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Office 365 subscriptions account for 25% of suite's U.S. retail sales

Analyst flips the numbers, points out that 3 out of 4 consumers prefer the old-style 'perpetual' license

Office 365 has accounted for about 25% of all Office retail unit sales in the U.S. since its introduction two months ago, but the new "rent-not-own" strategy has not boosted overall sales, an analyst said today.

Stephen Baker of the NPD Group, a research firm that regularly surveys U.S. retailers for software sales figures, noted that the split between Office 2013 and Office 365 is running about 3:1 so far, in the former's favor.

"Office 365 has accounted for about 25% of the [unit] volume," said Baker today. "Office 2013 has had about three-fourths of the retail business."

"At first blush, those numbers sound reasonably good," said Wes Miller, an analyst with Directions on Microsoft. "But it's kind of like Surface numbers. It's hard to tell whether it's good or not, since we don't know what [Microsoft] was shooting for."

Office 2013 is the traditional kind of software customers have bought for decades, a "perpetual license" that is paid for once, but then gives the buyer the right to run the software for as long as he or she wants.

Office 365, on the other hand, is a line of subscription plans that Microsoft expanded this year, and for the first time offered to consumers. Under the Office 365 model, customers can purchase a one-year subscription at retail, but after that, must pay to Microsoft when that year's up if they want to keep running the software.

If the subscription expires, the Office software -- Office 2013 for Windows or Office for Mac 2011 for OS X -- that's installed locally drops into a reduced-function mode that allows viewing and printing of existing files, but bars editing or the creation of new documents.

Office 365 Home Premium, the version targeting consumers, costs $100 annually, and lets users install Office on up to five Windows PCs or Macs in the household.

[Use our Office calculator to determine the better deal -- Microsoft's Office 365 subscription or the traditional buy-now-use-forever licenses.]

Although Microsoft sells Office via its online market and its own chain of brick-and-mortar outlets, other retailers, both electronic and physical, also carry Office 2013 and Office 365. Amazon.com, for example, sells a one-year subscription to Office 365 Home Premium for $99, while Best Buy deals it for the list price of $99.99.

"All the major retailers are selling Office," said Baker. "It's the kind of product you want to have if you're still selling software."

Baker's breakdown of Office 2013 and Office 365 was the first indication of how the latter has done since its Jan. 29 debut. Microsoft, for instance, has been mum on sales.

While the 25% to Office 365 may sound impressive out the gate, there's no sign that the new subscription plans have generated a sales "pop" for the revamped suite among consumers and very small businesses -- the customers who shop for Microsoft's software at retail.

In the U.S., combined Office 2013 and Office 365 retail sales have been comparable to the same period in 2012, as well as to the first two months after the release of Office 2010 in June 2010.

"The new versions haven't really changed the trajectory of sales," Baker said. "Sales compared to the same weeks in 2012 were pretty flat. But that's understandable when you haven't spent a lot of money on promotion."

Miller pointed out that Office 365's 25% chunk also means that 75% of customers opted for the more familiar perpetual license. "If these numbers are correct, for now, more consumers are interested in perpetually-licensed software rather than subscription, or the benefits that do come with the subscription, such as five transferrable licenses," Miller said in an email reply to questions.

In fact, the jury will be out on Office 365 for nearly a year.

"An interesting trend to watch will be how well the service does on retention when those subscriptions come up for renewal," Miller said. "Does Office 365 become a consumer evergreen product? Time will tell."

In the U.S., Microsoft sells Office 2013 and Office 365 two ways: As a download, and as a Product Key Card (PKC), which ultimately involves a download as well. All that's in the PKC packaging is a 25-character activation code, requiring users to either download the bits or have purchased a new PC with a pre-installed free, time-limited trial of Office. In the latter case, the activation code simply turns the trial into a paid license.

Retailers like Best Buy sell only PKCs of Office 2013 and Office 365, but Microsoft and Amazon offer both on-demand downloads and key cards. (Microsoft sells PKCs at its physical stores, but downloads through its e-store.)

What's missing in the U.S. and most developed markets, is a SKU (stock keeping unit) that includes physical media, like an installation DVD. Office 2010, while available via download, was sold at retail as a PKC and as a box containing a DVD.

But the omission of installation media hasn't hurt sales. "By the end of [Office 2010's sales cycle], key cards were outselling boxed copies with physical media," Baker said of U.S. retail sales. "[The lack of installation media] doesn't seem to have impacted sales for Office 2013."

Only in less-developed markets, locales with "limited Internet access," a Microsoft spokeswoman said today, does Microsoft offer physical media.

Customers can leverage the PKC/download options to save money, at least on Office 2013. Some retailers, notably Amazon, discount PKCs of the suite.

Amazon sells the PKC version of Office Home & Student 2013 for $120, 14% less than the $140 for the download. Similar discounts are available from the giant retailer for the PKCs of Office Home & Business 2013 (14%) and Office Professional 2013 (10%).

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is [email protected].

See more by Gregg Keizer on Computerworld.com.

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