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.

Fast-forward six months to May 4, 2001. Office XP has been released to manufacturing. Dell's already loading it on new machines, even though the official launch won't come until May 31. But Microsoft finked out on its rental promise. A Microsoft spokeswoman sent an email to various members of the press saying, in part, the "Office XP subscription offering will not be offered in the U.S. this year. It will be available in a few select locations when Office XP becomes available in those locations. Those countries plan to make their subscription offering announcements at a later date."

Sure enough, five days later, Microsoft announced that it would offer Office XP by subscription in Australia and New Zealand and, later, France. Customers could either buy the Office XP Pro upgrade for AU$749 or rent it for AU$359 per year. The subscription version shipped with a "feature" that warned the customer when their subscription was about to expire, then granted a grace period of five uses after the expiration date passed. After the end of the grace period, the Office apps flipped over to read-only mode, prohibiting edits and saves.

At the time, Australian Reseller News quoted Microsoft Australia Office product manager Mark Linton as saying, "The subscription model is revolutionary. We have listened to small businesses and we constantly hear that cash flow is an issue and so far the retailers and customers have taken to it very well."

Perhaps not so well. By the time Microsoft dumped the program in September 2002, an estimated 10,000 consumers had taken Microsoft up on the software-as-a-service offer. That from a base of approximately 10 million Office users.

Microsoft put it this way: "Customers and computer resellers from across New Zealand, Australia, and France had the opportunity to be the first in the world to assess the subscription licensing model. From their feedback, we learned that customers find subscriptions a useful method of purchasing software but are not ready to fully adopt this process.... We appreciate our customers' participation in this pilot program, and we will incorporate their insights in the development of future products."

So the people paying the bills Down Under reacted to the rental offer with skepticism -- extreme skepticism.

Ten years later, Microsoft is going to give Office rental the old college try once again. This time, there's a powerful set of servers behind the offering. It remains to be seen if reception in the marketplace will warm up a bit.

This story, "The road to Office 365: What Microsoft learned about renting Office," 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 business technology news, follow on Twitter.

Copyright © 2011 IDG Communications, Inc.

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