Microsoft Mulls Subscriptions, Ads for Office Apps

Windows remains the dominant OS in the PC world, but the largest portion of Microsoft's income actually comes from its business software division, responsible for Office and Microsoft Dynamics. For years Microsoft has struggled to maintain its revenue stream from these  products, however; Office, in particular, presents a challenge, since customers are often skeptical of an upgrade when they don't use all the features of the current version. Meanwhile, Microsoft faces growing challenges from the likes of OpenOffice.org and Google Docs.

Now comes news that Redmond is experimenting with not one, but two new business models for its productivity apps, both targeted at low-end customers. The idea is that customers won't purchase the software at all. Instead, they will subscribe to it -- or, potentially, get it for free in an ad-supported model.

The subscription-based version of Microsoft Office should arrive by the end of this year, according to Microsoft reps. It will bundle Microsoft Office Home and Student Edition with Windows Live applications for e-mail, instant messaging, and photo sharing, plus the Office Live Workspace online collaboration service. No pricing has been set, but it would need to cost less than $12.50 per month to beat the list price of the Home and Student Edition of Office alone, or less than $33 per month to remain competitive with Microsoft Office Standard Edition.

If even that seems too expensive, Microsoft has begun testing another option: a free version of the low-end Microsoft Works application suite that is underwritten by advertising. The pilot project is so hush-hush that you can't get it in the U.S. yet, but if it's successful in its demo markets you may begin to see new PCs shipping with a fully-functional office application suite pre-installed, at no additional charge.

 Of course, all this implies that you desperately need office applications from Microsoft. If cost is your only concern, you can already install open source productivity applications for free, or use online services from Google, Zoho, and others. In truth, these moves might benefit Microsoft the most, because they help bring the company one step closer to its dream software model: a subscription-based business that brings in steady revenue and isn't tied to annual upgrade cycles.

What's your ideal purchasing model for business software? Are you happy with the way it works now, or do subscription, online, or ad-supported models have appeal to you? Sound off in the PC World Community Forums.