Can Microsoft Make an Impact with its Office 365 Pricings?

Office 365 is a monthly subscription based ‘Cloud productivity solution’ from Microsoft that eases IT management and reduces costs; it also enables you to access your calendar and MS Office tools from anywhere (you can create, modify and store documents online). You can also share files, conference, email, and do a lot more with this service. There are various plans available for both business (this is again divided into small business and enterprise segments depending on the number of employees) and education purposes.

In March 2012, Microsoft announced that they were reducing the monthly subscription fees, from 13% to slightly over 20% for all its Office 365 products. According to them, the cost of operating the cloud suite fell significantly, and they wanted customers to enjoy the benefits.

Many industry analysts are taking the last bit of the announcement with a pinch of salt. They say that Microsoft is determined to slow down the gallop of Google apps.

The popularity of Google apps has been steadily increasing; Microsoft products like Exchange, Lync and SharePoint among others, seemed to be losing out to the new products. This move from Microsoft is aimed at arresting this negative trend. This is especially true for Enterprise solutions; the numbers are far below the company’s expectations, and most of their customers are small businesses. According to Michael Osterman of Osterman Research, predicting how much of an impact this will have is difficult because changes in demand based on price change varies a great deal.

There are many editions of Office 365, all priced differently; the monthly subscription is based on the number of users. For small businesses, the P1 plan is for a max of 50 users and costs $6 per person monthly. Enterprise solutions E1 to E4 cost $8 to $22 per month. Compare this to Google apps: the basic edition, for 10 users is free; Google apps for Business costs $50 annually. This works out to just over $4 monthly if you sign up for the whole year and $5 if you keep paying month after month. So now you know why Microsoft is worried about the pricing: they have good reason to be!

According to Microsoft, plan A2, from Office for Education, will be available at no cost to students, teachers and staff; other plans’ prices have also been cut drastically. Google apps is free for educational institutions; so it’s not difficult to see why Microsoft started panicking. Educational institutions are usually strapped for cash; it makes sense no sense in shelling out greenbacks when the same service is available for free.

But there is a catch to the price reduction strategy. You will only get the new price if you’re renewing your contract or you’re signing up for the first time; existing customers are not eligible for any refunds. This means that if you have are in the fourth month of an annual contract, you will continue to pay the old price for the next 8 months; you will get the benefit of the reduction in price only when you renew your contract with the company.

The more customers they have on board, the more cost effective it will be for the company. It is important for them to lure new customers with low pricing because it is always easier to get more business that way, and there is high churn in the initial six months that follow a company’s deployment of a cloud hosting service.

It is yet early to say whether this strategy will bring Microsoft the results they desire. We will just have to wait and watch.

This is a guest post by Jake Anderson of, a site that offers savings and current information onUverse, as well as at&t services.