Software giant Microsoft (NASDAQ:MSFT) hosted a product extravaganza yesterday, unveiling a slew of new hardware. The Surface Pro 6 and Surface Laptop 2 got refreshed, mostly receiving internal spec bumps and a new matte black finish. Surface Studio 2 was also just a spec refresh. One surprise that Microsoft had up its sleeve was the new Surface Headphones, a high-end set of wireless noise-canceling over-ear headphones.
But the most promising new offering that the company announced yesterday wasn't a gadget.
Surface All Access
Microsoft introduced a new enterprise financing plan called Surface All Access, which bundles Surface hardware with an Office 365 subscription and greater support. The plans last for two years and start at $25 per month for an entry-level Surface Go and go as high as $151 per month for a Surface Studio all-in-one. There is a slight discount associated with purchasing the bundles, assuming customers would have purchased all of the components of the bundle anyway (including the Office 365 subscription).
None of the plans carry any interest charges, making them somewhat comparable to the installment plans that wireless carriers now offer for smartphones. Microsoft has partnered with Dell to provide third-party financing (allowing it to recognize the Surface revenue up front). There is an important caveat, though: While the hardware can be returned within the standard return policy, the two-year Office 365 subscription can't. The bundled subscription is non-returnable and non-refundable.
Comparable to iPhone Upgrade Program
The new plan is similar to what Apple (NASDAQ:AAPL) offers for its all-important iPhone business. The Mac maker has offered its iPhone Upgrade Program for a few years now, which allows customers to get a new iPhone every year while paying monthly fees. Apple likewise outsources the financing to a third-party financial institution, also allowing it to recognize the revenue up front.
Apple has never shared much detail around how many iPhone Upgrade Program members it has, and most users still finance devices through their wireless carriers, but the overarching goal is the same: Get users hooked with long-term financing plans.
Investors should love the new plan
Surface All Access leverages the innate affordability (and tethering effects) of installment plans while locking users into Office 365, one of Microsoft's most important subscription products. The company has executed incredibly well in transitioning the Office business to the subscription model, with Office 365 now having nearly 170 million total users, split between over 135 million commercial seats and 31.4 million consumer subscribers.
By creating this new plan, Microsoft can reach a greater number of business customers with its Surface hardware while further supporting the Office 365 business. And that is very promising for investors.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.