Can Microsoft get SaaS right with Office 2013?

Ten years ago, Microsoft tried and failed to convince users to rent instead of buy Office. Is there any reason to think Office 2013 will fare better?

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With that kind of experience, you have to wonder what makes Microsoft think it can get the SaaS shtick right this time around with Office. Several points come to mind:

  1. Microsoft's been renting Office 2010 to BPOS and Office 365 customers for years. Of course Microsoft doesn't publish any numbers, but it's likely the company has developed some (perhaps minimal) experience with the Office rental model. In the Australian experiment, customers who didn't pay their rental fees were warned, given five "free" uses after the expiration date, then had to deal with read-only mode. Perhaps in recent years Microsoft has found a way to improve upon that termination experience.
  2. The market's changed -- although whether it's changed enough to support a broad shift to SaaS with Microsoft's No. 1 cash cow remains to be seen. Office users aren't going to turn into admins overnight, but they might be tempted to try something new if the feature set's compelling and the price is right.
  3. Microsoft's tossed a lagniappe into the equation by offering 60 free Skype minutes (except to mobile numbers in some countries and "special, premium, and nongeographic numbers") and an extra 20GB of SkyDrive storage.

But the crucial question is the price. Microsoft's No. 1 failure in Australia a decade ago was in pricing the Office XP rental too high. The upgrade version of Office XP Professional came in at AU$749 ($779, at current exchange rates) and the SaaS subscription price was AU$359 ($373)per year. Nobody, but nobody, saw the sense in paying 50 percent of the purchase price for an annual rental.

There were other financial disincentives as well. Those who bought Office XP figured they would qualify for discounts on the Office 2003 upgrade; those who rented weren't sure if they could get upgrade pricing or not. Microsoft offered an upgrade discount for moving from Office 2000 to the purchased version of Office XP; there was no similar discount for upgrading to the rented version. Microsoft assured Office XP renters they could move up to the next version of Office as soon as it was available -- but many people, then as now, aren't certain they'll want to upgrade right away. They didn't -- and don't -- necessarily believe the next version of Office will offer enough benefit to be worth the hassle (much less the expense) of an upgrade.

All of those old fears will haunt users making the "rent or buy" decision today. Microsoft faces an uphill battle convincing consumers and small-business owners to rent. The stakes are high for Microsoft, considering the pivotal position Office plays in its revenue stream.

This story, "Can Microsoft get SaaS right with Office 2013?," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow on Twitter.

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