One of the most common questions I get asked – by our subscribers, by press, by my friends, by my family… by lots of people, is:

“What’s the difference between Office 2013 and Office 365?”

This is usually followed by the person meekly (unnecessarily) stating that they feel bad because they don’t get it.

Don’t. Don’t feel bad. Though Microsoft is getting better, the branding and packaging isn’t easy for people to digest (complex packaging and licensing is the cellulose of software?)

When I first started working with computers, the idea of Microsoft Office itself was confusing – as it packaged together applications that people were used to buying separately. In time, we got acclimated, though the many, often changing, flavors of the suite can still get befuddling at times

Before I break down the details, I’d like to offer an “elevator pitch” that describes exactly what Office 2013 is and what Office 365 is.

Office 2013 is the brand name of a series of product suites that you can pay for once and use forever.

Office 365 is the brand name of a series of products and/or services that you pay monthly for the rights to use. Quit the subscription, the software ceases functioning.

The former is a tangible software product. The latter is a volatile subscription service – Software as a Service (SaaS), even though some editions of Office 365 do include a special edition of the Office desktop suite.

The value you obtain from Office 365 (or any SaaS offering) directly depends on how you use the software and how often you upgrade. If you are a consumer or business that regularly updates to the next version of Office suite (or server applications in the case of a business), Office 365 may really make sense. For occasional updaters, or people who tend to buy and never upgrade again, perhaps not so much. You need to compare and contrast the offers with your typical usage, and see which makes the most sense for you. Before you ask, no – it is not easy to do a comparison of the two, especially when examining the editions for business. It becomes quite an apples/oranges issue with subtle nuances.

Prior to the unified Office 365 brand, Microsoft had used several different brands in order to attempt to drive subscription-based sales of Office clients and servers. I won’t go into that history here. The important thing to understand is that, where there are subscription services related to Office from Microsoft, they all exist under the umbrella brand of Office 365. Where there are perpetually licensed desktop applications, they exist under the Office <year> brand. In the case of the version expected imminently, that means Office 2013.

Take a quick look at this table, and it will hopefully help clarify the differences a bit more. Here, I have broken down the aspects of each offering, with a split denoting offerings for consumers versus for businesses. Note that as I was making this, I started adding asterisks all over the place for exceptions. But then I got rid of them. As a result, this is not an exhaustive table. It’s a quick draft, but I believe it to be accurate. You should check with Microsoft before signing up for, or buying, any software. If you spot any errors in the below, let me know in the comments and I’ll do my best to address them.

I’ll denote some of the exceptions below – but if you have further or deeper questions about licensing or packaging, we may have the answer over at Directions on Microsoft.

I have also specifically called out the 2013 variants of Office 365 – which is technically an oxymoron today. That will be changing soon. As of today, the non-preview editions of Office 365 are based around Office 2010 and 2010 server products (Exchange, Lync, and SharePoint)

	Consumer Offerings		Business Offerings
Brand name	Office 2013	Office 365	Office 2013	Office 365
Office Suite	Office 2013	Office 365 Pro Plus	Office 2013	Office 365 Pro Plus
E-mail	Outlook.com	Outlook.com	Exchange 2013	Exchange Online
Communication	Skype	Skype	Lync 2013	Lync Online
Collaboration	SkyDrive	SkyDrive	SharePoint 2013	SharePoint Online
Synchronization	SkyDrive	SkyDrive	SkyDrive Pro	SharePoint Online
License type	Perpetual	Subscription	Perpetual	Subscription
Payment	One-time	Monthly	One-time	Monthly
Licensee	Per-device	Per-household	Per-device	Per-user
Activation	Product Key	User ID	Product Key or License Server	User ID
Installations allowed	1	5 active	1	5 active
Standard install	Windows Installer	Click-to-Run	Windows Installer	Click-to-Run
Updates to next version of client & services	Not included	Yes	Not included	Yes

There are several key takeaways you should gather from this table:

• Items in italics are not included. Some Office 365 subscriptions do not include some services listed. Man I sound like a lawyer right now.
• The business editions of Office 365 generally include services based upon Microsoft enterprise software (Exchange Server 2013, Lync Server 2013, SharePoint Server 2013). When a business buys a license to Office 2013, they have solely a license to Office 2013. The use of Exchange, Lync, and SharePoint from Office 2013 require licensing compatible versions of that software separately.
• The consumer edition of Office 365 includes free services (Skype and SkyDrive, as well as using Outlook.com for e-mail), but also include additional calling time (Skype) and storage capacity (SkyDrive) above those free editions. The consumer variant of Office 2013 doesn’t inherently include Outlook.com, Skype, or SkyDrive – but a user can readily sign up and consume those free services.
• Office 365 products include no year-iterative branding. This makes describing them quite complex, as you saw before the table. As I write this today, Exchange Online is based upon Exchange 2010. Within a few weeks’ time, it will be based upon Exchange 2013 for newly arrived customers (and during this year for existing customers). But the brand name, Exchange Online will not be updated to reflect that.
• If you, a consumer or business, buy Office 2013, it is a perpetual license. You can use that software on 1 computer (a change from many previous versions of Office), but have no rights to the next retail version of Office. If you continue to subscribe to Office 365, you have rights to the next version of the desktop suite as well as services as provided in the edition of 365 you subscribe to.
• Business customers can obtain upgrade rights for Office by acquiring Software Assurance (SA), which is an annual fee businesses can pay to receive product version upgrades and other benefits. SA on the client doesn’t give you any rights to the server software.
• Client Access Licenses (CALs) are required for each user or device you connect to Exchange 2013, Lync 2013, and SharePoint Server 2013 on premises (or with some Internet-based hosters). CALs, as well as the Exchange, Lync, and SharePoint software must be acquired separately, and generally require SA to be maintained in order to qualify for an upgrade to the next major version.
• CALs are not required when you connect licensed users to Exchange Online, Lync Online, and SharePoint Online.

I hated to include the discussion of CALs, SA, and licensing server software on premises here. But it’s important that if your head is buzzing right now, you think about why. That is exactly the appeal that many businesses see in Office 365 or other SaaS productivity suites. They can enable businesses to offset a chunk of their IT spend normally assigned to buying hardware, software licenses, management services, staff, and often datacenter space, and instead pay a single per-user, per-month fee in order to obtain the software. Since the software is self-licensing, I believe that Office 365 is also a good way for businesses who fear software noncompliance to obviate that risk.

Where Office 2013 generally limits your ability to install the software on a single PC now, Office 365 lets you install the Office suite (again, note that it is not branded Office 2013, but is that version) on up to 5 computers, and activates using user IDs associated with the Office 365 subscription. For business subscriptions to Office 365, this is 5 installs per user.  For consumer subscriptions to Office 365, this is 5 installs per household, regardless of user(s). Since these can now be streamed down using a derivative of the App-V application virtualization technology, these installs are fast! They’re also volatile – meaning you can visit family for the holidays, install Office on  their computer if they don’t have it but you need to edit a document, and it will cease functioning on it’s own.

Note SkyDrive (the service) and SkyDrive (the client) are analogs to SharePoint 2013 (the service) and SkyDrive Pro (the client). For more information on the difference between those and a deeper discussion, check out my article below.

As I stated, the table is not exhaustive. There are subtle difference between all editions – for example some Office 365 subscriptions do not include the Office desktop suite, only the Office Web Apps (see article below). In particular, I elected to avoid talking about the many editions of Office 2013 and Office 365, as well as their respective prices. To do that requires a much more exhaustive article, which was not my goal here.

I hope you found this article helpful.

Some additional, related resources:

• Office 2013 Consumer and Small Business Offers, by my colleague Rob Helm at Directions on Microsoft (10/1/2012)
• Office Web Apps article by me at Directions on Microsoft. (1/14/2013)
• SkyDrive vs. SkyDrive Pro – article by me at Directions on Microsoft. (1/14/2013)
• Microsoft announcement of Office 365 for consumers and small businesses. (9/17/2012)