Today at its analyst event, Microsoft announced a new milestone for its Office 365 Home Premium product: 2 million subscribers. That’s up 100 percent, or 1 million subscribers, since May 29. Office 365 Home Premium is the company’s cloud productivity suite for consumers that they pay for on a subscription basis.
Previously, Microsoft touted that it had signed up its first 1 million consumer subscribers for Office 365 Home Premium in 100 days. It has been 113 days since it announced the 1 million figure. So Microsoft, presuming that it reached the 2 million mark today, is adding subscribers at almost the same pace as it did around the launch period.
However, as the company is simply stating that it has “more than” 2 million Office 365 Home Premium subscribers, it would not surprise me if the product was either keeping pace with its former sales levels, or has accelerated slightly. At 2 million subscribers, Office 365 Home Premium is a $200 million yearly business.
Office 365, Microsoft said today, was (as a total product) the fastest Microsoft service to $1 billion in yearly revenue run rate in the history of the company. Here’s the slide that details the 2 million figure:
What’s quite interesting is that Microsoft forecasts that it will suffer from short-term revenue declines by switching to subscription revenue from licensing revenue. The bar graph on the lower right side of the chart indicates that revenue will be negatively impacted for several years, until fiscal 2017 and beyond.
This is admission that the company will suffer short-term from its decision to embrace a new business model. But, the company is wagering that the transition is worth the cost long-term, likely due to the fact that its formerly successful method of selling Software in a Box is rapidly fading.
Adobe, also in the period of transition from single-license sales of software to subscription-based services, is seeing its revenue decline year over year. I would wager that this will be a trend that we will see repeated across all large firms that move to a subscription model from their prior business practices.
Microsoft COO Kevin Turner claimed today that Microsoft has “made a very graceful transition from our traditional enterprise agreements and licensing agreements” as it shifts “those agreements and customers into the cloud.” That Microsoft forecasts revenue slippage during the period of transition even with self-described smooth hand-offs is interesting.
Finally, it’s worth noting that Microsoft has managed to move several customer categories to subscription-based Office products in parallel. This indicates that Microsoft might not have an impossible time in its soul-defining mission to sell services and not software.
Top Image Credit: Microsoft Sweden