Upcoming Office licensing overhaul requires cloud subscription model

Microsoft is about to place all of its Office and Office 365 applications under one umbrella in an effort to push a single license, cloud-based subscription model.

Microsoft will place all of its server-based Office desktop and cloud-based Office 365 applications under one umbrella in an effort to push a cloud-based subscription model.

While Microsoft will continue to make the existing on-premises versions of Office and Office 365 available, those versions will not be as "fully featured" as upcoming cloud-based versions. The company hopes this new, single license strategy will serve as incentive to users to migrate their data and applications to the cloud. An announcement could come as early as this week.

"Whether you are a consumer or the largest IT shop, (Microsoft) wants everyone to buy the cloud services versions," said one source familiar with the company's plans, who requested anonymity. "If you don't want those versions, they will still offer the on-premises versions but they won't be quite as good."

"They're going to turn their legacy desktop customers into a new pipeline of "cloud" users and make them think it's their own idea"

Carl Brooks, analyst, 451 Group.

One analyst agreed, noting the growing disparity in price points between the on-premises and cloud-based versions of the same product.

"Moving as much of their customer base into the cloud as possible is in Microsoft's best interest," said Wes Miller, an analyst with Directions On Microsoft, an independent firm based in Kirkland, Wash. "It's hard to not look at price lists and not understand that people are being punished for staying on-premises products. You don't have to worry about CALs for Office 365."

The "new" Office family now extends from the Student and Home Editions for the desktop all the way to high end server applications bundled in Office 365 which includes Exchange Server and SharePoint.

"Every product with 365 in its name means it is delivered over the Web and is a service," said one source familiar with the company's plans.

What does the Microsoft Office 365 strategy achieve?

A more seamless family of server and client-based Office products accomplishes a couple of things over the longer term: it offers users better access to data that can be more easily shared across mission critical enterprise projects; it improves Microsoft's competitive position against companies whose business is based purely on cloud-based offerings; and it helps decrease Microsoft's still heavy reliance on its on-premises products, which will remain available so users can transition over when they are ready.

One analyst said Microsoft over the recent past has been taking the right approach to helping manage customers' transition from on-premises applications to their cloud-based counterparts. 

"I think it's a little brilliant," said Carl Brooks, an IT analyst with The 451 Group. "They're going to turn their legacy desktop customers into a new pipeline of "cloud" users and make them think it's their own idea."

Another industry observer thinks any move by Microsoft that encourages users to move more of their applications from on-premises to the cloud is not just smart but necessary, particularly its PC-based Office products.

"Unless Microsoft comes up with an answer to address this shift away from the PC, they are looking at this (desktop versions of Office) being a declining business." said Paul DeGroot, principal consultant at Pica Communications, specialists in Microsoft licensing strategies. "Microsoft is pretty late to this game."

New Office licensing: Dream come true or total nightmare?

The ability to manage multiple Office desktop and server products under a single license could simplify the complex nature of Microsoft's licensing terms and conditions -- something both small and large IT shops have long complained about.

The single licensing approach may prove easier for smaller shops to adopt with less legacy overhead, although more difficult for larger shops with a more diverse technology landscape with existing Enterprise Agreements (EAs) and Software Assurance plans.

"If you [are] starting from scratch and you had 20 people in your shop, you can get all 20 up and running on Office, Exchange, SharePoint, Lync, Word, Excel and even Skype under one license," according to one source familiar with the company's plans.

While it could be a "bit of a nightmare" for larger shops to adopt the new approach to licensing at first, some believe it eventually it will be easier for them because they won't have to track multiple products sets under multiple licenses.

One analyst noted that Microsoft recently has "done a lot of work" to modify its EAs to accommodate those customers with on-premises versions of SharePoint and Exchange who want to switch over to an Office 365 and use a subscription plan.

"These EAs are hugely important to Microsoft so they can't have a barrier for people wanting to move to the cloud," DeGroot said. "They are putting systems in place for doing that."

The company is readying a half-dozen "enterprise-oriented" bundles of Office and Office 365, sources said, with another one aimed at mid-market shops and two others designed for small shops, according to sources.

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