announcements. "This would ensure Microsoft a continuous revenue stream for Office."

In September, Microsoft changed its ma a three-year extension of the original October 2020 cut-off. The 2023 date was also set as the end of support for Office 2019's ability to access services such as Microsoft-hosted Exchange and OneDrive for Business storage.

Microsoft first laid down these rules in April 2017. They applied only to the traditional Office, the suite with a perpetual license - called that because the right to run the software never expires; it's the bundle purchased with one-time payments, as opposed to the ongoing fees forked over to run Office applications under an Office 365 subscription.

Experts saw purpose in the Office-to-services limitation Microsoft instituted. In a 2017 interview, Gartner's Silver portrayed the decision as another shove to subscriptions. "The writing has been on the wall," he said of Microsoft's downgrading of perpetual Office.

So it goes...still.

"Some organizations try to reduce costs by purchasing a 'traditional' copy of Office (usually licensed per device) without Software Assurance (SA), or they allow SA to lapse to stop paying the annual fee," said Kleynhans and Silver, referring to the annuity-like program that gives customers upgrade rights as long as they keep paying. "(Then) if they want to move to Office 365 for online services, such as email, they can license Office 365 Enterprise E1. The full Office suite is not the only difference, but it is the primary one, and customers can use their existing copies of Office."

That combination of perpetual Office and Office 365 Enterprise E1 - the latter costs $8 per month per user (PMPU) - can be less expensive than Office 365 Enterprise E3, which runs $20 PMPU, if the customer sticks with the traditional Office for a long period of time.

Office 2016, for instance, ran $400 at full-priced retail for a single-PC license. Three years of Office 365 E1, at $96 a year for one user, went for $288. That came to $688. Meanwhile, three years of Office 365 E3, at $240 a year for one user, totaled $720. That meant for each additional year - beyond the first three - that a company stuck with Office 2016, it saved $144 per PC ($240-$96). Over four years, the Office 2016/Office 365 E1 combo cost the firm $176 less than Office 365 E3 ($960-$784); over five years, the savings would be $320.

Some enterprises stayed with a specific perpetual Office for five, six or even seven years, maximizing their savings by skipping at least one iteration of the suite.

But by mandating that perpetual Office can connect to online services delivered by Office 365, such as the E1 subscription, for only five years - the part of support dubbed "Mainstream" - Microsoft ensures that customers can't use the combination long enough to realize significant savings. That's because IT requires some part of the back-end of the five-year stretch for migrating from one Office to another.

Office 2016, in fact, will be the last perpetual Office to allow for major savings, and then only because Microsoft moved its connection-to-Office 365 end from 2020 to 2023. Beginning with Office 2019, enterprises will be forced to purchase each version to stay in support, as the following timeline shows.

Gartner

(Contrary to what Gartner said in that figure, Microsoft has pledged to continue perpetual Office; it has not, however, set a timetable. Gartner's every-three-year release is an intelligent assumption based on Microsoft's past practice.)

The figure makes clear how enterprises will have to approach perpetual Office in the post-2019 world: As 2023 nears, companies will have to upgrade to the next Office - assume it's tagged Office 2022 - sometime in the 24 months between the fall of 2021 (when Office 2022 should debut) and October 2023, when support for cloud connections dries up.

To run the traditional Office past 2026, when Office 2022 loses its ability to jack into Microsoft's services, enterprises would have to invest in Office 2025. And so on and so forth.

"In 2023, only the traditional version of Office after Office 2019 ... will be able to access Office 365," Kleynhans and Silver said. "Of course, at that point, organizations would need to purchase every Office release without skipping."

The point of all this, of course, is to push, prod, shove and shoulder customers toward Office 365 by eliminating any financial benefits the perpetual Office package harbors. Microsoft wants subscribers, and the regular and repetitive revenue they generate.

At some point, it may dispose of traditional licensing entirely for Office. That it hasn't, and more importantly that it has promised to, at a minimum, provide a successor to Office 2019, signals that there is strong customer resistance to a subscribe-or-else model.

But don't be surprised if Microsoft makes future adjustments that put perpetual Office in more disadvantageous positions by, say, boosting its price (as it did by raising Office 2019 Professional's retail price by 10%) or discarding service-only Office 365 plans such as E1.