Microsoft facing uphill battle over subscriptions

Following Office and Microsoft 365, experts predict that a Windows subscription is on the horizon

Microsoft faces an uphill battle if it attempts to force consumers into paying a subscription for Windows.

Microsoft has already managed to successfully convert Office into a subscription product and recently introduced Microsoft 365, a joint payas-you go model for both Office and Windows targeted at businesses.

That’s given rise to predictions that Microsoft is planning to turn Windows into a pay-monthly subscription for consumers, too. “Microsoft is on a trajectory that seems to be going more and more towards subscriptions and we might conclude that consumer subscriptions is a likely path,” Stephen White, research director at Gartner, told PC Pro.

Currently, most consumers get Windows as part of the price of their machine, with the system builder paying around $100 for a licence. “The OEMs’ side of things doesn’t necessarily fit with subscriptions and I think that those partners are extremely important to Microsoft and they wouldn’t want to compromise,” said White. “They [OEMs] would need to be on board with anything Microsoft wanted to do. It really wouldn’t want to provoke those partners to put something else on those machines.”

Microsoft declined to comment on any changes to the Windows model.

Bringing on the subs

Although system builders make little margin on the operating system, they do get benefits in the form of cooperative advertising funding, something Microsoft could use to encourage them to install a subscription-based OS.

However, PC builders warn that customers consider the OS to be an integral part of the PC purchase. “Windows in the grand scheme of things, at less than £100 a licence, is not so expensive, so unless the monthly subscription is extremely reasonable, it will be off-putting rather than attractive to consumers,” said Ben Miles, sales director at UK system builder Chillblast.

According to Miles, subscriptions work well for expensive business packages, but less so for nuts-andbolts software such as the base OS. “Ultimately, subscription-based models have been brilliant for expensive software – the Adobe suite for example – as it allows previously unreachable software to be used by the masses. It is a lot easier to stomach £10 to £15 a month than it is a £700 to £1,000 up-front investment,” he said.

“Microsoft Office (at least the business versions with Outlook) is also a very expensive package,

but is very digestible as an Office 365 licence.”

Business plans

While consumers are unlikely to face monthly bills for Windows soon, business and enterprise customers could be left with little choice, as some features of upcoming software may only be available to people using 365 packages. The company unveiled Microsoft 365 at its recent Inspire event, touting a product that “brings together Office 365, Windows 10 and Enterprise Mobility and Security”.

Although CEO Satya Nadella said it’s better for businesses to have an all-in-one package, some fear that they will be forced into making sweeping changes by Microsoft’s tactics and experts suggest they benefit Microsoft more than users.

“Microsoft is absolutely pushing customers to convert on-premises (‘perpetual’) licensing to monthly subscriptions,” said Joshua Trupin, services analyst with research firm Directions on Microsoft. “This helps Microsoft with more regular continual income, instead of peaks and valleys after each product release, and they purport that it helps companies by converting capital expenses into operating expenses that can track the health of their business.”

The risk for companies is that some updates and tools will only be available to subscription customers with a unique Microsoft ID. “Companies that don’t want to get on the subscription train may have no choice,” Trupin added. “Future versions of on-premises software (like Dynamics and SharePoint Server) will receive more features that show up first in the online versions,” he said.

“But features like ‘modern’ team pages will require users to be registered in Azure Active Directory, and will receive resources exclusive to Office 365 Groups. In order to ever move to newer versions of the on-premises software, customers could see themselves required to also get subscriptions and put users in a hybrid model.”

Microsoft 365 Business will be released as a public preview in August and will be available worldwide in autumn, priced at $20 per user per month. There will be separate enterprise versions.

PC builders warn that customers consider the OS to be an integral part of the PC purchase