Why Microsoft’s new Office 2013 license may send users to Google Docs When your PC dies, so does your Office 2013 license

If you buy a perpetual retail license for Office 2013, it will be locked to the computer you first install it on, forever. Buy a new PC and you won't be allowed to install your existing copy of Office on it, even if you wipe the disk of the old PC. You'll have to splurge for a new one.

This is a change in policy from Office 2010. Office 2010 permitted a single transition from one PC to a new one. It's not, however, an entirely new policy: OEM pre-installed versions of Office (and Windows) are similarly tied to their (OEM) hardware and can't migrate. Adam Turner at The Age first pressed Microsoft for clarification over what its "single PC" constraint actually meant, and noted the newly aligned OEM and retail licenses.

It's difficult to see the wisdom in this change. It's not a big change, but it's not a nice one, either.

Retail sales make up a minority of the Office business. Microsoft doesn't habitually report the exact level of retail sales, but we can perhaps make estimates based on the information the company doesprovide.

The Microsoft Business Division (MBD), the reporting group within the company that includes Office, Exchange, SharePoint, Dynamics, and Lync, reported last quarter that 60 percent of its revenue is from multi-year subscriptions—Software Assurance plans. The remaining 40 percent is what Microsoft calls "transactional;" one-off purchases, encompassing both OEM preinstalls and boxed copies bought online or in bricks-and-mortar stores.

The company's 2012 annual report also has some useful information. The report says that in its 2012 financial year, 80 percent of its sales were to businesses, 20 percent to consumers. A reasonable inference is that business sales include essentially all of the multi-year revenue (as it is only this year that Microsoft offered a consumer-oriented subscription, Office 365 Home Premium), and about half of the transactional revenue.

In the annual report, Microsoft also emphasizes that while the 80 percent of business revenue is relatively consistent, driven primarily by the number of information workers, the 20 percent is much more dependent on the broader level of PC sales and product launches. This in turn suggests that a significant proportion of it is made up of OEM sales, for which there's been no relevant licensing change.

One final data point: Windows division reports that around 75-80 percent of its revenue comes from OEM sales.

Even optimistically, retail revenue is unlikely to account for more than 20 percent of MBD revenue, and it might be a lot less. If MBD's transactional revenue has the same level of OEM sales as Windows, it'd mean that retail sales were no more than 10 percent of revenue. It's a nice business, but it's not Microsoft's major money-maker, and not representative of the majority of Office customers.

It's spectacularly unlikely that this licensing change is going to increase that revenue in any meaningful way. It's also unlikely to make any material difference to many people. The only people who'd be impacted are those who migrate software between systems, and while that's common among enthusiasts, it's probably not mainstream: the mainstream solution is to buy an OEM preinstall license, or buy retail Office alongside a new PC, use that PC for 5 years (or more) until it no longer works, then throw it away and repeat the process.

Transplanting software from one machine to another (or invoking Ship of Theseus-like questions over when an upgraded PC becomes a new one) is something for enthusiasts—perhaps explaining why the OEM license restrictions have for the most part been shrugged off—and even if Microsoft managed to generate some extra sales to those enthusiasts, it's never going to amount to very much.

But that is arguably missing the point. The software giant is penalizing a small, typically vocal group of users and provoking many column inches of complaint. This is a change that looks bad. It makes Microsoft appear petty and small-minded, determined to wring every last dollar from its customer base. And while that may in fact be the case, doing so in such a brazen manner does nothing more than get people's backs up.

The underlying reason for the change is almost certainly not any direct revenue generated by additional sales. Rather, it's yet another incentive to buy an Office 365 Home Premium subscription. The $99 a year subscription lets you use Office 2013 on up to five PCs, and those licenses float; you can decommission old PCs and move licenses to new ones as necessary. That's the carrot; the stick is the price hike and additional restrictions on perpetual licenses.

The problem is that there are plenty of customers who reject the subscription model out of hand, either because they find an overt rental model offensive, or because they don't place much value in having the current version of the software and hence find occasional perpetual licenses to be more cost effective. The retail license change doesn't fundamentally alter that calculus for those users. It just makes clear that Microsoft doesn't really like such users.

So they probably won't flock to Office 365. What they might well do instead is download LibreOffice 4 or switch to Google Docs—moves that hurt Microsoft far more than simply moving an Office install from an old computer to a new one. Those enthusiasts could take the mass market with them. It's happened before, with Firefox and Chrome. It can happen again, to Office. Licensing changes that alienate users make that only more likely to happen.