Microsoft Takes the Toll Road to Albany

This morning, Microsoft announced the managed beta for Albany, which is codename for a bundle that includes Office 2007 Home and Student, Windows Live OneCare and supporting online services, such as mail and messaging.

"This is not a hosted product," said Bryson Gordon, group product manager of Microsoft's Office Consumer & Small Business Team. Can that statement be any clearer? In March, the Web exploded with ridiculous speculation that Albany would be a hosted version of Office for consumers. As I said then, no freakin' way. Albany is a destination by road not the server cloud.

But that road has a toll. Albany will be a subscription service. Consumers won't get perpetual licenses for Albany. They will pay, and again and again, presumably on a yearly basis, although Microsoft isn't yet saying. The payment scheme, and supporting subscription services, is the first manifestation of what Microsoft really means by software plus services.

In March 2007, I clearly identified where Microsoft would take its software-plus-services strategy: subscriptions. It's the line of differentiation that Microsoft has drawn between its services platform and that of Google and other Web 2.0 platform companies. In the Google/Web 2.0 world, someone else pays. In the Microsoft/S+S world, you pay.

Microsoft has sought the Holy Grail of subscription revenue for more than a decade. In the enterprise, volume-licensing customers pay in subscription-like manner, even though they have perpetual licenses. Pay-as-you-go Office 2007 subscriptions in countries like Romania and South Africa or the Open Value Subscription program for small businesses extend the concept to other markets. Albany is Microsoft's first big software-plus-services subscription push into the consumer market.

So there's no confusion: Albany will represent another purchase option. Microsoft has no immediate plans to do away with perpetual consumer Office licenses.

"This isn't going to be replacing our traditional Office business," Gordon said. "This is a different way of experiencing Office...all-in-one aspect."

All-in-one refers in part to the unified installer for Office, OneCare, Office Live Workspace and Live Mail, Messenger, Photo Gallery and Toolbar. Gordon said there would be an "integrated install process across all these applications" and a "unified first-run experience."

That experience will extend beyond one PC. OneCare comes with licenses for three PCs, as does Office Home and Student. The licensing mechanism won't change with Albany. So consumers will be able to install Albany on up to three PCs and manage them from one. The three-PC approach has real value potential, depending on pricing, which Microsoft isn't ready to discuss.

Subscription-pricing brings other benefits. Microsoft will make updates and even new versions available at no additional charge during the subscription period.

In conceiving Albany Microsoft sought to "expand vertically out of Office to the cloud," Gordon said. "It's also this horizontal expansion as well."

Microsoft hasn't finalized its channel distribution plans yet, although retail and OEM are strongest possibilities that I see. "We're not limiting ourselves at all at this moment," Gordon said. Microsoft is "actively" looking at different channels, he added.

Consumers already are accustomed to buying subscription software at retail. They do it everyday with McAfee, Microsoft or Norton security software. The OEM channel could be dicier, depending on Microsoft priorities. Most PCs ship with some kind of Office Trial software, for which Microsoft has had good success converting to full versions, according to NPD. Would Microsoft want to offer Albany instead? Gordon couldn't yet say.

I asked Gordon about home offices and small businesses as potential targets for Albany or a sibling product. "It's absolutely something we're looking at," but there are "no plans right now for a small business version of Albany. We're looking at the SoHo market as well."

Microsoft formerly announced Albany today for a simple reason: "We're about to go out with this external, private beta in a few days," Gordon said. When asked for more details about the "external, managed beta," Gordon said that "the numbers are probably going to be in thousands."

Will there be a broader, public beta? "Right now we're not anticipating any broader public beta between that and the launch," he answered. As for the launch, "sometime later this year" is the target.

One area I neglected to ask Gordon about: Subscription management and termination. What happens, when people stop paying? Plumbing already is in place for subscriptions, by way of Microsoft's product activation technology and its Volume Activation 2.0 successor used for Windows Vista. Presumably when consumers stop paying the rent, Microsoft turns off the utilities, forcing them into the streets, so to speak.

Microsoft is no stranger to managing subscriptions, and efficiently. Existing subscription services include MSN Direct, Xbox Live and Zune Marketplace, among others. It's a rent me world, and Microsoft wants a piece of it.