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Making sense of Microsoft's subscription Office plan

Is Office 365 cheaper or more expensive than Google Apps? It turns out it all depends on which version you buy.

SAN FRANCISCO--The 365 in Microsoft's new Office 365 may not represent the number of different versions, but there sure are a lot of different options for the new subscription Office suite.

Small businesses, those with 25 or fewer employees, have it simplest, with a $6 per worker per month option that includes Office Web Apps, along with hosted versions of Exchange and SharePoint. Larger businesses can choose from products anywhere from $2 to $27 per person per month. At the low-end, businesses get hosted e-mail, while for $4 a month they can also get SharePoint.

Capossela Microsoft

A version comparable to the $6 small-business plan will cost larger outfits $16 per month per employee. The options that include the traditional desktop Office suite, in addition to the slimmed down Office Web Apps, start at $24 per worker per month.

For options that include desktop Office, businesses can allow workers to install the suite on up to five machines--including their home PCs. The service will check around every 60 days to make sure a subscription is current; if it isn't, Office will shrink its features to a "limited functionality" that basically includes viewing, but not editing capabilities.

Microsoft is touting the choices as one of its key advantages over rival Google Docs.

"The key to our approach is that we don't think it is a 'one size fit all' (market)," Senior Vice President Chris Capossela said in an interview. Starbucks, for example, he said can offer a low-end version to its store workers that aren't at a PC, while giving the higher end options to those at headquarters.

"We find that by having a variety of offers, we're actually able to give customers the choice they need to pick the right technology for the different workers in their company."

Google, for its part, really has two main options--the free consumer versions of Gmail and Google Docs and a paid version, known as Google Apps, for which it charges $50 per worker per year. Both companies also have options for the education and nonprofit market.

Now playing: Watch this: Microsoft explains Office 365

Perhaps the good news is that workers won't really have to worry about the myriad options until next year. The company said that the final version will come sometime next year, but Capossela declined to be more specific.

For now, Office 365 is only being offered to a couple of thousand businesses that will be part of a limited beta. Microsoft plans to expand that beta before releasing the service in final form next year, but Capossela said the beta won't be anywhere near as widespread as the public testing that the company does with new versions of Office or Windows.

"Running a service is a different animal, so it won't get to be that widespread," he said. "We'll start with 2,000 or 3,000 today and we will expand it out."

Among the early customers for Office 365, will be Herbfarm Restaurant, an eatery in the Seattle suburb of Woodinville, Wash. The company has already been using the hosted version of Exchange to handle e-mail. Thomas Chambers, who handles tech management duties in addition to overseeing guest relations, said the shift allows him to spend more time on the latter duties.

Ideally, overseeing the restaurant's technology is supposed to be only a quarter or a third of his job, but, he said, just before the company switched to a hosted version of Exchange he found that dealing with computer issues was taking up as much as half of his time.

"As our server aged a little bit, our Exchange server started dragging," he said. "I started spending way too much time managing that Exchange server. It took over that part of my life."

The shift to a subscription is a huge bet for Microsoft, which has traditionally made the bulk of its products from Office and Windows, neither of which is generally sold as a subscription. Microsoft briefly experimented with Equipt--a consumer product that bundled Office and antivirus software as an annual subscription. It ended sales of Equipt less than a year after it launched when it decided to discontinue Windows Live OneCare--the paid antivirus program that was part of the product.

Office 365--at least for now--will only include the Windows version of Office, though the Web apps can work on PCs or Macs.

"We absolutely are looking to take Office for the Mac 2011 and make that as part of the options that customers have," he said. Microsoft already allows businesses with certain volume license agreements to choose between Windows and Mac versions of the product, an option used by customers such as Boeing.

Although offering Office on a subscription basis is a risk, Capossela said that the move actually could boost the company's bottom line.

"If you look at our mid-market customers, they don't stay up to date with Office," he said. "They will buy office every 'x' number of years and every time they are not buying Office, that costs us money."

Microsoft is also trying to get more of a company's technology budget by charging not only for providing the software--its traditional business-but also by charging for the technology resources needed to run the software.

Redmond is also upgrading the name of its hosted software, which used to go by the mouthful of a moniker Business Productivity Online Suite, or BPOS. Including Office in the name was important to let potential customers know that this product includes Microsoft's flagship software suite, said David Webster, Microsoft's chief marketing strategist.

"A great product deserves a name that helps people understand its value and what it can do for them," Webster said in a telephone interview. "It's tweetable it's searchable It's discoverable--everything a modern name needs to be."