Office boss: Within 10 years, every customer will subscribe

Kurt DelBene says that the software giant's push into services will lead to more and more customers opting for subscriptions to its productivity application. But the transition from buying software to renting it will take as long as a decade.

Jay Greene
Jay Greene Former Staff Writer
Jay Greene, a CNET senior writer, works from Seattle and focuses on investigations and analysis. He's a former Seattle bureau chief for BusinessWeek and author of the book "Design Is How It Works: How the Smartest Companies Turn Products into Icons" (Penguin/Portfolio).
7 min read
Microsoft will debut its Office 365 Home Premium edition at a hands on demonstration in New York's Bryant Park today. Microsoft

Microsoft Chief Executive Steve Ballmer insists the software giant is really a devices and services company.

Today, the company makes one of its biggest pushes yet, launching a subscription service of its Office franchise to consumers who are increasingly doing their computing on mobile gadgets and Web applications. The software giant debuts Office 365 Home Premium, the latest offering from its widely used productivity software group.

The new service, which costs $99.99 a year, offers consumers access to the most recent version of Word, Excel, PowerPoint, OneNote, Outlook, Publisher and Access. The license covers up to five devices and includes 20GB of Web storage on its SkyDrive service, as well as 60 minutes of free calls to mobile phones and landlines worldwide using Skype.

Kurt DelBene, the president of Microsoft Office Division, recognizes that it will take years to get all of Microsoft's customers buying subscriptions. After all, many are satisfied with the versions of Office they already own on their PCs. But he also believes that eventually, every customer will get their applications through subscriptions because it's easier to manage, allows for automatic upgrades, and gives customers flexibility to use the software on any device.

"We think in 10 years, almost all of our customers will be purchasing our software via subscription," DelBene said.

Microsoft also faces growing competition from Google Apps, the search giant's Web-based productivity software, and a raft of niche applications from much smaller rivals.

DelBene spoke with CNET prior to today's launch. Below is an edited transcript of that conversation.

Question: Who do you think the kind of core customers are for the new product?
DelBene: I think families. You can use Office on up to five devices. So if you think about for a family where the parents as well as the children are using it, it's kind of a no-brainer for the economics for those families. The other thing is it crosses over both PCs and Macs. And so if you have a mixture of devices or PCs in your household, it will work there as well.

The second thing I would say is (that) one investment area that's been very important for us is the consumerization of IT and how people work -- the blending of your home life and your work life. So one investment we made, which was very central to the product's inspiration from the beginning, is for it to be cloud-connected at all times. We anticipate that means people storing all their documents in the cloud. With the subscription, we'll triple the amount of cloud storage that you have, to really realize the vision of content moving with (users) wherever they are.

We also made a investment in Skype and are really bullish about integrating that into Office. We're pairing 60 minutes of calling (using) Skype as part of your Office 365 subscription.

It's interesting you talk about families. As a consumer with a family I feel like I'm getting close to being "subscriptioned out." How do you convince families to decide that it's a good idea to part with a hundred bucks a year for this?

Microsoft's Kurt DelBene Microsoft

DelBene: We did not just ship the subscription version of the product, we also have the traditional perpetual version of the product. We want to give people choice. We're bullish about the subscription, but in no means is (it critical to) our business that we have to get everybody (on the subscription version).

We actually do think that people will move over to the subscription for the reasons I mentioned. But we want to offer people a choice one way or the other. That, in a sense, is unique to how we approach the space. It's not subscription only. It's about a matter of choice as well.

And how did you come up with the pricing? If I use this product over the course of a year and a half, it's roughly the same as what a consumer pays for the old version of Office.

DelBene: We, obviously, do focus groups and talk to a lot of customers. And so it's partially informed by that. It's partially informed by looking at the pricing that we have for the products that we have and how it relates to those. We also talk to our resellers and figure out what price point do they think it will work. So we actually think we have a very good value proposition to customers as a result.

Another thing to think about is if it's a year and a half (of using the new Office subscription) and it's the same price, that's as if you're only using it on one device. Now think about the value if you're using it on three, four, or five devices. Then it's obviously a big savings overall for the customer.

There's been a lot of discussion over the years about the consumerization of IT and people bringing their own device to the workplace, forcing IT departments to adjust and adapt. Increasingly, workers are bringing their own applications to the workplace as well. You see it with applications such as Dropbox, YouSendIt and others. Essentially, they're bypassing IT to get their jobs done more efficiently. Does that phenomenon help or hurt Office as you try to get folks to use this product both at home and at work?
DelBene: I think I would say it helps or is at worst neutral to it. We made a big investment around SkyDrive being our cloud storage and deeply integrated that into Office. And so, for instance, if you open a document, you can open directly from SkyDrive, you can save directly to SkyDrive. Everything like where you were in the document when you left off at work will roam with you when you're at home. So that will be a very strong plus for customers.

The second thing I would say is that it will work just as well if somebody chooses another back-end storage (service). We can do deeper integration, but it won't preclude (the competing service) from working against, say, Dropbox storage. We'll just add more features because we work deeper with the SkyDrive storage.

I would step back a second, though. It is a challenge for IT to think about in a world where people bring their own devices and their storage and how they are going to manage that. And so when companies sign up for Office 365 or they deploy SharePoint on-premises, we provide them SkyDrive Pro and we integrate that directly into the desktops as well. And we give them all the management flexibility and the ability to see who's been saving what and accessing what. Integrated in with the desktop, integrated in with the services, and integrated in with our on-premises products as well.

So it is a real dilemma that IT is facing of how do they manage in this kind of a world. We want to enable all the scenarios that users want, but we want to enable IT to have a management strategy that works for them.

Microsoft CEO Steve Ballmer has talked a lot about Microsoft evolving into more of a services and devices company. As you look forward with regard to Office, what are some of the other things that will become more like services and less like software that can be downloaded or comes on a disk?
DelBene: Well, I think the new delivery mechanism for the service is an example kind of paves the way for what we can do in the future. The technology is different and new in the way we deliver the bits to users. You literally can go to Office.com, click a button, and we will stream the application to your desktop. So less and less, you need to think about it as something you install on the device versus a service that you subscribe to, and we stream down the bits necessary to give you the functionality that you need.

So I think you'll see that become a pipe for us to deliver new functionality and new capabilities to users on an ongoing basis. You'll see more cloud connectedness, the ability to go to a PC where you didn't have Office before, but because you're a subscriber, you can download it when, perhaps, you're at your parents' house. You download it, you use it, and you walk away.

With Office 365 Home Premium, what are the metrics you'll be following to measure whether or not it is successful?
DelBene: I think the first thing is how is it embraced by customers in terms of what their feedback is. We've actually had very positive feedback in terms of reviews of the customer preview. And so I think we're off to a good start... But we will look to see how customers embrace the product and what their feedback is.

The second thing I think we'll look to sales of the product overall. That is both the perpetual product as well as the subscription product. And is that healthy and growing for Microsoft?

The next thing we'll look at is what percentage of people choose to purchase the product via subscription? And I think that will inform us as to how we need to adjust the value proposition relative to the perpetual product. If it goes well, we'll think that's great and we'll build more on top of that. If there are roadblocks to that, we'll adjust them. And the great thing about a subscription is we can adjust it in real time and we can tweak the product, deliver it, and really build on the momentum as a result.

Do you have a goal for the percentage breakdown of Office home consumers on subscription version versus owning perpetual licenses after, say, 12 months?
DelBene: We think in 10 years, almost all of our customers will be purchasing our software via subscription.

OK, so is there a shorter time frame you want to talk about?
DelBene: Not that we're actually setting objectives against. What we do is we create the product that we think will be successful. We look at it, we find the gaps, we tweak it. To be honest, I haven't set goals in between. I think we will be off to a very strong start based on what we've heard from retailers.