Doing the math: Are Office 365 subscriptions a good deal?

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The brave new world of per-user software licensing creates confusing choices, but it also presents opportunities to save big money on licensing.

Microsoft's push into software as a subscription service started years ago, but it has accelerated in the past two years with the rapidly evolving Office 365.

Today, businesses that want Microsoft's Office programs on desktop and portable PCs have to decide between traditional perpetual licenses and Office 365 subscription plans. There's no simple answer to the "buy or rent" question for most businesses, but it's easy enough to calculate the costs of each option.

The crucial difference between traditional volume licenses and the Office 365 subscription model hinges on a key distinction: Volume licenses are assigned on a per-device basis, whereas subscriptions provide per-user licensing.

In addition, the volume license option locks you into the Office edition you purchased. When a new edition is released, you can continue to use your old edition but must pay for a new license to upgrade. Office 365 subscriptions include the most recent release of the Office desktop programs, which are installed through automatic updates when they're available.

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Microsoft's long support lifecycles mean you can squeeze five years of useful life (and perhaps a bit more) out of each edition, although that means skipping some upgrades.

To calculate costs, you need to multiply the cost of perpetual licenses by the estimated lifespan of that software, then compare that total to the equivalent. Here are the prices you need to plug into your worksheet.

Perpetual licenses

For businesses with more than five employees, Volume Licensing (VL) editions of Office, available for purchase through Microsoft resellers, offer a better deal than retail editions. Microsoft's comparison chart offers a detailed listing of what's included with the two VL editions that are available as traditional perpetual licenses. Here's a summary.

Office Standard 2013

This license includes Word, Excel, PowerPoint, OneNote, Outlook, Publisher, and Office Online, delivered using a standard Microsoft installer (.msi) package.

Licenses are available for purchase through the Microsoft Open License program at a cost of roughly $350 each. (When I checked suppliers just now, I found a price range of $334-$370 per license.) A single license allows the software to be installed on a single Windows PC.

Office Professional Plus 2013

The Professional Plus edition includes all of the programs in Standard edition plus Access, InfoPath, and Lync. This edition also provides a wide range of enterprise features, including compliance and archiving, information rights management, and integration with Lync, SharePoint, and Exchange servers.

It's available through Microsoft Open License for roughly $450-$500 per license.

Note that Office licenses purchased through VL programs can be removed from an existing device and reassigned to a different device, but you're allowed to do that no more than every 90 days except in the case of hardware failure.

Office 365 subscriptions

At least six Office 365 editions for business customers are available on a subscription basis, either directly from Microsoft or through partners. (A detailed feature and price comparison of six Office 365 plans is available at the Office website.)

office 365 subscription

Office 365 is actually made up of multiple services, which can be mixed and matched within a single organization. The list of available pieces includes Exchange email, OneDrive for Business, unified messaging through Lync, and of course the Office desktop programs. The same programs that are available in the different Office 2013 packages are available to Office 365 subscribers. But instead of requiring an installer file, they're delivered to Windows PCs as a Click-to-Run installer available from the Office 365 subscriber portal.

The simplest way to buy a subscription is to purchase an Office 365 plan that allows installation on multiple devices (including PCs, Macs, and tablets). Here are the most common choices.

The Office 365 Business subscriptions are most directly comparable to Office Standard 2013. They're intended primarily for small to medium-size businesses:

  • Office 365 Business includes the desktop programs, delivered via Click-to-Run. A one-year Office 365 Business subscription for a single user is $99.
  • The Business Premium edition is the successor to the Small Business Premium and Midsize Business editions, which are being phased out this year; it includes the desktop programs as well as Exchange email and, sometime in 2015, unlimited OneDrive for Business storage. A one-year Business Premium subscription is $150.

For enterprise customers, especially those with VL agreements, the offerings are a bit different:

  • Office 365 ProPlus is the Click-to-Run equivalent of Office Professional Plus 2013, also available through VL programs and offering the same lineup of programs. A one-year Office 365 ProPlus subscription is for a single user is $144.
  • An Office 365 Enterprise E3 subscription includes the same desktop applications and adds Office 365 services: Exchange email, Lync and SharePoint capabilities, 1 TB of OneDrive for Business storage (which will be upgraded to unlimited storage later this year), and enterprise services. The annual cost of an Enterprise E3 plan is $240.

For any of these Office 365 business editions, a subscriber is allowed to install the latest Office programs on up to five PCs or Macs and to use a tablet edition of Office on up to five devices, including iPads (a version of Office for use on Android tablets is in beta testing now). The subscriber can assign and unassign Office licenses from the Office online portal.

Comparing the numbers

Let's assume your business has 10 employees. Each employee has a single desktop or portable PC, and you want each person to have the current version of Office on his or her company-issued PC. Five employees need only the suite of apps in Office Standard ($350 each); the other five need Office Professional Plus ($475 each).

That's a total outlay of $4,125, plus as much time as it takes you to install and activate the software on each PC.

If you purchase the equivalent Office desktop apps through Office 365, you'll pay for five Business subscriptions ($99 per year) and five ProPlus subscriptions ($144 per year).

That's a total outlay of $1,215 per year, which means your perpetual licenses will break even after around three and a half years. If you're willing to use that Office edition for four or five years, you'll come out ahead, all other things being equal.

But the value proposition tips solidly in favor of the subscription offering when you factor in the cost of additional devices. Imagine that some of your employees have a second PC that they use in addition to their primary work PC — an employee in the accounting department might have a desktop PC with multiple monitors and a portable PC for number-crunching field offices.

Each of those additional devices needs its own Office license, at a cost of $350-$500 apiece. By contrast, each Office 365 subscriber gets to install the software on up to five PCs or Macs. Even a handful of additional licenses can drive the perpetual licensing cost up high enough to make a subscription plan the clear winner.

In addition, management tasks are much simpler from the Office 365 console. You don't need to worry about keeping track of how many licenses you've used and where each one is installed. That's all handled by the user, with the help of Click-to-Run installs. Nor do you need to manually upgrade to new Office versions when they're released, because Office 365 upgrades are automatic and their cost is built into the subscription price.

If you plan to migrate your mail and storage services to the Office 365 cloud, those costs can be included in your Office 365 subscription bill, totaling another $4-$8 per month, depending on the plan. If you're comparing the cost of an Office 365 Enterprise E3 plan to perpetual Office licenses, be sure to factor in the costs of email to keep the comparisons accurate.

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