Consumer Office 365 tops a half-billion dollars in annual revenue run-rate

Quarter-over-quarter growth rate slows as subscriber rolls get larger; 5.6M consumers now rent Office

Microsoft's Office 365 "rent-not-buy" subscription service is at an annual revenue run-rate of more than half a billion dollars, Microsoft signaled last week.

According to CFO Amy Hood, Microsoft ended the June quarter with more than 5.6 million Office 365 subscribers to its consumer-grade plans, labeled "Home" and "Personal." The former sells for $100 annually, while the latter -- which was introduced in mid-April -- lists for $70 a year.

Microsoft does not disclose the mix of Home and Personal in its Office 365 subscriber base, but if most consumers have Home -- likely because it's been available for more than a year longer -- the annual revenue would be north of $500 million. A 70%-30% mix in Home's favor, for instance, would still mean annual revenue of $509 million.

In the June quarter, Microsoft added approximately 1.2 million subscribers to its consumer Office 365 rolls, a quarter-over-quarter growth rate of 27%, but a year-over-year increase of 460%.

Sequential gains have slowed significantly since an early explosion of subscriptions from a very small base: In the third quarter of 2013, with 2 million subscribers to Office 365 for consumers, Microsoft's quarter-over-quarter gain was 100%, for example. As the subscriber base gets larger, Microsoft will naturally face a tougher time maintaining sky-high growth rates.

That's exactly what one Wall Street research firm expects. In a note last week published on Barron's website (subscription required), Portland, Ore.-based Pacific Crest Securities said it anticipated 1 million new consumer subscribers per quarter. If Pacific Crest's forecast is accurate, the quarter-over-quarter gain for the three months ending Sept. 30 would be about 18%, but would represent year-on-year growth of 230%.

Other consumer Office revenue was also up during the June quarter, Microsoft said, citing a 21% increase in income for the period. Booked in the Devices & Consumer (D&C) Licensing group's financials, that revenue -- which Microsoft did not put a figure to -- was from traditional single-license copies of Office sold at retail or as downloads.

But except for those few glimpses into the consumer Office business, Microsoft has been notably close-mouthed about other aspects of its subscription model, such as the percentage of all consumer Office revenue attributed to Office 365; the "churn rate," the percentage of customers who do not renew when their annual plans come due; or the effectiveness of its trial program in converting users to paying customers.

Most new Windows 8.1 PCs, for example, come with a 30-day trial to Office 365; the trial can also be acquired from Microsoft's website.

Nor would Microsoft assign credit for Office 365's gains -- whether on the consumer or commercial side -- to any specific move it has made, including the release of Office for iPad in March.

When a Wall Street analyst asked Hood about the source of a large gain in cloud revenue -- which includes Office 365 for businesses -- and if Office for iPad played a part, the CFO declined to name any one factor. "I wouldn't point to one product area," Hood answered.

Microsoft has added an average of more than 1 million subscribers to the consumer-grade Office 365 plans each quarter since it rolled out the 'rent-not-buy' concept in early 2013. (Data: Microsoft.)

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Read more about applications in Computerworld's Applications Topic Center.

Tags web appsapplicationsMicrosoftsoftware

More about AppleGoogleMicrosoftTopicWall Street

Comments

Comments are now closed

Mobile payments in Australia: state of the banks

READ THIS ARTICLE
DO NOT SHOW THIS BOX AGAIN [ x ]