Suddenly, We’re Drowning in Microsoft Subscriptions (Premium)

I often write about the transition that Microsoft is undergoing and how the world’s biggest software maker aims to become a major force in cloud services for its next act. But this strategy’s impact on Microsoft’s consumer customers is rarely discussed.

The benefits of subscription services are well-understood: For a low monthly or annual cost, you obtain access to some service or goods that would be prohibitively expensive, if not impossible, to buy outright. When the deal is good enough, it’s described as a no-brainer. Depending on your needs or wants, Apple’s iPhone Upgrade Program, Amazon Prime, and Netflix all fall into this category. (I pay for all three.)

But the problems with subscription services are likewise well-understood. And they have nothing to do with ownership, contrary to the FUD spread by people facing down, say, subscription music services. What it’s really about is the creeping escalation of the recurring subscription fees to which we’ve all agreed.

On the commercial—e.g. “business”—side, from which Microsoft derives over two-thirds of its revenues, subscription services are nothing new. Microsoft’s business customers have long paid for the software giant’s wares by the month, so the model is well-understood. It’s also beneficial to both parties: Microsoft gets a smoother revenue curve without the spikes that accompany major releases and the valleys that mark slower times. And businesses gain access to the services—software, of course, but also support—that they need in a manner that is easier to budget and pay for.

So while the licensing model hasn’t really changed, Microsoft’s move to the cloud has been disruptive to businesses because it is forcing them to consider and then implement, where possible, a migration away from familiar on-premises solutions to cloud-based services. And while it’s on a slow creep, Microsoft’s adoption of a services-like servicing model may finally help the firm break through its biggest issue with its commercial customers. It has finally figured out a way to get them to move faster to new versions of its remaining on-prem offerings like Windows 10 and Office on the desktop. These products are not services. But they are now serviced like they are.

I don’t care about that world all that much. What I do care about, however, is how this Microsoft transition will impact individuals. Consumers.

And this transition will be doubly disruptive for the hundreds of millions of people who collectively account for one-third of Microsoft’s revenues. That is, not only do we have to deal with the negative impacts of “rapid release”—constant, often-major software updates with often disastrous quality problems—but we also have to adapt to a world in which we are suddenly paying for software and services monthly and annually. Over and over again.

As I noted above, the commercial world—businesses, but also education and government—is infamous for the slow way in which it implements new technology. But often overlooked—most likely because this sort of thing is typically only discussed by the very tech enthusiasts who are the exception to the rule—is the fact that the consumer world is just as slow moving.

Consider Microsoft Office, a set of applications that most consumers probably still believe is “a part of” Windows. The reason? Because they get a new version of Office, typically, when they get a new version of Windows, which is to say when they buy a new PC. These things, in their minds, are one and the same.

Microsoft has solved this problem in a rather underhanded way when you think about: It’s now prohibitively expensive for a PC maker to buy and then bundle a standalone Office suite with a new PC. But it’s cheap—often basically free—from them to bundle a one-year Office 365 subscription. So from the consumer’s perspective, they are getting a new version of Office with their PC. But now they need to start paying for it, in this case annually, once the free offer expires.

We routinely criticize anti-virus makers for this very practice. In fact, in the wake of an article about Kaspersky Labs’ victory over Microsoft with regards to AV, I received a lot of feedback suggesting that many readers would love to see Microsoft wipe third-party AV from the map entirely. These companies and their pernicious and unnecessary subscription services are a problem, many feel.

Interesting, then, that the value proposition for these services is no different from what Microsoft is offering with Office 365: The basics, for sure, but also a wide range of other functionality, much of which most people will never need or use. But there is something comforting in the value of the whole.

To be clear, I am not criticizing this business model. I think that people receive real value from both Office 365 and from AV suites. My worry is simply that we’re implicitly accepting more and more of these monthly or annual fees without understanding their impact. And that, eventually, something has to give.

I skirted around the edges of this issue recently in Paul’s Tech Makeover: Music (Premium), where I described my thought process for consolidating down to a single music subscription service. There are many reasons to do such a thing, but in my case, the two biggest issues were complexity and cost. And given my recent (and very expensive) move, cost is at the forefront. As it should be.

But even as a Microsoft guy, it is sobering to realize how many of the company’s services for which I’m paying. When I look at the Services & subscriptions page for my various Microsoft accounts, I see the following:

Office 365 Home (x2). I pay for two annual Office 365 Home subscriptions, though I will be letting one of them expire. That’s $200 per year.

Xbox Live Gold – 12 Month (x3). We have three Xbox Live Gold accounts at a cost of $180 per year. (Not really, right? I do try to stock up on annual Xbox Live Gold codes when they’re offered at a discount. But that just means I spend more up front.)

Xbox Game Pass. Microsoft’s latest no-brainer for gamers is $120 per year.

Outlook.com Premium. This one is actually pretty inexpensive at just $20 per year plus $10 per year for the custom domain. But it’s not clear if that introductory offer will get more expensive in the future.

(Groove) Music Pass – 12 Month. This one just expired, as noted in Paul’s Tech Makeover: Music, but the cost was $100 per year.

Add on to this the $150 per year I spend on Office 365 Business Premium, and excluding those accounts with multiple subscriptions, I am personally spending about $500 over a year on Microsoft subscriptions.

Yikes.

Now, you can, of course, make the argument about value here, and as I scan over this list, I do see a lot of things that I really do use all the time. I was able to let Groove slip away thanks to the incredibly affordable Spotify Family (which all four people in my family use). And I could see letting Xbox Game Pass go, given that I typically stick with Call of Duty regardless of my efforts to expand beyond that. But I do use most of it, and regularly.

But I’m a Microsoft guy. For a typical consumer, just that $100 per year is a tough ask given that most of these people simply got Office with a new computer and then just used the heck out of it for several subsequent years. Those very normal people do not care about new features at all. They just want to get in, get work done, and get on with their lives. Imagine their reaction to $500 in annual fees.

Yes, that’s not much more than the annual price of an iPhone, a device most people would argue is well worth the cost. But a smartphone is essential, a thing you have with you all the time. It’s not productivity software whose functionality is available online for free, nor is it for an entertainment service that is strictly unnecessary.

And, of course, the real problem is that it’s not just Microsoft. We’re drowning in subscription fees from any number of sources, from our houses and cars–think about it—down to the truly pointless. And when you calculate the cost of Microsoft’s subscriptions in this broader context, I think that most would decide that maybe it’s time to give those up. Go free, or look elsewhere. (No, not us. Not the Microsoft fans, or the tech enthusiasts. The normal people.)

And that, ultimately, is the other story behind Microsoft’s move to the cloud. That it will, I think, contribute to and hasten the move away from the traditional software that we used to use, and will thus leave some customers behind as well.

From Microsoft’s perspective, that’s fine. 200 million paying Office 365 subscribers is far more valuable to the software giant than the supposed 1 billion Office suite users that it used to brag about; those guys paid once and then kept using those products for many years. They were takers, not contributors to the bottom line.

But it also means a contraction. A contraction of what Microsoft is. And a contraction of the user base, many of whom were very happy with the way things were. For the short term, of course, they’ll be fine. Office can still be had in standalone form if you’re a Luddite, and Windows is still sold within the ever-shrinking PC market.

But the future is clear. It’s about cloud services. And that means that it’s also about monthly and annual subscription fees. So it’s up to us to decide what’s important and what isn’t, and what we’re willing to pay. My advice is to remain vigilant, and to routinely review the services for which you’ve agreed to pay. You may be surprised to discover that it’s already worse than you imagined.