'Bingbooks' need free Office to compete with Chromebooks

"As Office functionality becomes more free, the appeal of the paid version decreases"

Microsoft's strategy in giving away one-year Office 365 subscriptions to many of its tablet - and notebook-making partners is all about matching not just the price but also the functionality of Chromebooks and cheap Android tablets, an analyst said today.

Another expert, however, questioned whether free Office 365 deals paid off for Microsoft.

Stephen Baker, an analyst with the NPD Group who specializes in tracking US electronics retailing, saw the bundling as a direct response to Chromebooks, the low-priced notebooks powered by Google's free Chrome OS.

"I think that if the goal of the Bingbooks is to be competitive with Chromebooks, it needs Office," Baker said. "Chromebooks have an office suite attached to them. So if Microsoft wants to get consumers to choose a Bingbook, [a free] Office is important."

Baker used the term "Bingbooks" to describe the low-cost notebooks that rely on Windows 8.1 for Bing, a subsidized version of the OS that OEMS (original equipment manufacturers) are either given outright or charged a much smaller fee than in the past. Hewlett-Packard's Stream line, which starts at $US199, is a good example of the devices Microsoft has promoted as Chromebook killers.

Microsoft has been concerned enough with Chromebooks' limited sales to counter the category, much as it did when netbook sales took off in 2007.

Many of the so-called Bingbooks -- and Windows tablets as well -- come with a free one-year subscription to Office 365 Personal, the single-PC license that lists for $US69.99 annually.

According to recent reports by Windows bloggers Mary Jo Foley and Paul Thurrott, Microsoft will include the year's worth of Office 365 for no extra charge to tablet OEMs. It's likely doing the same with notebook makers like HP.

"It's also a big challenge to get people to add another $US69.99 or $US99.99 for Office [365] when the price of the device is just $US199," said Baker. "The whole concept of Bingbooks is to grab a very specific customer demographic. But people who are buying something like a Bingbook from a Windows OEM are just as likely to know Word or Excel as a brand as they are Windows. Those are all good, solid reasons to make a Bingbook include Office 365."

Jan Dawson, chief analyst with Jackdaw Research, agreed that in the short term Office 365 for free will sell more devices. But he wondered whether the strategy had legs.

"One of the ongoing questions is when Microsoft is trying to sell its own devices and go cross-platform at the same time, how do they set apart their own devices," Dawson said. "When Office was exclusive to Windows, it was clear what the value proposition was."

But Microsoft has been aggressively loosening the ties that once bound Office to Windows, selling Office on the iPad and wrapping up work on an Android tablet edition, giving consumers more features for free, and letting any iPhone or Android phone owner run the suite's core apps without charge as long as they're not used for business purposes.

"In talking to Microsoft, their answer has been that they can do unique things as far as commercial deals on their own devices, discounts on Office and Skype as a way to sell those," Dawson added.

Microsoft has not only diluted that advantage by giving Office to Windows OEMs, but more importantly, by freeing it from most fees on other platforms - iOS and Android in particular.

"It's true that you can't buy an iPhone or iPad or Android device with Office [pre-installed], so that does set Microsoft's devices apart, assuming people see value in Office to begin with," Dawson continued. "But as Office functionality becomes more free, the appeal of the paid version decreases."

Another contributing factor to Microsoft's decision to give away Office 365 with some devices, said both Baker and Dawson, may have been a desire to boost the subscriber rolls, then hope that those customers renew at full price a year down the road.

"That's a longer-term strategy," Baker noted.

If so, it puzzled Dawson. "Maybe they think that more devices [in customers' hands] will drive sales of other Microsoft services," Dawson said. "But by giving away Office, that defeats the purpose." He also reiterated past comments he'd made that because many of Microsoft's services were already free, he saw little that could be monetized in any case.

"Free may just be their strategy for consumers," said Dawson. "And that they'll charge for the business versions."

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