Microsoft, Office 365 mobility, and the subscription experience
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Opinion Microsoft’s recent decision to make its consumer Office applications free on iOS and Android wasn’t just a reaction to Google and Apple’s market share in mobile productivity tools. That may be true in tactical terms, but it’s not the real story.
Here’s the bigger picture: this was Microsoft’s final acknowledgement of a broad, systemic shift in contemporary consumption habits. Simply put, today’s consumers want direct access to content and services that are available anytime, anywhere.
Millennials now constitute over a third of the global workforce. The majority of emails are now read on a mobile device. The number of mobile phone subscriptions is expected to exceed the global population by the end of 2014. Meanwhile, there were fewer PCs shipped this year than in 2008, when roughly 300 million were sold. Microsoft’s bread and butter platform is headed the way of the pickup truck - solid, dependable, but not a mainstream vehicle by any means.
Millennials now constitute over a third of the global workforce. The majority of emails are now read on a mobile device. Microsoft's bread and butter platform is headed the way of the pickup truck.
Forrester Research, which keeps tabs on roughly 85% of the global GDP, thinks we’re at the beginning of a 20-year business cycle oriented around a new mobile mindset. Commercial and enterprise businesses need to meet a single expectation: that any desired information or service is available, on any appropriate device, in context, at the customer’s hour of need.
Companies that can orient themselves quickly towards this mindset – particularly in fields like connected devices, digital media and cloud-based enterprise solutions – will succeed. HBO and CBS took the hint a few weeks ago, and decided to take their content directly to consumers. More and more companies are positioning themselves as services that create value over time, rather than products that disappear as soon as they’ve been purchased.
Companies that can’t make this pivot soon (and we’re seeing this in a lot of other legacy tech companies right now) will have problems. It took some time but Microsoft finally recognised the shift, and right now, as I write, Microsoft Word is the number one free app in iTunes, ahead of Facebook and Instagram.
The lesson here isn’t that content and software should be free. Far from it. (The so-called “freemium” model usually only works in high-volume, business-to-consumer environments.) People are willing to pay for non-commodified content and services as long as they demonstrate value over time.
Companies that can't make this pivot soon - and we're seeing this in a lot of legacy tech companies - will have problems
Take the excellent productivity app Evernote. At this month’s Web Summit in Dublin, CEO Phil Libin noted that after a month of use, half a percent of active Evernote users subscribe to the paid product. After a year the figure goes up to five percent, and after six years it’s roughly thirty percent.
This is what I like to call “the Subscription Experience.” Evernote demonstrates immediate and exclusive relevance to its users. They deliver a consumer experience that gets better the more you use it. This is the model that Microsoft is aiming to achieve.
Office is still a $26 billion product (over a third of Microsoft’s total revenues) with over a billion users, most of them in the paid enterprise sector. But more regular consumers using Word and Excel on their phones and tablets means more people paying a small monthly premium for Office 365, a cloud version of the product with unlimited storage, free Skype phone calls and constantly updated apps.
Right now it’s estimated that only about 13% of Microsoft’s Office revenue comes from commercial users. You can choose to look at that figure as failure of market share or representing a lot of upside potential. Microsoft just chose the latter perspective.
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