Can Microsoft get SaaS right with Office 2013?

Microsoft’s pushing hard to convince individuals and small organizations that they should rent instead of buy Office 2013. But unless it has learned from mistakes made with its Office XP rental experiment, the company could face an uphill battle convincing users.

The standard download for the Customer Preview version of Office 2013 comes emblazoned with the name and some of the accoutrements of Office 365. Microsoft clearly wants testers to associate Office 2013 with the online-only Office 365 package.

Microsoft rolled out Office 365 about a year ago as the successor to its BPOS (Business Productivity Online Standard) hosted server package. The emphasis was on all of the server-side stuff Office 365 brought to the mix: Microsoft would host Exchange, SharePoint, and Lync servers for you and rent Office 2010 as part of the package if you wanted it.

With Office 2013, the horse and cart have switched positions. Microsoft wants you to test Office 2013 and grow accustomed to — perhaps envious of — the Office 365 services. In the normal course of events, a tester signs up for a new Microsoft account, goes to the Office 365/Microsoft Online portal, signs in as an administrator, then downloads and sets up the “Office client applications.” As an administrator, you have control over downloading and installing up to five copies of the Office apps, and you can deactivate installs on individual machines.

Right now you can test Office 2013 through Office 365 in four ways:

• The Office 365 Home Premium version — which includes Outlook, Word, Excel, PowerPoint, OneNote, Access, and Publisher — lets you install Office 2013 on up to five PCs.
• The Small Business Premium version adds limited Exchange Server, SharePoint, and Lync Server functions; InfoPath and Lync on the PC; and lets you install Office 2013 on up to five PCs, for a maximum of 10 users. 
• If you go over 10 users, you have to move up to the ProPlus Preview package, which can handle up to 25 users.
• The Office 365 Enterprise Preview adds more server functions.

One caveat: Your stint as an admin is short-lived. Once the testing period is over (at some undetermined point in the future), everything goes away, including the accounts you set up.

Of course, if you’re unabashedly old-fashioned and just want to download the test versions of Outlook, Word, Excel, PowerPoint, OneNote, Access, Publisher, and Lync, you can do that from MSDN or TechNet, or by going to the TechNet Evaluation Center and clicking the link at the bottom of the page.

Microsoft tried to rent Office XP back in 2001 and got absolutely nowhere. As I explained last year, that rental experiment started as a promise Bill Gates made at Fall Comdex to “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.” The initial plans went awry, and Office XP ultimately was available for rent only in Australia, New Zealand, and France. The Microsoft Australia Office product manager at the time was quoted as saying, “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.”

Not well enough, it seems. Approximately nobody paid to rent Office XP, and the program died without fanfare about a year later.

With that kind of experience, you have to wonder what makes Microsoft think it can get the SaaS shtick right this time around with Office. Several points come to mind:

1. Microsoft’s been renting Office 2010 to BPOS and Office 365 customers for years. Of course Microsoft doesn’t publish any numbers, but it’s likely the company has developed some (perhaps minimal) experience with the Office rental model. In the Australian experiment, customers who didn’t pay their rental fees were warned, given five “free” uses after the expiration date, then had to deal with read-only mode. Perhaps in recent years Microsoft has found a way to improve upon that termination experience.
2. The market’s changed — although whether it’s changed enough to support a broad shift to SaaS with Microsoft’s No. 1 cash cow remains to be seen. Office users aren’t going to turn into admins overnight, but they might be tempted to try something new if the feature set’s compelling and the price is right.
3. Microsoft’s tossed a lagniappe into the equation by offering 60 free Skype minutes (except to mobile numbers in some countries and “special, premium, and nongeographic numbers”) and an extra 20GB of SkyDrive storage.

But the crucial question is the price. Microsoft’s No. 1 failure in Australia a decade ago was in pricing the Office XP rental too high. The upgrade version of Office XP Professional came in at AU$749 ($779, at current exchange rates) and the SaaS subscription price was AU$359 ($373)per year. Nobody, but nobody, saw the sense in paying 50 percent of the purchase price for an annual rental.

There were other financial disincentives as well. Those who bought Office XP figured they would qualify for discounts on the Office 2003 upgrade; those who rented weren’t sure if they could get upgrade pricing or not. Microsoft offered an upgrade discount for moving from Office 2000 to the purchased version of Office XP; there was no similar discount for upgrading to the rented version. Microsoft assured Office XP renters they could move up to the next version of Office as soon as it was available — but many people, then as now, aren’t certain they’ll want to upgrade right away. They didn’t — and don’t — necessarily believe the next version of Office will offer enough benefit to be worth the hassle (much less the expense) of an upgrade.

All of those old fears will haunt users making the “rent or buy” decision today. Microsoft faces an uphill battle convincing consumers and small-business owners to rent. The stakes are high for Microsoft, considering the pivotal position Office plays in its revenue stream.

This story, “Can Microsoft get SaaS right with Office 2013?,” was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.