Microsoft Grows Subscriber Base 27% to 7 Million But Revenue Lags Behind

Office 365 Home and Personal gained 1.5 million subscribers last quarter, an increase of 27% over the previous quarter, bringing the total number of subscribers to 7.1 million, according to Microsoft’s most recent earnings report.On the surface, that figure is impressive, but the reality is that revenue for this segment of Microsoft’s business only increased by 3.6% last quarter, from $126.9 million in June to $131.5 million in September. Based on these figures, the revenue-per-customer cost dropped 18%.Why such a big jump in subscribers but only a small bump in subscription revenue? There are a few possible reasons for this.First, Office 365 started offering its Office 365 Personal edition this spring. At $69.99, it retails for $30 less than the Office 365 Home edition. Though the products in the Office 365 suite are the same, the key difference is that the Home edition is designed for families and can be installed on up to five PCs or Macs, five tablets or iPads, and multiple smartphones. The Personal version only allows subscribers to install the software on one PC or Mac, one tablet or iPad, and multiple smartphones. So the Home edition is having an impact on the bottom line – for now.As all savvy subscription marketers know, subscription revenue is really about the long game. Retention marketing costs are always less than acquisition costs, so while Microsoft is paying up front to acquire its subscribers, having five family members using Office instead of one is better for subscription revenue.That’s why the company is offering great deals leading up to the holidays. Retailers like QVC are bundling laptops with Office 365 Personal, offering a one-year subscription with purchase. Once consumers have been using the cloud-based software for a year, and have become reliant on its accessibility on multiple devices, users must become paid subscribers to continue. This marketing tactic is likely to yield additional subscriber growth and an eventual boost in related revenue, assuming the company can establish high-enough retention rates.And this is where Microsoft may face it’s biggest challenge: while B2B retention rates can hit 80% to 90% for annual subscribers, B2C rates are historically lower (around the 4o%-60% range). But given the need (not want) most consumers have for Office software, Microsoft and other SaaS providers might see a higher retention rate in even the B2C market. 

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