For Microsoft (NASDAQ:MSFT), Office is a critical product. The company’s ubiquitous productivity software suite has been found on business and personal computers for decades. It’s the primary driver of MSFT’s Productivity and Business Processes division that accounts for a third of the company’s revenue. Office 365 is the subscription-based version with cloud capability, and Microsoft would much rather you chose it over the traditional purchase. To the point where the company just released what amounts to a series of attack ads, where Office 365 runs roughshod over the recently released Office 2019.
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That’s right. MSFT is so determined to get you to subscribe to Office 365 that it is essentially trashing Office 2019 and trying to convince you not to buy its software. Here’s why.
Microsoft “Twins Challenge” Ads Trash Office 2019
You don’t very often see a company launch a marketing campaign that trashes one of its own core products. That just doesn’t make much sense. But Microsoft has done that with its new “Twins Challenge” ads.
In a series of videos, identical twins face off as they undertake to complete a series of tasks that will be familiar to anyone who has used productivity software. Editing a resume, creating a presentation and working on a spreadsheet. One of the twins is using Office 2019, the latest version of the company’s crown jewel productivity software. You would expect the other twin to be using an Office competitor like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google G Suite, or even Apple’s (NASDAQ:AAPL) iWork.
Instead, other twin uses Office 365, MSFT’s subscription-based and cloud-connected offering. Every time, the twin with Office 365 “crushes” their Office 2019-equipped sibling. And “crushes” is Microsoft’s own wording for the results. The company is really trying to convince you not to buy Office 2019.
Microsoft Trying to Beat Google and Itself
One reason MSFT is pushing Office 365 over Office 2019 is that Google’s cloud-based G Suite continues to be a threat. Microsoft has been battling Google in the education market amid concerns that G Suite adoption is cutting into Office sales. Worse, students that grow up using Chromebooks and G Suite are more likely to continue in their comfort zone, pushing Windows and Office out of the workplace.
Office 365, which is paid for by subscription, constantly updated, cloud-connected, AI-powered and available for mobile devices as well as traditional PCs, is far better positioned to take on G Suite.
But why trash Office 2019? The reason is the pricing model. Office 2019 is a one-time purchase that starts at $149.99, while a personal subscription to Office 365 starts at $69.99 per year. As The Verge points out, people (and businesses) tend to buy new versions of Office infrequently. Years often go by between purchases. A 2017 survey of U.S. and Canadian businesses found that the most commonly deployed version of Office at that time was Office 2010, followed by Office 2007. Those versions were seven and 10 years old, respectively.
After three years of paying for a subscription MSFT has brought in roughly $60 in additional revenue compared to buying Office outright, and every year after that adds almost $70 to Microsoft’s coffers. In the case of waiting seven years between upgrades, the revenue amounts to $150 versus $490.
Imagine what that kind of revenue boost could do for MSFT stock. The subscription revenue is also much more predictable than a one-time purchase, which makes forecasting more accurate.
In that context, trashing Office 2019 actually makes sense. There is some risk in talking smack about your own product, but the potential payoff is significant. To watch the takedown in action, check out Microsoft’s Twin Challenge website.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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