Due to be formally launched in NYC on Tuesday, June 28, there’s no doubt that Microsoft has had enormous success with its Office 365 beta program. Depending on whom you talk to, tens of millions of people signed up to use Office 365 to have the opportunity of trying out Exchange Online, SharePoint Online, and Lync Online. The day of reckoning for these folks is fast approaching as Microsoft has decreed that their accounts will be converted from beta to trial status after launch and they will then have 30 days to decide whether they should transform the trial into a paid contract to continue the service. This seems pretty fair as it’s obvious that Microsoft has to begin the process of realizing some of the investment that it’s made to engineer Office 365 and to deploy the necessary hardware to support it in datacenters around the world.

What will be interesting is just how many people decide to continue to use Office 365 and pay over a monthly subscription – and how much that subscription will be. Any Office 365 contract implies an increase over the current zero cost of the service and has to be compared with the current zero cost offered by competitors such as Google. A small business can easily use the free versions of Gmail, Google Docs, Google Calendar, and so on whereas Microsoft won’t have a free version of Office 365. Of course, a company could use Hotmail but that’s not particularly satisfying after you’ve used Office 365. Mind you, exactly the same point could be made about moving back to Gmail from Exchange Online, especially in terms of the interaction between the mail server and Outlook client.

In trying to figure out exactly what I will get if I choose to continue with Office 365, I was able find a formal service description for Office 365 online. However, the Office 365 Answers site contains a lot of helpful information as do the community sites that Microsoft run for topics associated with Office 365, such as the forum that handles questions about billing and subscriptions. For example, this article explains quite a lot about Plan P1, which is the basic plan designed for small businesses and individual practitioners, including some of the limitations that exist to keep this plan’s monthly cost so low. From an Exchange perspective, Plan P1 only includes Outlook Web App, so you need to acquire an Office license if you want to connect Outlook. One of the interesting aspects of Office 365 plans is that the minimum commitment for a subscription is one (mailbox), which taken with the low monthly charge makes Plan P1 a very attractive proposition for any small business.

The biggest downsides are the lower level of support (basically, don’t bother calling Microsoft, go direct to your closest blog) and a limitation of 50 user licenses, after which you’re looking at an E (enterprise plan). I don’t think this is a major concern because let’s face it, if a company is growing rapidly and needs to make the transition to a > 50 seat environment, it will have other more pressing and urgent issues to deal with before thinking about email. And anyway, the data migration will simply be a matter of OST to PST transfer before switching over the new E-plan.

Most of the other limitations are related to enterprise-style features such as no single-sign on or support for directory synchronization that the average individual practitioner couldn’t care less about. There are some DNS issues with .no and .dk (Norway and Denmark) domains that deserve your attention if you live in one of these countries. Apart from that, sign up and you should be good to go in a couple of minutes.

I guess Microsoft is polishing the final details of their service descriptions and that all will be revealed after the June 28 launch. At that point, I expect that Microsoft will no doubt contact me to ask whether I’m staying or going.

Poking around the web in my search for information, I was interested to discover that although Plan P1 delivers the same functionality throughout the world, Microsoft charges different prices for the same product in local markets. Plan P1 costs $6/month in the U.S. and EUR5.25 in Euro-land countries such as Ireland or France, Germany or The Netherlands, or roughly $7.45 at today’s exchange rate. I shouldn’t have been surprised because IT companies have been charging different prices for the same product for years. Indeed, way back in the late 1970s when Commodore launched the PET computer, they found that they could sell their computers for up to 50% more in the U.K., Germany, and France and promptly shipped as many PETs as they could from the U.S.. The net result was a nice uptick in Commodore profits and a scarcity of PETs in the U.S. Commodore did the same trick with the first run of the C64. By the way, those of you who miss the C64, C128, and Amiga, you can check out the project to recreate a modern version of these classics based on modern hardware.

Getting back to our story, Microsoft can argue that the local uplift is justified because of higher local staff costs, social insurance, taxation (mostly higher in European countries), and the costs of building datacenters in different countries to satisfy the requirements of companies that might be willing to use cloud services but don’t want their data to leave national borders. For whatever reason, a surcharge of $1.45/month seems a lot to impose. Closer to home, Plan P1 costs US$6 in Mexico and CAN$7 in Canada.

Interestingly, the cost in the U.K. is STG4.00/month or roughly $6.38. Maybe the closeness in price between the U.S. and U.K. is because of the relative size of the markets open to Microsoft in those countries or perhaps it’s simply because Microsoft U.K. is the largest subsidiary and wields more weight when it discusses prices with the mothership in Redmond.

*** Update July 2 ***: Microsoft sent me an email to say that Office 365 was now available for purchase. The price in Ireland is EUR5.25 plus EUR1.10 for VAT (Value Added Tax). I therefore conclude that all of the prices cited here are before local taxes. Although this makes it easier to compare prices across different countries it does nothing to make the price differentiation that exists any more understandable.

The same price differences exist for the enterprise Office 365 plans. Taking the top E4 plan as the baseline, prices quoted for different countries range from US$27, CAN$33, EUR25.50 (France), or STG17.75.  The Euro price is equivalent to $36.21, an uplift of $9.21 over the U.S., while the U.K. price is again much closer to the U.S. at approximately $28.25. Over a year, that’s an extra $110.52 for an enterprise mailbox using Plan E4. If you had 2,500 employees, your additional charge for being based in Europe would be $276,300 (2,500 * 9.21 * 12). By comparison, a similar company operating in the U.K. would pay only an additional $37,500. Again, these figures don’t take account of local taxation regimes and the bottom line might well be different in some countries.

Exchange rates do vary all the time so perhaps the Microsoft pricing czars expect the Euro to decline to close to 1.10/$ due to all of the furore around deficits, but it’s a bit of a reach to see such a decline in the next year or so, especially when many economists expect the dollar to remain weak in that time. Or maybe it’s just that Microsoft thinks that Europeans are willing (or stupid enough) to pay so much more for exactly the same service.

No doubt the logic and wisdom of Microsoft’s pricing policies will be revealed in due course… In the interim, I expect that the price differential in different parts of the world will cause some interesting discussions between companies considering the move into the cloud and Microsoft salespeople. For example, will a company based in Germany that has 500 employees in a U.S. subsidiary be expected to pay German or U.S. prices for those subscriptions?

– Tony

If you’re interested about reading more on the issues that surround deployment of Exchange in the cloud, you might be interested in this post.