It's interesting to watch Microsoft try and make itself over as a subscription business.

The company most of us love to hate while simultaneously not being able to live without, is in the midst of a gut-wrenching shift from perpetual licenses for their software to the subscription business model.

An Indirect Sales Model

Unlike other subscription giants such as Amazon and Google, Microsoft has traditionally relied on an indirect sales model, peddling their software through Original Equipment Manufacturers (OEMs) like Dell and Sony and small Value Added Resellers (VARs).

The problem is, at its core, the subscription business model is based on a direct relationship with the provider. In fact, having a direct relationship is one of the main reasons to adopt the subscription model in the first place.

But Microsoft is trying to become a subscription business without annoying their channel partners, and in the process it seems that they are irritating some of their end users. For example, here's part of an email I just received from a friend who knows I've just written a book on the subscription model so decided to send me her rant on Microsoft. She runs a small consulting practice and recently tried to renew her Office 365 license:

A year ago, we purchased a package of six licenses for Office365 Small Business, the 'subscription' offering through Microsoft. As we were working with a Microsoft reseller, they set us up and I understood that I had 'subscribed' and 'bought in' to Microsoft's new way of doing business. Our initial purchase price covered the first year so, as I expected, I received a notice after 10 months indicating that my "Office365 Small Business Premium Expires in 60 days." "RENEW TODAY" it proclaimed.

Since we are very pleased with the service, I quickly set about to renew, not wanting to risk any downtime for my business.

The renewal notice instructed me to "buy a key from my partner." That doesn't sound like a renewal so much as a new purchase. Since I was no longer using that particular reseller, I figured I would go onto the Office365 site to 'renew.' What followed was the most ridiculous process that has consumed far too much of my time and energy--along with that of our new computer support partner.

All I wanted to do was give Microsoft my credit card and set up auto-renewal so I didn't have to worry about it ever expiring; I wanted to be their customer and stay that way for as long as I could. Apparently that was not what they had in mind!

First off, existing customers whose initial purchase was made through a reseller can only 'renew' by going back to the reseller and purchasing new product keys, each of which need to be carefully copied into the online panel to retain access to Office 365 every year.

So I contacted Microsoft directly and was instructed to 'purchase' six licenses by credit card and set them on auto-renewal to avoid this problem happening again. While the Microsoft representative was on the phone, I dutifully did what she requested, only to discover that I now have twelve licenses. She assured me that my new licenses will kick in and replace the existing ones after the expiry date of my prepaid key; not that it says this anywhere on the online screens.

I looked further at my Microsoft account and noted that the new subscriptions were set to auto-renew one year from the purchase date--NOT the date on which my old ones expire. Meaning I was double-paying from the date I chose to 'renew' (which was requested of me 60 days before expiry). Sixty days out of a year is a significant 'doubling up,' so I reached out to Microsoft again, explaining that I didn't want six new subscriptions but just wanted to renew my existing ones. Like the previous rep, she assured me that the new ones would automatically kick-in after expiry and that the new ones would auto-renew one year from the purchase date. After a number of explanations, she agreed that I was double-paying until my expiry date and she agreed to 'look into' a credit. Here's the kicker: the credit will apply next year upon my expiry, so Microsoft gets to keep two months of subscription fees, and then, presumably, will credit me.

I love Office365 but Microsoft clearly doesn't yet 'get-it'; the experience makes me leery of recommending it to others, which is a shame because I went into the 'renewal' very satisfied.

Unfortunately, I don't think Microsoft can have it both ways. If it wants to be a subscription business, it must build a seamless and direct relationship with its subscribers.

From what I can tell, Microsoft has made a number of mistakes in dealing with my friend:

1. Give Subscribers An Auto-Renewal Option

To begin with, small businesses buying mission critical software need their subscriptions on auto-renewal by default. Unlike big enterprise buyers who sign up for software subscriptions with a start and end date, small businesses do not want to have to remember to renew and risk losing access to something important if they forget.

2. Subscribers Need A Direct Relationship

Second, forcing customers to go through their partner to renew is a mess. It's acceptable, if not ideal, to rely on an indirect channel to sell a subscription, but once a subscriber is a customer, you must forge a direct relationship with your subscriber and allow them to configure their account without having to contact a third party.

3. Pro Rate Subscriptions To Avoid Customers Having To Double Pay

Third, subscribers don't like paying for subscriptions they're not using, so Microsoft should have a way for customers to renew without double paying for something leading up to their renewal date.

In a way, Microsoft is a victim of their own success. They have been so good at using the old business models that they have too much invested to just walk away from the indirect channel. But they're going to have to prioritize their subscribers over their channel partners if they ever hope to build a successful subscription business.

Published on: Jan 15, 2015
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.