Microsoft is quietly preparing to offer Office to Fortune 500 customers on a service-based model. Rather than maintain complex licensing and upgrade agreements, users will pay annual fees to rent Word and Excel - all upgrades included. Product innovations will reach customers immediately, without being tied to expensive, marketing-driven release schedules. These changes will open up new revenue streams for Intuit, and will offer substantial savings to small businesses currently struggling to manage these services through patchwork, paper-intensive systems. The new model could benefit everyone.
Customers save on total cost of ownership while reducing up-front fees and expenses.
Vendors save, too, while developing new revenue opportunities and building franchises that are structurally more valuable because they're based on a membership-driven, recurring cash stream. Of course, there are issues with this new model that will affect who switches and how quickly users migrate. As in the heyday of outsourcing, remote access and reliability will be critical. For some mission-critical applications, users will hesitate to rely on remote systems, particularly as the Internet muddles through performance and reliability issues. And while small businesses will find it easier to manage their cash flow for software outlays, firms that buy software only once every 10 years will probably find a service-based model more expensive.