Microsoft Testing "Pay-As-You-Go" Software

seriouslywtf writes "Microsoft has quietly rolled out a pay-as-you-go software system in a few countries (South Africa, Mexico, and Romania) to test out how the public reacts to software rentals. Part of the current service includes a ~$15 fee per month to use Office 2003. If the service goes over well, Microsoft is considering extending the program to include other software or other countries. From the article: 'Are we moving towards a rental model for software? Despite the success of programs like Software Assurance, and the FlexGo program, it doesn't seem as if the traditional model of software sales is ever going to go away. Consumers still like the option of buying complete software packages. However, for places where the price of software keeps obtaining legitimate versions out of most people's reach, a rental program may be a useful alternative.'"

Comments

Microsoft vs. Google

[Anonymous Coward]

And it begins...

Re:Microsoft vs. Google

[networkBoy]

I would say that if the price was $0.50 per day I may consider it at home.
Many days I don't touch anything office related, but on a monthly granularity I do.
Thus if I could buy 30 days of office for $15, but those days were not forced to be sequential then sure I'd consider it.
Of course google is free for the "home" version right?
-nB

what about my data?

[yagu]

What about my data? If I agree to a "pay as you go" software model, will you allow me to create documents, data, etc., in an open format guaranteeing me free access at anytime I decide not to continue the subscription?

Will you guarantee data and documents I create can be looked at and used in other applications? What if my friends aren't subscribers?

Will you offer different levels of subscription, e.g., allow me to opt in for subscription at a lower rate for reduced features?

From the article:

In the early days of personal computer software, the concept of renting software was met with public outrage, as users worried that they would no longer be able to own their software. However, in the age of the Internet, cellular phones, and multiplayer online games, the concept of paying monthly fees for software has become less abhorrent. Microsoft's Software Assurance program, where users pay a yearly fee in order to always get the most up-to-date version of Microsoft products, could be considered a software rental program.

I don't happen to agree with the articles inference that "paying monthly fees..., has become less abhorrent." I find it still mostly abhorrent, but rampant. The fact that it is everywhere indicates control of the market more than it indicates consumer-oriented services. When a population of users unshackled from monopoly-offered "pricing packages" and schemes freely endorse a paradigm, fine. Until then, I'm not convinced pay-as-you-go is desirable, or even makes sense.

I've not talked with many people who are happy with pay-as-you-go. This seems mostly because pay-as-you-go is usually more synonymous with "commit-to-a-locked-in-contract" for time frames longer than the current technology obsolesence cycles. That's not fair, and as the phone companies edge ever closer to becoming one company again (a la AT&T circa 1983), it's likely to not even be legal.

Microsoft stands to gain huge financials in the same way if they can pull it off, but better still for them they, much as the phone companies do, will have a better customer lock-in. Hopefully, the market will choose not to pay-as-they-go.

Re:what about my data?

[paeanblack]

What about my data? If I agree to a "pay as you go" software model, will you allow me to create documents, data, etc., in an open format guaranteeing me free access at anytime I decide not to continue the subscription?

That's the idea behind pay-as-you-go.

As you go to another product, be prepared to pay.

Re:what about my data?

[nmb3000]

guaranteeing me free access at anytime I decide not to continue the subscription?

As an aside, several Office products have free viewers available:

Word
Excel
PowerPoint
A Publisher option

If you use Outlook or Access, you should be prepared to pay the "price" associated with proprietary formats. It's one of those "no duh" given things that people usually accept. If you use Adobe's products, then you deal with their proprietary formats. Companies use these formats for a number of reasons, partially for efficiency and partially for extendability (and of course partially to lock you in to using their software).

Open formats are an interesting idea, but it's not worth griping about if you choose to use software that you know doesn't support them. It's stupid to assume that everyone will support everyone else's formats. If you are so worried about 100% coverage and support, stick to plain text files (and none of that fancy Unicode. I want to read it in Notepad!)

This has nothing to do with "renting" software. Your tirade is about open document standards, and that's off-topic and for another discussion.

Re:what about my data?

[Jhon]

What about my data? If I agree to a "pay as you go" software model, will you allow me to create documents, data, etc., in an open format guaranteeing me free access at anytime I decide not to continue the subscription?

You could always get MSs free word viewer... or their free PowerPoint viewer... or their free excel viewer.

Assuming it doesn't put some type of "rental flag" in the file which prevents it from working with the free viewers MS makes available.

Re:what about my data?

[Jhon]

Uh... if you're not running windows, I doubt you'll have need of renting office 2003, m'kay?

If you're not running windows, maybe this article is of no interest to you, m'kay?

Re:what about my data?

[Jhon]

I would hope the user would have planned ahead and picked a software suite met his needs. Particularly the need to change software suite vendors and OSs at some point in the future. I know I have.

But then again -- isn't this line of reasoning off topic? Isn't the topic the usefulness of "RENTING" office 2003? Not the inability to swap platforms? Someone asked "what if I stop renting -- will I still have access to my files?" or something to that effect. Short answer: Yes -- sort of -- with MS's free viewers.

Renting for businesses

[celardore]

A rental model is good business for both customer and supplier, in some situations, while I personally see it as a bone of contention. In my case, I rent my flat because I cannot afford the capital to buy with UK property prices. If I could get together the money to put down a deposit, I could get a decent mortgage and cheaper monthly outgoings. Because I cannot afford the initial capital, I have to pay a higher price for where I live.

For some businesses, especially startups, it could be beneficial to rent rather than buy outright. Your cashflow would agree if your current turnover is small.

1 Year=$180

[morgan_greywolf]

So, we take $15*12=$180. Office 2003 Small Business can be had for as little as $145. If you use Office at least once a month, then 'pay as you go' is simply not cheaper. Yet another example of 'cheaper is not always cheaper.'

Re:1 Year=$180

[jandrese]

That was my thought too. $15/month is way too high for a single application, especially since a lot of people can get discounts (student, through work, etc...) on their copy of Office.

Re:1 Year=$180

[hjf]

Erm. People in those countries often make like $100 - $200 a month. You really expect them to pay they whole salary to buy something like Word? Besides, Office 2003 price at least in my country (Argentina) is well over $250, while the average salary is $300 a month.

Maybe you have that kind of money, but we don't, so we usually rely on extended payments to buy "expensive" things. So, if you rent office or if you pay it in 12 payments (the usual), it's going to cost you more than the product, of course (because of the interest rate, which in our economies can be as high as 50% a year).

Finally, it's not easy for people here to have access to a credit card. Most credit cards here give you a limit of about 1 to 1,5 salaries (or less). So you'll basically blowing your whole card to buy Microsoft office? I don't think so. Sure, Visa usually charges much lower interest rates, but you have to pay for it (it costs $50 to $80 a year, in 3 payments, and a $3 surcharge every month. Also you need to earn over $500 a month to qualify for one, which is too much for a LOT of people). So smaller "credit entities" with their own cards are growing at an impressive rate, even considering that they usually have rates of 50% for credit cards and money loans. A bank here offers a "Super-Loan 1000/30: for every 1000 we loan, you pay 30 a month, in 60 payments", which is tricky: at first you may think you end up paying 1800 in 5 years, but it's actually 80 a month what you pay (so you pay 4800 for every 1000 you loan).

I, for example, work on my own. I pay my taxes. I earn well over $2000 a month (that is a lot of money here. Enough to have a nice car and all). But I don't qualify for a credit card: HSBC or Citibank demand that I have at least 3 years on the same job, with that salary, as I am a "company". If I were an employee it would be easier, but as I'm not, I don't have another choice than using my Debit/ATM card (for which I have to pay $5 a month). Which is also blocked for "cardholder non-present" operations (that is, Internet shopping or Telephone). Being that I don't have enough years "in service", I can't either have a checking account, so I can write no checks (not that I need them, we use cash and cards only here, checks are for large operations, and as they are taxed, most large operations are done through electronic funds transfers). Also, to even think of opening a savings account, you need to be 21 years of age.

So, now you can get a picture of why someone would be better off renting office than using it.

Re:1 Year=$180

[amuro98]

I agree for often used applications, this model doesn't work out (for the consumer, that is.)

But what about other applications? I usually find I need to use Partition Magic about once a year. Some time ago, I bought a copy but now find it unable to handle today's larger HDDs, not to mention newer OS's. I paid $60 originally, and upgrading to the latest version would cost me another $50 or so even with the rebate.

I would have rather have the option to rent the program for maybe a day or a week. This way I'd get the latest version without having to pay $50 every few years for something I rarely use.

Re:1 Year=$180

[danpsmith]

So, we take $15*12=$180. Office 2003 Small Business can be had for as little as $145. If you use Office at least once a month, then 'pay as you go' is simply not cheaper. Yet another example of 'cheaper is not always cheaper.'

Do you think that really matters tho? I mean, you are dealing with a country where Rent-A-Center is seen as a credit card company to some people (as if credit cards weren't draconian enough with interest rates). This is the "we want it now, and we'll pay for it later" nation, it runs from everything to consumer products to the presidential administration. Pay as you go software, if marketed correctly could be a boon for Microsoft. Just imagine, you have a box in walmart with "lease Office 2003 now for only $15!" and have the box itself only cost $15, with payments every month upon installation. The shortsightedness of the average American will see this as cheaper. Such as those who pay to lease a car, buy from the bigbox and then pay minimum payments and get crap from rent-a-center.

Companies have a general knowledge of something that average people seem to not really care about: compounding of interest and overall cost calculations. Most people don't look into the long term costs of things if they can get it on the cheap in the short term.

Back a few years ago, my brother wanted to buy a PS2 but didn't want to save up. He went to rent-a-center and got a contract to buy it eventually given weekly payments. I forget what it was per week, but the sales person quoted him a figure that didn't include interest I guess. He said it was going to cost him like 300-400 dollars, which my brother thought was reasonable given the fact he didn't have the money initially. Then I told him the guy was full of shit and worked it out. If I took the amount of the payment times the length (all you have to do to work something like this out, instead of believing the "4-easy payments of 24.99" salesman) it worked out to like $1,200 for a Playstation 2, just stretched out in small increments over a long period of time.

Big business will always play to the idiot consumer without the good sense to whip out a calculator and work the math out, and it's a good strategy from their angle because most consumers are shortsighted. Given proper marketing, it wouldn't matter how much more subscribing to software would cost consumers in the long run, they see it as a small fee in the short term.

It's the same effect that has people buying $150 dollars of cigarettes a month and wondering why they can't save: they buy them at $5 a pack a day and it seems like a small amount, until you add it up.

Re:1 Year=$180

[George Beech]

But your are not factoring in you have to KEEP paying for it EVERY year.
So let's assume I go and buy office pro 2007 upgrade (who doesn't already have a verion of offce?) - $329
(http://office.microsoft.com/en-us/suites/FX1017 54511033.aspx) No more paying for it ... ever.

now in year one that looks like a great deal, but lets you a general life expectancy of 5-7 year (4 years for a replacement
2003-2007 then 1-3 years to actually upgrade).

In year 5 you would have spent $900 on the software.
In year 6 you would have spent $1080 on the software.
In year 7 you would have spent $1260 on the software.

Looks like a good plan for Microsoft, but does it still look that good to you? Don't be fooled by low monthly numbers.

Re:1 Year=$180

[grcumb]

So, we take $15*12=$180. Office 2003 Small Business can be had for as little as $145. If you use Office at least once a month, then 'pay as you go' is simply not cheaper. Yet another example of 'cheaper is not always cheaper.'

Thanks for pointing that out. Now you begin to understand the plight of the poor throughout the world, and why a free market is not sufficient to alleviate poverty in any systematic way.

Terry Pratchett explained it well when he has Watch Commander Sam Vimes contemplate the price of things:

"Take boots, for example. A Captain in the City Watch of Ankh-Morpork earns 38 dollars a month plus allowances. A really good pair of leather boots costs fifty dollars. But an AFFORDABLE pair of boots, which are sort of OK for a season or two and then leak like hell when the cardboard gives out, costs about ten dollars.

"But the thing is that GOOD boots last for years and years. A man who can afford fifty Ankh-Morpork dollars has a pair of boots that'll still be keeping his feet dry in ten years' time, while a poor man who can only afford cheap boots will have spent a hundred dollars on boots in the same time AND STILL HAVE WET FEET."

The problem of predatory companies charging more per unit for smaller units of X exists everywhere in the world. There are good reasons to do so, in some cases. A tube of toothpaste, for example, has a fixed cost (the tube itself) that doesn't vary much no matter how much toothpaste is inside it. But the price gap usually goes far beyond any justifiable level, and represents a significant stumbling block for anyone aspiring to rise from the working poor.

I'm not offering this as an abstract argument, by the way, I've been living and working in a Least Developed Country for the last few years, first as a volunteer, then as a professional with a local firm. I've experienced this problem first hand, and I assure you its effects are insidious and demoralising.

All I have to add to the current discussion is this: 'Welcome, Bill Gates! You're officially a member of the Robber Baron Club. Your predatory business practices that penalise the weak and underprivileged are juxtaposed beautifully with your hand outs to the very people upon whom you prey. You've earned your place in the pantheon of American Captains of Industry. Your name now stands in good stead with the Rockefellers, Carnegies and DuPonts... and with all the leading lights of US corporatism. Ave, Bill! Morituri te salutant!'

Ok idea, wrong price

[iamacat]

A lot of decent software, such as Apple's iWork, can be bought to own for half a year of this "rental". And of course, most people can save $180 per year by going with OpenOffice or AbiWord. I can see paying $30 per month for a kind of "MSDN personal" subscription with on demand access to ALL Microsoft's up to date software, including OS.

the best part of all...

[User 956]

I saw a demo of this. It went something like: "I see you're trying to enter your credit card information so you can edit this word document. Would you like some help?"

Re:the best part of all...

[User 956]

After all, what happens when the rental period expires and you just want to quickly read one of your own documents?

That's what I call "Rent-to-0wned".

MS New Business Logan Leaked

[Slugster]

"It's Our Computer, You're Only Using It">
~

Pay and Go

[dalek_killer]

So if I don't pay will it go away?

Not exactly a surprise

[Dr. Manhattan]

"I remember saying [...] that people would spend more money on software than on hardware. We certainly haven't passed that milestone by quite a margin. But particularly as software as a service becomes a reality [that might change]." - Bill Gates, Newsweek, September 18th 2000

Why Google or Microsoft?

[popo]

As long as we're talking about an open standard there's no reason that
other (free) players like Ajax9 won't become the ultimate winners.

And neither Microsoft or Google has a webtop that's half as slick as
DesktopTwo (which uses a very slick browser-based Java version
of OpenOffice).

The pressure is now on MSFT to be compatible with other players. The
game is certainly on, but its not just between Google and MSFT.

Leveraging The Goog's 2/22 press release

[heroine]

So now that Goog got the rental web application seed in your head, it's time for MS to hit you with another rental PC application press release. MS's model is to locate the data on your computer. Goog's model is to locate the data on their server. As much as everyone loves the Goog, let's do a test:

Enter "I'm a terrorist" in Google Apps 5000 times.
Enter "I'm a terrorist" in MS Office 5000 times.
See what happens.

Re:Leveraging The Goog's 2/22 press release

[644bd346996]

Enter "I'm a terrorist" in Google Apps 5000 times:
Advertisments for cheap explosives show up in the margin the next time you open the document. If you click on one of the links, Google gets paid a few cents.

Enter "I'm a terrorist" in MS Office 5000 times:
Clippy offers to show you how to look up synonyms for "terrorist". He then proceeds to reformat your list as he pleases.

So?

Google's business model on apps.

[Junta]

Google makes a *lot* more sense for pay-as-you go with respect to productivity apps than MS' approach.

MS just wants a continual revenue stream for no additional effort. The problems they face as business is that their product very much fits with a purchase-once and use model. Once you have the software, i.e. when microsoft's development and delivery have succeded, MS is doing nothing by default. Sure, you get better support, but honestly how many times does the average person who *is* entitled ever bother to call for help? MS wants to have customers pay even if the customer is causing no work on MS's part, even if the upgrades they would provide mean nothing.

Google is very different. The most blatant thing is client independence, no need to maintain local software. But what really is interesting in terms of cost is you offload a lot of your data reliablity costs (backup) to the third party. By providing every remotely interesting thing from top to bottom, it's easy and an average person would never realize the implications of their data being backed up, how many disks a week are dying, etc etc. It's a logical extension of the server hosting model, and very much lends itself to a subscription model that all companies would like to follow in selling product.

Obsession.

[Nick Driver]

What's their obsession with this?

Their fundamental obsession is with establishing continuous revenue streams.

Re:Obsession.

[dgatwood]

The problem is that consumers are smarter than this. If they want to get a continuous revenue stream, they would have to abolish the for-sale versions. Office 2003 for $15/month? That's a four-year-old version of Office, and renting it for 10 months would cost as much as it costs to buy that ancient version. Heck, even if they were renting the 2007 version, it's would still take under two years, so unless they come out with a new one at least every two years, it costs more to rent than to buy.

Who in their right minds would do that? Students? I don't think so. A school year lasts about 9 months. In one school year, a $15 rental fee would come out to as much as buying the full 2007 student version outright. You'd have to be a complete idiot to go for that. And businesses? Do you really think they'd be stupid enough to pay an ongoing subscription fee when they can just pay it up front and amortize it over the same time period? Uh... no.

There are two ways to maintain a revenue stream: 1. Expand your product into new market sectors. How? One possibility would be to upport Linux and sell your software at a much lower price so that you can penetrate markets that can't afford your product now. Another way is to simply lower the price so that all the people who currently pirate the software can easily afford it, then make up the difference by charging more for a commercial use license. 2. Add new features that are so compelling that people will buy it. Unfortunately, most of the Office suite is already so feature-bloated that it's a pain in the backside to use, so that's probably a bad idea unless the new feature involves adding another app to the suite.

The reality is that for low-tech software like word processors and spreadsheets, the market is saturated and has been for a while. No silly schemes like software rental are going to change that.

Re:Obsession.

[gatesvp]

And businesses? Do you really think they'd be stupid enough to pay an ongoing subscription fee when they can just pay it up front and amortize it over the same time period? Uh... no.

Ummm... that's exactly what they do. Many businesses (big and small) lease their computer hardware. It's easy on the accounting side and it helps with cash flow. Many businesses also lease their computer software in one way or another. They buy site licenses (or somesuch) for Office and Windows and Crystal Enterprise and Oracle, etc.

In fact, when an enterprise-class client of mine was looking into the price of moving from Crystal Enterprise 10 to XI, the price was quoted as zero. They were paying an annual support fee for the product over a certain number of procs. If the client wanted to move to XI, Crystal was just going to send them the disks, b/c they want the rolling support fees.

Now in this case, $15/month is simply too much (especially in Brazil), however, the concept of pay-as-you-go software is both sound and useful. Clients receive ever-improving software and software companies receive consistent revenue streams on the basis that they continue to improve the software. And really, it's a self-correcting system. If I don't like the product, I'll look for a competing product with a better price.

Sure there are monopoly problems, but competitors worried about drawing in new customers will be building data converters to help keep on top. In fact, that's what's happening right now, all of the new free online utilities have converters for Office docs. People are sick of the Office upgrade cycle and Google wants to capitalize (ironically, Office finally has a version worthy of calling an upgrade).

The reality is that for low-tech software like word processors and spreadsheets, the market is saturated and has been for a while. No silly schemes like software rental are going to change that.

I'll agree with your first statement, but not your conclusions. I believe that the rental model will in fact revolutionize the way software sales are done, especially in the low-tech markets. I mean, imagine that someone shows me a new spreadsheet app that I really like, but I can't afford it and I'm already paying the MS tax for Excel. Well under the rental model, this is no longer the case. I can rent the new software for a few months and try it out (most likely on a trial). If that software is more suited to me (cheaper, more functional, etc.), then I cancel one subscription, export my data and pick up the other subscription. Now I'm not out anything but a little time. I haven't killed my cash flow, I just get my new product.

Oh No Clippy!

[aquatone282]

You WHORE!

<sob!>

Citizenship involves Fairness and Kindness

[jkloosterman]

Why must we force people of lower income to either pay what is beyond their reach for our tools or by forced to use inferior versions? In the financial situation of most of us, if we choose to pay Microsoft $400 for the usage of their software, we may complain, but it is really not that much relative to our other costs. For those that have lower income, because this is so much beyond what they could ever afford, M$ is rolling out programs like this. But is it being a "responsible global citizen"? http://www.microsoft.com/about/corporatecitizenshi p/citizenship/default.mspx

Why not adjust the prices according to the relative financial burden on the average person in an area? With Microsoft's activation system, they could prevent having their products imported to other countries.

It is unfair and unkind to either force the less blessed on the earth to use stripped-down versions of software, such as Windows XP Starter Edition, or to gouge out their money through plans like this.

(I'm not trying to be a Microsoft-bashing troll.)

Re:Pay as you go sucks.

[zCyl]

What's their obsession with this?

Everyone keeps saying, "Why do I need to upgrade when what I have works?" And software companies keep trying to come up with extra little gimmicks to convince people to upgrade, like "Look, now it spell checks words even if you type them backwards." But as software matures, the value of these new features reduces, and thus the potential profit of software companies reduces. A subscription model frees them from this concern, because if they have a subscription model they don't have to worry about producing new stuff. They can just keep charging people for the same old crap.

out of most people's reach

[joetheguy]

Consumers still like the option of buying complete software packages. However, for places where the price of software keeps obtaining legitimate versions out of most people's reach, a rental program may be a useful alternative.'

Wouldn't the obvious solution be to lower prices? Its like MS is trying to work around a problem that is of their own doing. I really think what contributes most to piracy is when people feel the price of something is more than the value they get from it. But I think MS's big problem is they don't want to figure out how to do development in a more efficient productive way that would let them charge less. They are an icon of what I call american corporate socialism, inefficiency and unreasonableness for the sake of the economey. It always catches up with you though.

Why make a business pay some $400 for each copy of office when only a fraction of the total value of that product is used on each computer? This is a case where a legitimate lite version would be great. And by legitimate I mean don't reserve some feature everyone wants for the high end version. Adobe does this with Acrobat, making you buy the full version to make forms, when most people who want to make forms have no need for anything else in the full version.

I don't think software rental makes a whole lot of sense for most businesses, but hosted apps like Google Office do make some sense. There is always a balance between control, functionality, and support. With hosted software I give up some control, but I don't have to support it either. With rental software I give up some controll, but I still have to spend all that time supporting the software.

I think the only way a rental software system might work is if really acted ln a service based way. For a small loss leader investment, you get a MS app server to sit in your office. You then rent access to apps, MS put them on the server for you, and all your desktops can run those apps off the server. You don't have to manage the server at all except for setting up accounts and being sure your computers can connect to it. After that point MS takes care of the rest for you. You've basicly outsourced a big chunk of your IT responsibilities. With a fast internet connection, a local server might not be needed. Something like this might bring the value proposition back into balance.

Will it work?

[the_humeister]

Why not? It works for video games.

It's all about the upgrades

[Mr.Scamp]

It's all about the upgrades or lack thereof. We are happy on Office XP and Windows XP. We will certainly skip at least one or two version upgrades on both products. Microsoft must hate that. So the are looking for ways to make sure we pay even if we don't upgrade and/or for a way to force upgrades when they want. Subscription software works for both goals.

Re:Microsoft vs. Google: Cost

[MBGMorden]

Thing is, Google IS NOT MS Office. That alone is gonna take a huge bite out of their market. We've already got OpenOffice.org (which I'm convinced would gain 3% more market share if they didn't have .org as part of the product name. Stupidest decision I've seen in a while. :)). It is, for *most* people, a perfectly useable GOOD MS Office replacement. Now I know it doesn't do all the stuff Office does (having taught Office classes for 3 years I have a very good handle on what OpenOffice.org does not do), but for most users, it is perfectly fine, and is $0/machine/year x 28 machines for a whopping $0/year. Still: it is not MS Office, and so the uptake has been very, very slow.

And the poor get poorer

[Baavgai]

Consider, the areas in the US that support the rent to never own stores are those far below national average income levels. In those same areas, you can find light bulbs sold by the each. Cigarettes are also sold in singles, though it's technically illegal. Why is this bad?

In every case, the person pays what they can afford right now, but ultimately ends up paying more over time. It's interesting that such a strategy is being test marketed in countries seen as needing a financial "break". This is a tactic that essentially takes advantage of those who can't afford up front costs.

HOSTS: feeserver.microsoft.com 127.0.0.1

[DrYak]

And it begins...

And suddenly, hacked "fee-verification" servers, that can be run as local host, began to appear.