Would you pay forever for Office?

Microsoft's announcement of "Albany," a subscription-based version of Office may not sound like a winner on first acquaintance, but at least it shows the software giant is thinking.

The project, code-named "Albany," is in private beta, according to Microsoft. It's an "all-in-one subscription service of essential software and services" -- subscribers get Microsoft Office Home and Student 2007, with Word, Excel, PowerPoint and OneNote, plus Windows Live OneCare, Windows Live Mail, Messenger and Photo Gallery.

The idea of selling software by subscription isn't exactly new, and has never been wildly successful. It works in the business market, but the computer consumer has always been a buy-vs.-rent kind of person.

So what makes Microsoft think it would work for Office? The press release cites survey results that show consumers say they primarily want productivity and security software, and they "expressed frustration at having to spend time and effort installing different types of software, keeping current on new versions and getting their computers set up."

This sounds a lot like the kind of remotely managed PC product offered by Zonbu, which will sell you a Linux desktop mini or laptop and then for $14.95 a month keep the software upgraded and the system running for you – or, more likely, for your grandmother or great-aunt or somebody.

The Albany deal sounds fair enough: the subscription will cover three PCs, and updates install automatically. This is similar to Microsoft's current foray into subscription software with Windows Live OneCare. OneCare (currently Version 2.5 is in beta) lists for $49.95 – although you can buy a one-year subscription package for less – a lot less, if you shop the online pricefinders.

I have no idea how well OneCare has sold as a subscription product. Has it been so successful that Microsoft is expanding the model to other products? Or has OneCare done so poorly that Microsoft is trying to boost sales with a "Wait! You want more? How about Office?" tactic.

Will it succeed? Microsoft has demonstrated that it can remotely install and maintain software on consumer PCs with Windows Update. And the idea of a managed PC has appeal. But the real question is price. Will Microsoft be willing to price its cash-cow product, Office, low enough for a subscription model to have a chance of succeeding?

Office Home and Student Edition has a street price of just under $120. I don't think Microsoft could get that for a one-year subscription – the economic life of a purchased copy of Office is probably closer to five years (I'm still running Office 2003, and I know I'm not alone), which means a value to the buyer of $14 a year. Double that for OneCare, then add Windows Live Mail, Messenger and Photo Gallery which have a total value of free, and you're looking at a potential price point of less than $3 a month.

I'm no expert at incremental market pricing calculations, but Microsoft might be able to double that to $5.99, about what it's now getting for a OneCare renewal if it's selling any, without cutting the potential sales in half.

But would you pay $10.99 a month, month in and month out, for Home and Student Office plus OneCare on three PCs? (Remember that the retail Home and Student package allows three installs, too.) If you were your grandmother or great-aunt or somebody, maybe?

Or let's compare it to the Zonbu: would you pay $14.95 a month, month in and month out, for Office plus OneCare plus Internet Explorer plus Windows Vista Home? That's still not an apples-to-apples comparison, of course – nobody's selling a PC for $99 right now that will run Vista – but does the idea of a semi-managed PC sound more interesting?

I think it might, in the long run. The PC already a commodity, and it's rapidly becoming an appliance, and a managed appliance makes a lot of sense. But subscription pricing? That doesn't make quite so much sense. What works better, I think, is a bundled service model, like Amazon.com's Kindle ereader. Buy the Kindle and its wireless connectivity is free for you to use to download books (which you pay for).

So what would Microsoft charge for bundled-service versions of Windows plus Office plus its give-away Web services? We already know the answer to that question, because that's roughly what the company is doing now, selling an OS and productivity software that stay installed and get sporadically updated for the useful life of the PC. The problem for the software company is that useful life is stretching out – I don't have any figures, but based on my own experience I'd guess the lifespan of a PC has doubled over the last decade, from maybe three years or so to seven or even more before it's technologically obsolete.

That's why buying software is a better deal for consumers than renting it – and why Microsoft is experimenting with subscriptions.