The road to Office 365: What Microsoft learned about renting Office

Microsoft has already tried to offer Office 'software as a service' -- and failed miserably

Microsoft's Office 365 promises to bundle desktop and cloud software for a monthly fee -- a little bit of something old and something new. But there's a twist that may surprise you.

The cloud part of the Office 365 equation is nothing new: Microsoft has been renting the Business Productivity Online Standard Suite (BPOS) since 2008. Key portions of BPOS, including Microsoft-run Exchange Servers, go back to 2006, and various independent organizations have hosted Exchange Servers for multiple clients, with monthly bills and Microsoft's blessing, since 2003. Microsoft has experience selling its online software as a service: Exchange, SharePoint, Live Meeting, and Office Communications (er, Lync) are all part of BPOS.

The online apps portion of Office 365, the Office Web Apps, only date back to the release of Office 2010 in June. They run inside a browser and bear some superficial semblance to Word, Excel, and PowerPoint 2010. They're free and available to anyone. (An online version of Outlook, known as Outlook Web App, née Exchange Web Connect, is available only to Exchange Server customers.)

Down on the desktop, the software-as-a-service view is quite different. Most people think Microsoft will be blazing virgin territory when it starts to peddle Word, Excel, PowerPoint, and the others with a monthly fee. Few people realize that the desktop parts of Office 365 -- the Office apps themselves -- were once available for rent, too. Microsoft's been there, done that -- without much luck.

Step into the Wayback Machine, Sherman, and set the dial for Las Vegas, November 2000. Then-CEO Bill Gates gives the keynote speech at Fall Comdex that year and introduces a newfangled contraption called a tablet PC. Out on the floor, Microsoft employees tell the gathered throngs that Microsoft will "sell Office XP both off-the-shelf and through a subscription model, which would offer users bug fixes, enhancements, and other updates automatically over the Web." Software as a service was set to make its Microsoft debut.