Microsoft enlists Dell to push Office 365 on new PCs

Dell is only one of top three OEMs to bundle Office 365 Home Premium with new consumer computers

Some major computer makers are pushing Office 365 with their new PCs, but others have stuck with a more traditional bundling tactic of including a factory-installed, single-license trial.

“[Microsoft is] very clearly heading towards driving every consumer towards the Office 365 option that they can, in the hopes of a subscription,” said Wes Miller, an analyst with Directions on Microsoft, in an interview Wednesday.

Of the top three computer vendors — OEMs, for original equipment manufacturers — only Dell offers Office 365 Home Premium, the consumer-grade subscription plan, with new machines. When a customer orders a customized PC, Dell offers a 30-day free trial to Office 365 Home Premium by default.

Microsoft offers the same 30-day trial on its website. The trial requires the customer to provide a credit card, which is charged if the plan isn’t canceled within the trial period.

Dell customers can also add a one-year subscription to Office 365 to the PC’s price, or one of the perpetual license versions of Office 2013.

Both Hewlett-Packard and Lenovo, the No. 1 and No. 2 PC OEMs last quarter by IDC’s estimate, instead offer a factory-installed 30-day trial to Office 2013 (HP) or will add a paid copy of Office 2013 to the PC’s hard drive (Lenovo).

The route taken by those OEMs was traditional, in that computer makers have long included Office on new PCs, either automatically as a trial or by customer request as a paid option, then collected a percentage of sales from Microsoft.

In fact, when Office 2010 launched three years ago, Microsoft supported the promotional tactic with a new way to acquire the suite. Called “product key codes” (PKC), they were 25-character activation keys sold at retail. At prices between $120 and $350, a PKC transformed a trial into a working version of Office 2010. PKCs were sold without DVD installation media and also acted as replacements for the dropped “upgrade” editions.

PKCs are also available for Office 2013 for between $120 and $360.

But Dell took a different tack, instead going with Office 365.

Not surprisingly, Microsoft has also taken that approach with its own tablet, the Surface Pro: Buyers who opt to purchase a one-year subscription to Office 365 Home Premium at the same time they order a Surface Pro receive a $20 discount.

“I anticipate this is their move forward,” said Miller, of Microsoft’s pushing Office 365 with a discount at hardware purchase time.

Microsoft has, of course, taken other steps to promote Office 365, especially Home Premium, which is aimed at consumers, a market Microsoft wants to shift toward a “rent-not-own” software model.

Dell bundles a 30-day trial of Office 365 Home Premium with new consumer PCs. (Image: Dell)

The company has tilted the field toward Office 365 by raising prices of the “perpetual” licenses — those the customer pays for once, then uses as long as desired — and by limiting rights to permanently tie those licenses to a specific PC.

Miller was unsure how well an Office 365-with-a-new-PC concept would do, including how many subscribers Microsoft would acquire and what the retention rate will be as renewal fees come due.

But by including Office 365 with a new system, particularly if the subscription is discounted rather than offered as a limited-time trial, Microsoft and OEMs may have hit on a solid strategy. “There’s some deep psychology involved,” Miller said, on the part of customers forced to make the decision at PC purchase time.

They’re already plunking down hundreds, perhaps more than $1,000, on the machine, so an additional $80 or $100 may not be as painful then as it would seem later.

“It becomes up to the OEM to close that deal … but I think it’s easier to close that sale at the point of purchase than it would be later,” Miller said.

What Microsoft would like to do is train customers to add Office to every new PC — the restrictive perpetual license that’s anchored to a single PC, and only to that PC, is one hint of its thinking — but through the carrot of Office 365.

“Buy a new PC, tack on $100 [for Office],” Miller said, outlining Microsoft’s thinking. “A year later, buy another new PC, tack on another $100 [for Office].” With that in mind, customers will start to believe Office 365 is a good deal, whether it really is. The result, said Miller: Microsoft nudges consumers to buy into a form of Software Assurance, the annuity-like program that many corporations use to keep their Microsoft software up to date.

The strategy of offering Office 365 at a discount and pushing that rather than a perpetual license could be an even bigger boon to Microsoft as tablets replace PCs, Miller argued. That relies on several assumptions: That people buy new tablets more frequently than they once did PCs, and that Office 365 is a requirement for Microsoft’s suite on non-Windows tablets, such as Apple’s iPad and those powered by Google’s Android. Office 365’s ability to assign Office to any of five household devices, then reassign them later to new, replacement PCs or tablets, may prove to be its strongest selling point as consumers, in Miller’s words, “rotate out” new hardware for old.

But there are as many, if not more, unknowns than knowns.

“I think this point-of-purchase mechanism will result in subscriptions, at least for Year One,” said Miller. “The question is, what does retention/churn look like at the annual renewal? We’ll have to wait and see.”

 

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