Big changes in Office 2013 and Office 365 test Microsoft customers' loyalty

If you’re surprised by the revelation that the retail editions of Office 2013 will cost more than their predecessors and come with more severe license restrictions, you haven’t been paying attention.

The retail editions of Office 2013 contain fundamental changes that go well beyond simple changes in the license agreement. They fundamentally alter the way we think of desktop software.

See also:

• What you gain and lose with Office 2013 subscriptions
• Can Office 365 convince you that renting software is a good deal?
• Microsoft's radical new business plan is hidden in plain sight

Microsoft is in the process of a dramatic transition in its core business, one that I first noted last summer. “Services are the cornerstone of Microsoft’s strategy,” I noted at the time.

Microsoft has thrown massive amounts of resources at the task of integrating cloud-based services into its flagship products. SkyDrive is a core part of Windows 8. Office 365 services are fundamental to Office 2013. Azure is moving entire server farms into the cloud.

The subscription-based offerings of Office 365 are just a hint of what’s to come.

The biggest change of all?

You can no longer buy Office, Microsoft’s flagship product, on removable media. You can’t even download offline installer files for the three retail editions of Office: Home and Student, Home and Business, and Professional.

If you purchase a single-user copy of Office 2013 from an online reseller (including the Microsoft Store) you get a product key code. If you buy a boxed copy of Office 2013 from a retailer, you get a product key on a card. In either case, you have to go to office.com/setup, where you’ll see this prompt:

That kicks off the online installer, which streams the setup files to your PC using a process called Click-to-Run. The Office programs you end up with—Word, Excel, Outlook, and so on—look and act just like conventional Windows desktop programs, but they’re actually running in a virtualized environment, allowing them to be updated automatically, without requiring that you use Windows Update. The underlying technology is the same enterprise-grade code that powers application virtualization (App-V) on corporate networks.

If you buy a new PC with a trial version of Office 2013 preinstalled and enter a product key, you get a similar result.

But Microsoft really doesn’t want to sell you that perpetual license. As I pointed out when I did the math on Office subscriptions last September, “Sticking with ‘traditional’ software will cost you dearly.”

That’s more true than ever with Office 2013. Here’s a list of the stark difference between perpetual-license editions of the Office 2013 and the equivalent products sold through subscription:

• You get much less software compared with the subscription editions. Office Home and Student, at a cost of $140 for a single license, gives you Word, Excel, PowerPoint, and OneNote. With an Office 365 Home Premium subscription, you get those programs and Outlook, Publisher, and Access.
• You have to pay for future versions. The subscription version always entitles you to the most recent version. With a perpetual license, you pay once but have to pay all over again for new versions.
• Multi-PC editions are no longer available. In some editions of previous Office releases, Microsoft included the right to install the software on two or three PCs. With Office 2013, the retail editions are for one PC, no exceptions.
• Your perpetual license is locked to one PC. The new license agreement contains identical language for all three retail editions: “Can I transfer the software to another computer or user? You may not transfer the software to another computer or user. You may transfer the software directly to a third party only as installed on the licensed computer, with the Certificate of Authenticity label and this agreement.” That’s a change from the license terms of previous Office retail versions, which entitled you to reassign licenses between devices you own, as long as you do so no more than every 90 days.

Update: As my ZDNet UK colleague Mary Branscombe points out, some versions of Office 2010 include a comparable restriction. The license agreements for the retail editions of Office 2010 (Home & Student, Home & Business, and Professional) include three separate sets of terms. The Retail License Terms, which apply to boxed (aka "Full Package Product") software, include the ability to transfer licenses. The terms for OEM and Product Key Card copies, however, include this language:

One Copy per Device. The software license is permanently assigned to the device on which the software is initially activated. That device is the “licensed device.”  

That's similar to the way Windows licensing has historically worked. OEM copies are sold at a substantial discount and are locked to the device they're sold with. The Product Key Card for Office 2010 is a way of quickly activating the trial version of Office 2010 that comes with many new PCs. Essentially, it's an OEM copy by another name. What's new in Office 2013 is the elimination of the Product Key Card terms and the removal in the Retail License Terms of the ability to reassign the license rights for retail copies.

That last restriction is the one that has Office users howling the most. And Microsoft’s answer is simple: If you want to move Office licenses between PCs, buy one of the subscription editions, which makes the process practically painless. From a web-based administration page, you can deactivate a license on one device and install a new copy of Office on another, without ever having to enter a product key.

You also don’t have to worry about installing the original version and then applying a service pack and any subsequent updates. The Click-to-Run installer always includes the most up-to-date version.

And if you don't feel like paying for an upgrade, or paying at all, earlier Office versions will continue to work. You will still be able to buy Office 2010 perpetual licenses with their more generous terms for at least another year, maybe two. And the Office Web Apps, which have become quite rich and full-featured, are free for anyone, with a 7 GB SkyDrive allowance included.

The biggest losers in this product transition are software pirates, who have grown fat and rich buying multiple product keys from Microsoft services like TechNet and MSDN and then reselling them to unsuspecting customers. The new retail editions aren’t available through those IT-focused channels.

For PC traditionalists, the sticker shock that comes with trying to buy a conventional perpetual license for Office is sure to cause some anger. From what I can see, Microsoft is fully prepared for that reaction and plans to stick to its guns. It sees perpetual licenses as a dying business, one that it can’t wait to drop.

This sudden shift in strategy is emblematic of the new Microsoft, which isn’t afraid to make big changes that would never have been tolerated at staid old Microsoft. In fact, what Microsoft is doing with Office 2013 and Office 365 is disrupting its own business, before someone else does it to them.