Microsoft Cuts Office 365 Prices by 20 Percent

Microsoft is slashing the prices of many of its Office 365 plans by about 20 percent effective immediately, the company said this week.

Office 365 is Microsoft's cloud-based suite of applications that includes hosted versions of Lync, Exchange and SharePoint, with Office offered as a customer-installed option. The service was launched last summer, replacing Microsoft's older hosted offering, Business Productivity Online Suite (BPOS). The company has revealed few concrete details about Office 365's adoption level so far, but indicated in its announcement on Wednesday that the price cuts are the result of economies of scale: The more people who adopt Office 365, the less costly it is for Microsoft to offer the service.

"As we rapidly add customers, the cost to run Office 365 becomes more efficient. This is the beauty of the cloud where we can deliver economies of scale through our worldwide data centers and economies of skill with our engineers, administrators, and support teams operating the service," said Kirk Koenigsbauer, corporate vice president of Microsoft's Office Division Product Management Group, in a blog post. "With these efficiencies, we're able pass on savings to make it even more affordable for customers of all sizes to move to Office 365."

According to the Office 365 Web site, new pricing for the four Office 365 plans aimed at enterprises is as follows:

  • E1: $8 per user per month (previously $10)
  • E2: $14 per user per month (previously $16)
  • E3: $20 per user per month (previously $24)
  • E4: $22 per user per month (previously $27)

The plan aimed at small businesses, P1, remains unchanged at $6 per user per month.

There are also two plans aimed at "kiosk workers," which is Microsoft's term for workers such as retail employees who don't have a desk or who share a PC. The lower-level version, K1, remains unchanged at $4 per user per month. The more feature-rich version, K2, now costs $8 per user per month, down from $10.

A table posted by veteran Microsoft watcher Mary Jo Foley on her blog gives further details about the price cuts. The table was provided by a Microsoft partner, Foley said.

Koenigsbauer also announced in his blog that the A2 plan for educational institutions is now free for faculty (previously, it was free only to students). A full version of Office 365 for educational institutions will launch this summer, he said.

Microsoft has been tight-lipped about Office 365's revenue or subscription numbers, though several executives have let slip a few details about the product's growth. At last year's Worldwide Partner Conference in Los Angeles, which took place less than a month after Office 365's launch, Microsoft COO Kevin Turner said in his keynote that Office 365 already had "5 million licensed users, 2.8 million already deployed, 42,000 partners trained."

At Microsoft's Q1 2012 earnings call in October, Bill Koefoed, Microsoft's general manager for investor relations, suggested that Office 365 was well on its way to outstripping its predecessor, BPOS. "In the first 10 weeks of Office 365 availability, the number of new customers exceeded what took us over two years to build with the first version of our business productivity online service," he said.

And in November, announcing Office 365's first major update, Microsoft Office Division President Kurt DelBene said that Office 365's adoption rate was eight times faster than that of BPOS, and that 90 percent of its subscribers were small businesses.

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Gladys Rama (@GladysRama3) is the editorial director of Converge360.