Subscription vs. Perpetual Revenue

Subscriptions provide the highest net returns to Microsoft over the long term, even when users purchase new products and upgrade them frequently, largely because Microsoft is able to capture much of the revenue that would otherwise go to retail channels. The graph also illustrates the relatively smooth revenue stream from subscriptions and the impact that longer periods between upgrades have on Microsoft’s revenues.

The graph assumes that a desktop product selling for US$499, and an upgrade price of US$249, will have an annual subscription price of US$145. Revenues shown are net revenues for Microsoft, calculated at 30% of the retail price, and 100% for upgrades and subscriptions purchased directly from Microsoft.

The scenario for retail purchase followed by an upgrade every three years assumes an initial purchase at retail and an upgrade purchased through retail three years later.

The scenario for retail purchase followed by an upgrade every two years is similar but assumes more frequent upgrades purchased through retail, in Years 3 and 5.