Microsoft is to introduce its long-anticipated "annuity" model for software sales in the middle of next year, the company announced today in Las Vegas. But although renting out software as a service is a key part of the .NET strategy, the software the company will be renting first will be exactly the same as the packaged version you buy (well OK, license) outright.

Essentially, when Office 10 ships "towards the end of the first half of 2001" Microsoft will be testing out the mechanisms before it's actually shipping the product. Office.NET, which presumably will be the real thing, is a separate development track to Office 10, which to all intents and purposes will be a traditional packaged product.

The new rental model will work like this. You'll "subscribe" to Office 10 at a "lower initial cost" which Microsoft has not as yet specified. You'll get product upgrades during your subscription at "no additional expense," and you'll have to renew your subscription annually, via phone, Internet or by buying "a new subscription product" at retail.

Although the subscription Office 10 will be exactly the same as the non-subscription, i.e. not Office.NET, Microsoft says it's taking "a significant step toward our vision of an Office.NET subscription service."

Until Microsoft comes up with pricing and some clearer definitions it will be impossible to tell whether or not the 'software as a service' initiative will be a good deal. If the 'free upgrades' include whole new revs of Office, then it might turn out to be a good way of keeping pace with developments. But on the other hand, the upgrade path will likely be along the Office.NET track, and under that regime you'd surely expect whatever you were renting to be current.

Although Microsoft is pitching the new scheme as a kind of prelude to .NET, it has some similarities to an approach it has used in the enterprise market for years. There, customers are offered substantial discounts in exchange for signing up their users for a number of years, and for agreeing to take the upgrades made available during the term of the contract. This of course locks the enterprise into Microsoft software for the period of the contract, and makes it more difficult to switch away again, because of retraining costs. If Microsoft offers extra discounts on the subscription for signing up for longer periods (a la MSN), then a similar lock in factor could start to apply to the home and small business markets. ®

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